Hong Kong must be ready for competition from Shanghai Free-trade zone: Chan

Shanghai's new free-trade zone (FTZ) does not pose an immediate threat to Hong Kong, Secretary for Financial Services and the Treasury Chan Ka-keung said yesterday, but urged local firms to prepare for competition.

"There is no immediate competition from the free-trade zone but Hong Kong companies should not sit back and relax," he said. "There will be competition in future and we need to prepare ourselves as the game is changing."

The Shanghai zone, launched at the end of last month, is a groundbreaking experiment in economic and financial reform on the mainland. It offers tariff-free port areas and measures designed to encourage investment by overseas companies. A first wave of 36 companies has been given the go-ahead to set up business inside the zone, but Citibank and DBS are so far the only foreign banks that have chosen to operate there.

"If the FTZ in Shanghai succeeds, China will copy and set up more FTZs around the country," Chan said. "There will also be more relaxation and opening-up policies and capital account liberalisation. When such reforms happen, it will add both opportunities and competition for Hong Kong firms and that is why we have to introduce new services and products to compete."

Analysts have been underwhelmed by the Shanghai zone's debut, citing the lack of details about a freer convertibility of the yuan and scant information about financial reforms. But Chan said more experimental areas would be opened up in the longer term, and that would lure some foreign investment away from Hong Kong.

"Hong Kong has, over the past few decades, enjoyed a lot of advantages as a gateway for foreign investors wanting to invest in the mainland," he said.

"With the FTZ and other reforms to gradually open up the mainland, Hong Kong can't maintain the status quo and must develop new services and products assuming that China will open up its capital account one day."