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HK could lose 'middleman' status

Citigroup Inc warned yesterday that Hong Kong could lose its strategic position as a "middleman" if Taiwan were to build direct economic ties with China.

The US bank's warning for Hong Kong follows the election victory of Chinese Nationalist Party (KMT) presidential candidate Ma Ying-jeou (馬英九) on March 22 as he has vowed to open up the Taiwanese market to Chinese tourists and resume direct cross-strait charter flights after he takes office on May 20.

The losses from tourism, trade and transportation are expected to account for 1 percent of Hong Kong's GDP by 2012, the world's biggest financial services company said in a research note yesterday.

"About 30 percent of the loss would be from the diversion of Chinese tourists to Taiwan, while the other would come from the opening of direct cross-strait trade and transportation links," the note written by Citigroup Global Markets economists Joe Lo (羅念祖) and Patricia Pong said.

Citigroup last week predicted a 4.5-percent economic growth for Hong Kong this year and 4.3 percent growth next year.

Lo and Pong wrote in the note that Ma's win in the election has aroused concern in Hong Kong that it "will be marginalized and suffer major losses" in light of the expected changes in the cross-strait relations.

Over the last 60 years, Hong Kong has been able to take advantage of the cross-strait tensions to facilitate indirect flows of passengers, cargo and capital between Taiwan and China.

But the changes won't happen overnight, the two economists said, as the negotiations between both sides will take time and the execution of direct transportation links will span over a number of years.

"Hong Kong's trade and transportation companies would have time to prepare for the challenge," Lo and Pong wrote.

Moreover, Hong Kong companies could engage in the purchase of shares in Chinese and Taiwanese firms in the tourism, trade and transportation sectors to offset their potential losses in the years to come, if the cross-strait economic barriers were to be removed, Citigroup said.
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