The decision by Taiwan to relax links with China will greatly impact Hong Kong's tourism industry and further diminish the importance of the port's "middleman" role, economists said yesterday.
Taiwan on Sunday took a major step toward boosting links with China, agreeing to ease investment rules and launch new direct postal and shipping links in a bid to boost its ailing economy.
The reforms, devised by the Economic Development Advisory Conference, came ahead of the likely accession of both Taiwan and China to the WTO later this year.
"Hong Kong's role as an entrepot between Taiwan and the mainland will undoubtedly diminish as a result of the proposed changes," said Paul Tang, senior economist at the Bank of East Asia.
However, he added that Hong Kong's primary trade role remained as a middleman between the US, Europe and China and therefore the introduction of direct links between Taiwan and China would not be catastrophic.
An economist with National Australian Bank, Kevin Lai, said the easing of the trade relations between Taiwan and China would "greatly disadvantage Hong Kong as trade bypasses the territory, resulting in a loss of key revenue."
However, he said the proposed changes would likely take several years to implement as that would need the cooperation of mainland authorities and would thus be introduced progressively, lessening the impact.
The move to relax rules on Taiwanese investment in the mainland would lead to a huge surge in the next few years, Tang predicted. "Taiwanese businessmen have already begun relocating parts of their operations to the mainland. The easing of regulations will thus see a significant increase in investment that will continue for the next few years, leading to a loss of foreign direct investment for Hong Kong."
However, the situation for Hong Kong was not all bleak.
"Although Hong Kong will lose out initially from the loss of its middleman role, it will receive compensation from the benefits of an expected tremendous surge in trade volume for Taiwan and China after their entry into the WTO, which will offset its losses," Lai predicted.
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