Lee Ka-chiu, Chief Executive of Hong Kong Special Administrative Region, has recently led a delegation to visit Saudi Arabia and the United Arab Emirates (UAE). The visit aims to strengthen the ties between Hong Kong and the two Arab states in trade, investment, and cultural exchange. It represents Hong Kong’s efforts to enhance its role in the Belt and Road Initiative. As an international financial centre and commercial hub, Hong Kong can serve as a “super-connector” in the new era of China-Arab cooperation, further strengthening its competitiveness in the changing global geopolitical and economic environment.
Looking at history, geopolitics and grand strategy have played a fundamental role in shaping the evolution of international financial centres. Now the world order is going through a paradigm shift, with the international distribution of power accelerating its transition towards multipolarity. Political tensions and technological innovation are propelling the restructuring of global supply chains and production networks.
The deepening of China-Arab cooperation has profound implications for the emerging new world order. Since 2012, the China-Arab strategic partnership has made substantial progress. Cooperation in various fields has achieved major breakthroughs. At the bilateral level, China has established comprehensive strategic partnerships or strategic partnerships with 12 Arab states,, signed the Belt and Road Initiative cooperation agreements with 20 Arab states and the Arab League, and implemented more than 200 large-scale cooperative projects in energy and infrastructure. The first China-Arab States Summit (Riyadh, Saudi Arabia, December 2022) marked a milestone bringing China-Arab cooperation to a new level.
The economies of China and the Arab states are highly complementary, with huge potentials for more cooperation. The two-way trade and investment between China and Arab states have achieved rapid growth in the recent years. In 2021, the international trade between China and Arab states reached US$330.3 billion, an increase of 1.5 times compared with ten years ago; the stock of two-way foreign direct investment between China and Arab states reached $27 billion, an increase of 2.6 times compared with ten years ago.
Saudi Arabia and the UAE are China’s largest and second-largest trading partners in the Middle East respectively, while China is the largest trading partner of Saudi Arabia and the UAE. In 2021, the bilateral trade between China and Saudi Arabia reached US$87.31 billion, with a year-on-year increase of 30.1%. The bilateral trade between China and the UAE reached US$72.36 billion, a year-on-year increase of 46.6%.
The progress in China-Arab strategic partnership will bring enormous opportunities for Hong Kong. With its mature business environment and highly internationalized professional talent pool, Hong Kong has the potential to serve as a “Super-connector” for China-Arab cooperation, especially in finance, technological innovation, and infrastructure.
In the future, there is still huge space for capital flow between China and Arab states to further grow. Hong Kong can play a unique role in bridging China-Arab financial markets and facilitating the development of new generation financial infrastructure supporting China-Arab trade and investment linkages. Hong Kong’s capital market has the potential to become a leading hub for Arab companies to get listed and raise capital in East Asia and a key bridge for Arab investors to invest in Chinese financial assets.
The sovereign wealth funds of Saudi Arabia and the UAE have rich operating experience in leveraging public sector capital reserves to promoting long-term strategic investments for the society. In such fields as energy transition, smart cities, and green infrastructure, Saudi Arabia and the UAE have sophisticated mechanisms guiding the long-term capital of sovereign wealth funds to support strategically important mega-projects for socio-economic development. They have also established extensive project-level cooperation with Chinese companies. Major projects such as Saudi Arabia’s NEOM new city will potentially bring new business opportunities for Hong Kong’s financial, architectural design and other professional service sectors. As Hong Kong is exploring how to strengthen public sector investment in promoting technological innovation and industrial development, it would benefit Hong Kong tp learn more from the Arab models and expand cooperation with institutional investors from Arab states.
The international cooperation under the Belt and Road Initiative involves multiple levels, including policy coordination, infrastructure connectivity, trade and financial linkages, as well as social culture exchange. As Hong Kong adapts to the new global geopolitical and economic environment, it has the potential to serve as a “super-connector” in the new era of China-Arab cooperation, further strengthening its competitiveness on the global stage.
Associate
Professor at the Centre for China Studies, The Chinese University of Hong Kong
(CUHK) and Research Fellow (by courtesy) at CUHK’s Lau Chor Tak Institute of
Global Economics and Finance (IGEF).
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