Dr Victor Fung: Global Supply Chain Normalisation, Trade Regionalism and the Implications for Hong Kong

(11 December 2020, Hong Kong)  As Hong Kong looks to reinvigorate its economy while recovering from the Covid-19 pandemic, two new opportunities have emerged. The Chinese mainland’s dual circulation economic growth model will see the rise of a dynamic domestic trade to complement the country’s existing export strength. In addition, the signing of RCEP, the world’s largest plurilateral trade agreement, will help inject new energy into Asia's status as a global trade and consumption force. 

In the 12th ‘INSIGHT FORUM’ webinar organised by Our Hong Kong Foundation (OHKF), Dr Victor Fung, Group Chairman of Fung Group, shared expert views on how Hong Kong—which has played key roles in the trade and growth of both China and Asia—should adapt to the new global economic environment, and the new vision for Hong Kong as a trading centre and global supply chain orchestrator.

Trade Finance is the Critical Factor in Determining Recovery Speed and Magnitude

Dr Fung noted that the pandemic has hit global trade very hard and although the actual numbers are better than the ‘worst case’ possibility highlighted by the World Trade Organization (WTO) earlier this year, the WTO still predicts a fall of over 9% of world merchandise trade, while services trade will decline even more. Restarting trade will be key to the recovery given the role of trade in creating jobs and driving growth. And key to restarting trade will be the availability of trade finance, particularly to small and medium sized enterprises (SMEs) that make up large parts of global supply chains.  

The International Chamber of Commerce (ICC) has estimated that restoring trade to pre-pandemic levels would require up to US$5 trillion in trade finance. Dr Fung stressed that this is not just a task for banks and credit insurers, but a range of measures are needed to ensure that liquidity reaches the players who most need it, especially in the emerging markets. Dr Fung, through the ICC’s Advisory Group on Trade Finance, has publicly called on the G20 to support the revival of trade flows through a raft of financial and other measures, such as launching risk guarantee schemes through export credit insurance, securitising trade assets, as well as digitising trade and finance processes.  

A Focus on Jobs, Livelihoods and Recovery

Dr Fung highlighted that using trade finance to drive recovery amongst SMEs could trigger a huge multiplier effect not just in terms of trade flows but also in terms of jobs, livelihoods, and inclusive growth. Dr Fung stressed that SMEs underpin the majority of global trade, and provide the bulk of jobs in some export-reliant economies. Thus, the challenge of how to stimulate recovery in supply chains has strong social implications that cannot be ignored. And, Hong Kong can play a part in driving this recovery given its pivotal position in regional supply chains as well as the role in the region’s financial sector. Both Hong Kong and the mainland have already done much to support export trade through SMEs; it must now lead the region to continue the push until recovery is secured.  

Hong Kong’s Pivotal Role in China’s ‘Dual Circulation’ Economic Strategy

Hong Kong as a connector also comes into play when considering China’s dual circulation economic strategy, where the Great Bay Area (GBA) is positioned to intermediate large parts of China’s international and domestic trade. This is an opportunity for Hong Kong to penetrate the mainland’s domestic market and further integrate into its domestic development. He suggested that Hong Kong make good use of its international network and knowledge of international markets to strengthen its role as an international finance, trade and commerce centre, to support the country's international circulation, while speeding up economic integration and actively participating in domestic circulation, leveraging the GBA platform, especially the Hong Kong-Shenzhen cooperation.

RCEP, Belt and Road Initiative, and the GBA Herald a New Dawn for Hong Kong

The signing of the landmark Regional Comprehensive Economic Partnership (RCEP) signals the beginning of a new era in global trade. Dr Fung envisaged that RCEP has the potential to turbo-charge regional economic and trade integration that bolsters the Belt and Road vision. RCEP will lead to increased flexibility and lower costs, which will help expand and strengthen supply chains in the region. In the case of Hong Kong, which is good at orchestrating supply chains and servicing flows, Dr Fung remarked that ‘The combination of RCEP, the Belt and Road and the GBA will serve as a new dawn for Hong Kong in terms of our longstanding role as the orchestrator of regional trade and financial flows’. Hong Kong should move quickly towards achieving early RCEP membership, to demonstrate Hong Kong’s continued commitment to rules-based international trade, added Dr Fung.

‘Global Supply Chain Normalisation, Trade Regionalism and the Implications for Hong Kong’:
Full live webinar：https://youtu.be/YNajsonYoOE?t=316