Hong Kong's Role in The Indo-Pacific Economy Speech by The US Consulate General Hong Kong & Macau Kurt Tong

04/03/2019 Hong Kong’s Role in the Indo-Paciﬁc Economy | U.S.
Consulate General Hong Kong & Macau
U.S. Consulate General Hong Kong & Macau
Hong Kong’s Role in the Indo-Paci c Economy
Consul General Kurt Tong

February 27, 2019
(As prepared for delivery)
Good afternoon, ladies and gentlemen.
First, allow me to extend my greetings to the alumni association of the Hong Kong University of Science and Technology’s Kellogg Executive MBA
Program. The Kellogg program is world-renowned for its excellence, and it is a great pleasure and honor to have you here today. Thank you for your
support for today’s discussion.
I also want to thank The American Club of Hong Kong for providing this fantastic venue. I can think of no better place to consider the past and future
of Hong Kong’s role in the Indo-Paci c economy than here in the Clipper Room, looking out over Victoria Harbor, and standing in front of a portrayal of
Hong Kong’s port in the 19th Century. The American Club has been a steadfast and valued partner of our Consulate for close to a century.
Hong Kong’s Economic History: A Cross-Roads for the Indo-Paci c
The U.S. Consulate in Hong Kong actually rst opened in 1843, and we celebrated our 175th anniversary last year. Brainstorming among the Consulate
staff, we have used our anniversary to re ect on what binds America so closely to Hong Kong, to China, and to the rest of the Indo-Paci c region.
https://hk.usconsulate.gov/sp-2019022701/ 1/13
04/03/2019 Hong Kong’s Role in the Indo-Paciﬁc Economy | U.S. Consulate General Hong Kong & Macau
The United States has actually been trading with China for even longer than Hong Kong has existed, starting with the Empress of China, which sailed
from New York to Canton in 1784. But the crucial point is that, from that time, though the opening of our Consulate in Hong Kong, and on to today —
when our trade with the nations of the Indo-Paci c region has reached the remarkable sum of $1.8 trillion! — America’s vision for the Indo-Paci c has
remained one and the same: a vision of open ports and open doors, and of peace and free commerce, with all nations committed to an open and fair
architecture for trade and investment in the Indo-Paci c.
And 175 years after we opened our Consulate here, no other city in Asia so closely re ects those values, and that optimistic vision for free and fair
commerce, as does Hong Kong.
History really can be quite instructive. Looking at that history closely, it is noticeable that commerce, trade and shipping interests have been at the
absolute center of U.S.-Hong Kong relations from the very beginning.
The opening of our Consulate in Hong Kong in 1843, in fact, coincided with a noticeable urry of U.S. diplomatic activity in East Asia, all of which was
designed to create new and expanded market opportunities for American traders, including the signing in 1844 of the rst-ever commercial agreement
between the United States and China. The Hong Kong Consulate was closely involved in supporting that negotiation between Caleb Cushing, the rst
U.S. envoy to China, and Ki Ying, then Viceroy of Canton, and you can still visit the granite table in the Kun Lam Temple in Macau where the agreement
was signed.
The so-called “Treaty of Wang Xia,” was notable at the time for according both parties “most favored nation” access to each other’s market, re ecting
the American view that foreign traders should not seek to establish exclusive advantages in their trade with China, or with any other economy in the
region.
If you nd this history interesting, I encourage you to visit the Maritime Museum and check out their timely exhibit titled “Dragon and Eagle: American
Traders in China.” The exhibit provides texture to our understanding of just how central trade and free commerce was to U.S.-China and U.S.-Hong
Kong relations in those days – just as it is today. It also mirrors how the United States of America is and has been, for centuries, a Paci c nation –
culturally, economically and politically.
Key Economic Policy Principles for the Indo-Paci c

Key Economic Policy Principles for the Indo-Paci c
Ladies and gentlemen: It is tempting to think of the Indo-Paci c region solely in geographic terms – to picture in the mind’s eye broad expanses of
ocean stretching between the various islands and shores. This suggests separation, or isolation. But the reality is that oceans do not divide us. If we
add economics and people into the picture, it becomes clear that those seemingly wide oceans actually bring us together. We share the same
currents, the same winds, and, most importantly, the same goals of trade, peace, and prosperity.
This vision of the Indo-Paci c is about how common interests and values connect us, bind us, and, in doing so, create boundless opportunities. This
vision re ects the United States role as the leading champion of free, fair, and reciprocal trade.
Before coming to Hong Kong, I personally spent a number of years working in leadership roles in the Asia-Paci c Economic Cooperation organization,
or APEC for short.
APEC, has been working hard for years to achieve a shared vision of free and open trade and investment in the Indo-Paci c region. The organization’s
efforts have inspired a number of important breakthroughs aimed at bringing the Indo-Paci c region closer together, including a variety of bilateral and
multilateral trade and investment agreements among the region’s economies.
In 2011, as hosts of APEC, the United States outlined four overall objectives for the region.
First, we called for an OPEN platform, one that allows for participation from around the world – including economies not actually represented in APEC
– in order to maximize opportunities for entrepreneurs, investors, workers, and consumers everywhere, from all parts of the planet.
Second, we called for a FREE regional platform and a system with as few barriers to trade and investment as possible.
Third, we called for a TRANSPARENT platform in which the ‘rules of the road’ are established in consultation with stakeholders and are known to
everyone, regardless of connections or country of origin. In the absence of transparency, corruption ourishes, and regulations can be applied
arbitrarily. That harms competition, and the trust and con dence that are necessary for trade and investment to ourish. The rules of the road should
be known to all and applied equally to all.
Taken together, openness, freedom, and transparency help sustain the fourth principle we outlined, which is that markets should be FAIR. The United
States seeks a level playing eld and an environment in which businesses rise or fall based on honest competition rather than government
manipulation.
This principle is often undermined when governments directly own the means of production, including via state-owned corporations. It can also be
undermined if nations take a predominantly mercantilist view, pushing their own exports while constraining imports.
The United States, of course, was founded on the principle that individual citizens actually occupy a higher moral and legal status than the
government. As a result, we tend to favor a minimized role for government in in uencing private economic activity.
We realize that some societies in the Indo-Paci c region, notably Mainland China, may have a different point of view regarding the proper balance
between the rights of the government and the rights of individual citizens, or the rights of private corporations.
But really the only way for trade and investment relationships to be fair and reciprocal is for governments to get out of the way of business, as much
as possible, so that business can be conducted without being either helped or hindered by governments.
I imagine that you all have been closely following the negotiations currently taking place between the United States and China. Those talks are aimed
at mapping out a shared view regarding the scope and range of veri able and enforceable structural reforms that China can undertake. Such reforms
could restore American con dence that the U.S.-China trade and investment relationship can be made fair and reciprocal, despite the many challenges
at hand.
I am not here to speak about that agenda today, or to try to predict our chances for near-term success. But I am happy to say that the United States is
committed to enhancing its economic relationships with all partners in the region that can embrace an open, free, transparent and fair vision for Indo-
Paci c trade.
My boss, Secretary of State Pompeo, likes to say that the United States practices “partnership economics,” as evidenced by our enthusiasm for win-
win, open-market trade and investment arrangements.
The United States already has three high-quality and mutually bene cial Free Trade Agreements with partners in the Indo-Paci c, along with fourteen
Trade and Investment Framework Agreements. And we are working hard to update our investment and trade agreements to make them more useful to
st
workers and businesses, and better suited to 21 Century market realities. This work includes the updated agreement with the Republic of Korea, for
example, and the recently signed U.S.-Mexico-Canada trade agreement.
Hong Kong’s Strengths Flow from Free Economy Principles
So, ladies and gentlemen, with all that in mind, let me turn now to the matter of Hong Kong and its role in the Indo-Paci c economy.
I think it is evident that Hong Kong’s abiding strengths ow from its erce embrace of free economy principles, including the rule of law.
That situation puts Hong Kong closely in tune with America’s international economic policy priorities.
We all know about Hong Kong’s famously consistent gold-star rating from the Washington-based Heritage Foundation, which has ranked Hong Kong
as the freest economy in the world for 25 consecutive years, including every year since the establishment of the Special Administrative Region.
While some people criticize the Heritage Foundation’s methodology as putting too much emphasis on low tax rates as a determinant of economic
freedom, it is notable and positively a rming that Hong Kong also ranked 4th this year in the World Bank’s more broadly calculated Ease of Doing
Business Index.
Indeed, even considered among its peers in the relatively liberalized Indo-Paci c region, Hong Kong stands out for its dedication to practicing free and
open trade, with negligible tariff or non-tariff barriers.
But Hong Kong’s advantages go far beyond low tariffs and low taxes. It is also very, very important to Hong Kong’s success that its legal system
continues to be based on common law principles akin to British law. Hong Kong judges are independent, and nal judgments are respected and
enforceable. Contracts signed in Hong Kong can be depended upon to be fair and reliable. Similarly, property rights in Hong Kong, including intangible
rights like intellectual property rights, are well protected, both in law and in practice.
Also very important in the modern era is the fact that Hong Kong maintains an open Internet. Hong Kong is not subject to the Mainland’s invasive
cyber-security laws, and persons in Hong Kong can access Internet content not available in the Mainland, including content offered by U.S. media and
technology rms.
Government regulation of the economy in Hong Kong has remained relatively non-invasive and non-discretionary. This is because Hong Kong’s
regulatory system is aimed at facilitating business activity rather than controlling it. Hong Kong ranks a very respectable 14th in Transparency
International’s Corruptions Perceptions Index, re ecting several decades of concerted effort to stem corrupt business practices and corruption in
government. The recent establishment of a meaningful competition policy authority in Hong Kong could lead to even further progress in this regard.
Ladies and gentlemen: After three years living here in Hong Kong I have rmly concluded that it is these intangible factors – the city’s economic policy
philosophy, rule of law, and good governance – that are the keys to Hong Kong’s economic success, both in the past and in the future.
It is certainly nice that Hong Kong has accrued budget surpluses that have allowed it to make generous investments in infrastructure. But airports and
ports and bridges and subways would not be enough by themselves to overcome Hong Kong’s small market size and weaknesses in natural resources
and land scarcity. It is Hong Kong’s operating philosophy that has led to its impressive competitiveness.
These intangible assets of Hong Kong, its free economy principles, are the main wellspring of the international community’s respect for the city and
give it the ability to punch above its weight in global affairs.
Hong Kong, for example, has historically had a strong voice in the World Trade Organization. It is also a much-respected member of the global
Financial Action Task Force and the Financial Stability Board.
It is also these core values that have enabled Hong Kong to attract new international partners in bilateral trade agreements, such as the one it just
signed with Australia.
Next week, when the Asia-Paci c Council of American Chambers of Commerce gathers here in Hong Kong for its annual meeting – as well as to
celebrate the 50th anniversary of the American Chamber of Commerce in Hong Kong – I expect that the delegates assembled from around the Indo-
Paci c region will talk a lot about how Hong Kong’s core values have made it such a vibrant place for international business
Paci c region will talk a lot about how Hong Kong s core values have made it such a vibrant place for international business.
The Abiding Strength of U.S.-Hong Kong Economic Ties
Naturally, then, given everything I have said thus far about Hong Kong and the United States, it will not surprise you when I tell you that the United
States sees Hong Kong as a highly valued partner precisely because of its free economy principles, founded as they are upon strong respect for the
rule of law, and buttressed by an independent judiciary to interpret those laws.
Recently I have seen t to remind people in Hong Kong of the continuing importance of the U.S. economic and business relationship to both of our
peoples.
The United States is Hong Kong’s second-largest trading partner beyond the Mainland. Two-way trade in goods totaled U.S. $37 billion in 2018, with
trade in services contributing tens of billions more to both economies.
As in the 19th Century, Hong Kong remains an important nexus for merchandise owing between the United States and China. In 2016, approximately
9% of China’s exports to the United States, and 7% of China’s imports from the United States, owed through Hong Kong. Some 43% of Hong Kong’s
total trade, in fact, consists of re-exports going between the two countries. With trade and logistics accounting for more than 20% of the value added
to Hong Kong’s economy, I think it is safe to say that trade with the United States signi cantly bene ts the city.
As for direct investment, in 2017, the stock of direct investment from the United States into Hong Kong increased about 18%, to an impressive $81
billion. More U.S companies have established regional headquarters or o ces in Hong Kong than have companies from any other country, accounting
for close to one- fth of all foreign rms conducting regional operations from Hong Kong in 2018.
As for nance, nearly every major U.S. nancial rm maintains a major presence in Hong Kong, with hundreds of billions of dollars in assets under
management. Hong Kong is also a major location for U.S. legal and accounting services rms.
In fact, taken together in total, the Hong Kong government estimates that U.S. rms employ some 101,000 people in Hong Kong. I think that is good
news, especially since U.S. rms are among the city’s most popular employers. One survey showed that 13 of the 75 most popular places to work in
Hong Kong are U.S. rms.
And thinking forward, toward the 21 Century economy, Hong Kong’s close relationship with the United States is also helping to shape the city’s
economic future. Americans account for more than 20% of all non-Hong Kong entrepreneurs in the city, contributing more than any other country,
including Mainland China. U.S. venture capital invested heavily in the famous Hong Kong “unicorn” start-ups GoGoVan and WeLab. And the leaders
from both of these companies studied in the United States before setting up shop in Hong Kong.
Indeed, education and academic research are also very important areas for U.S.-Hong Kong collaboration. About 8,000 Hongkongers study full-time at
the university level in the United States. And there are numerous collaborations and exchange programs between top U.S. universities and Hong Kong
institutions, including in areas Hong Kong is looking to develop into key economic drivers.
All that private sector cooperation that I have just mentioned is matched by extensive government-to-government cooperation, supporting our private
sector economic ties.
For example, although it is not widely advertised, you might be interested to know that U.S. federal law enforcement agencies work closely with the
Hong Kong Disciplined Services to nd illegality in the economic sphere.
Working together, Hong Kong and the United States have done a lot to disrupt the ow of contraband – including both counterfeit goods and narcotics
– between East Asia and the United States. Over the past year alone, U.S. government information regarding shipments entering Hong Kong, in fact,
has generated 40 arrests and multiple seizures of contraband, to include 485 pounds of illegal drugs, more than 40,000 counterfeit items, and more
than 6,500 rearm parts and ammunition. That’s clearly a very good thing. Hong Kong, meanwhile, has expanded its assistance to stop millions of
dollars of illicit fund transfers from U.S. victims to and through Hong Kong banks.
We have also redoubled our efforts together on sanctions enforcement and enforcement of export controls, which is important to our shared strategic
goals in the Indo-Paci c region.
But getting back to my main point: All of this cooperation, in both the private sector and the public sector, is made stronger by Hong Kong’s reliability
as a city with good governance and the rule of law.
The Hong Kong Policy Act and Concerns About the City’s Autonomy
The Hong Kong Policy Act and Concerns About the City s Autonomy
So, with that positive picture in mind, let me shift direction for a few moments to discuss some of the risks facing Hong Kong’s economic and political
future, as well as the future of its relationship with the United States, and with the rest of the international trade and investment community.
The o cial, government-to-government relationship between the United States and Hong Kong is governed by the Hong Kong Policy Act, and is based
upon the continued substantial maintenance of the “one country, two systems” framework, and the existence of a high degree of autonomy for Hong
Kong, as called for in the Basic Law. The Hong Kong Policy Act establishes the policy of the U.S. government to treat Hong Kong as a non-sovereign
entity distinct from China for the purposes of U.S. domestic law, based on the principles of the 1984 Sino-British Joint Declaration.
To date, the United States has observed that Hong Kong, as a general matter, has in fact maintained a high degree of autonomy under the “one
country, two systems” framework, at least in most areas. And that degree of autonomy has been considered su cient to justify continued special
treatment of Hong Kong by the United States, for the purposes of U.S. law as well as bilateral agreements and programs in such areas.
Clearly, the application of the Hong Kong Policy Act, and the resulting special treatment of Hong Kong under U.S. law, has been a big success story
over the past two decades, greatly facilitating U.S.-Hong Kong cooperation. The U.S government’s current differential treatment of Hong Kong covers
quite a number of important areas, including law enforcement, export controls, visa rules, and the treatment of cross-border investment.
But to be honest, ladies and gentlemen, certain recent events in Hong Kong have raised cautionary ags for some U.S. observers, as they consider the
sustainability of Hong Kong’s high degree of autonomy going forward.
We are now in 2019, and we have all had fun heralding the arrival of a new year, under both the Gregorian and lunar calendars. New Year celebrations
are always a hopeful time, and I remain hopeful that 2019 will be a good year.
Last year, 2018, however, was unfortunately not a good year for Hong Kong’s history in terms of the maintaining of its autonomy under “one country,
two systems,” as it witnessed a number of unfortunate “ rsts” in that history: Hong Kong’s rst banning of a political party; the rst foreign journalist
ejected from the city; and the rst time Hong Kong has disquali ed a large number of political candidates for their political views, among other
negative developments. In all of these cases and trends, the Mainland Central Government appears to have been intimately involved in the Hong Kong
Government’s decision-making.
Now, I am not here to tell you that the sky is falling. Even skeptics in the United States recognize that Hong Kong remains very distinct and different
from the rest of China. And I have already described Hong Kong’s considerable competitive advantages – based as they are in the city’s autonomy, its
rule of law, its independent judiciary, and its free economy principles.
But I would not be doing my job as a diplomat if I were not honest enough to share a note of caution about the future.
Now, when I express my worries about the status of Hong Kong’s autonomy I sometimes get pushback from people saying that political autonomy
and freedom of expression and other such concerns do not really matter to the business community. Neither the Chinese business community nor the
foreign business community, they tell me, really cares about such issues. And as long as business decision-makers are happy, they say, Hong Kong’s
economic future will remain bright.
I’m actually not so sure about that. I’m not con dent that politics can be so neatly divorced from economics in how this city runs.
In a general sense, for example, a narrowing of Hong Kong’s political and democratic space is likely to adversely impact the city’s marketplace for
ideas and innovation.
But there are also other, more speci c ways that the Mainland Central Government’s desire to in uence and control political conversations and events
in Hong Kong could negatively impact the functioning of the economy, and the international business community’s role here.
Immigration and visas, for example, are one place where politics and business can come into contact – as we saw last year. If foreigners’ residency
status in Hong Kong were to become broadly subject to political considerations, as is often the case in the Mainland, it would certainly impact the
business environment here.
Similarly, regulation of the Internet and cyber-space is an important area where business interests, and political and security interests, intersect.
Maintaining Hong Kong’s freedom of the Internet and its freedom of expression is quite critical to realizing the city’s positive ambitions to be an
important center for innovation in information technology and cyberspace.
Other important areas of potential con uence between politics and economics are government regulation, government procurement, and nancial
market supervision. To date, when potential foreign investors have asked me whether Mainland-Hong Kong political considerations play any role in the
local government’s procurement decisions, I have happily been able to tell them that I am aware of no such cases. It is important to maintain that
positive aspect of the Hong Kong business environment. Similarly, I know that portfolio investors watch closely to see whether Red Chip companies
are allowed to cut any corners in their nancial reports supporting their Hong Kong market listings. It is important for nancial reporting rules to
continue to be evenly and strictly applied.
Indeed, nancial market transparency, open access to business and government information, and a fair playing eld are some of the key foundations
on which Hong Kong commerce is built. Hong Kong’s fair and independent judiciary reinforces that system. We all want this system to continue to
prevail.
I have been sometimes asked why, as America’s representative in Hong Kong, I occasionally engage in dialogue with Mainland Central Government
o cials in addition to my Hong Kong Government counterparts.
For my part, one purpose of such conversations is to point out to Mainland policymakers the risks that ongoing political tightening poses for the
realization of Beijing’s own goals for Hong Kong’s contribution to Chinese economic development. I let them know that, in my view, there needs to be
consistency between the political and economic institutions of the city in order to sustain the con dence of the international business community, as
well as Hong Kong’s foreign government partners, in the city’s future. Absent a strong international presence in Hong Kong’s economy, it is clear, the
city would offer much less value to the rest of China.
Vigorous Use of Hong Kong’s Autonomy Will Help China and the Region
Let me close on a more positive note, by considering the great potential that exists for Hong Kong to continue to play a positive and leading role in the
national, regional and global economy.
As I have stated before, my hope is that Hong Kong will make full use of what I call its “demonstration power” — its power to show just how much
prosperity is possible when global best practices are applied, in China as they are elsewhere.
I have also previously referred to the maintenance of Hong Kong’s high degree of autonomy under the “one country, two systems” framework as a “use
it or lose it” proposition.
I think it is important for Hong Kong to use the autonomy it has been granted to further strengthen its value proposition for the Indo-Paci c, including
China. Using Hong Kong’s autonomy energetically will also further strengthen that autonomy, creating a positive and self-reinforcing cycle of
con dence.
There are opportunities out there, regionally and globally, for private businesses as well as government o cials who are willing to be bold. Hong
Kong’s new free trade agreements with ASEAN, Georgia, and Australia are clear examples of this kind of creative and outward-thinking approach. But
there are still more ways that Hong Kong could concretely demonstrate its commitment to open markets, for instance by joining additional
international trading arrangements, or by hosting substantive high-level APEC meetings and initiatives. Hong Kong could send a very positive message
just by signing up to APEC’s existing data privacy principles, thereby showing its determination to follow global best practices for Internet governance
and cross-border data ows.
The Hong Kong private sector, meanwhile, can show off the city’s strengths by continuing to make proactive deals with counterparts from all
directions – including partners in the United States, China and other jurisdictions in the Indo-Paci c region – while making full use of the city’s
strengths, as re ected in Hong Kong’s rule-of-law and core values.
I know that the trade policy friction between the United States and China has created some nervousness here in Hong Kong.
Certainly both the U.S. and Chinese governments are now working very hard to try to improve and re-shape our economic relationship, to make it fairer
to both nations.
But Hong Kong, I believe, can help resolve those problems as well. In fact, I think that the current tense situation presents a real opportunity for Hong
Kong to demonstrate its lasting value, as a transformative portal linking China to the rest of the world economy.
Such a contribution is possible because of Hong Kong’s rules-based approach to commerce and regulation, its ercely independent judiciary, its
freedom of expression and of the Internet and its highly liberal trade and investment and tax policies
freedom of expression and of the Internet, and its highly liberal trade and investment and tax policies.
Hong Kong, in fact, is the visible proof that an economy can be part of China, but also be consistent with global best practices. China too can become
a place that achieves prosperity through “win-win” business solutions, without a lot of state intervention. China too, we hope, can be a market that
protects private property, and it can be a place where government authorities respect the rights of investors to make free decisions in a transparent
system.
Last week, in presenting the interesting new Great Bay Area initiative announced by Beijing, the Hong Kong government said, correctly, that Hong
Kong’s “economic, legal and social systems are different from those of the Mainland.”
As a foreigner, I can be less polite, and say that those systems are not just “different,” but actually, from a global point of view, “better!”
Last year, China celebrated the 40th anniversary of its crucial “reform and opening” policy changes, which allowed China to catch up technologically
and rejoin the global economy as an important international partner. That process of “reform and opening,” however, remains incomplete.
Looking toward the future, I hope and believe that Hong Kong can once again point the way, for China and for the Indo-Paci c region more broadly.
Hong Kong’s economy has grown rapidly, and achieved and maintained its prosperity, precisely because it has been free, open, transparent and fair.
With effort and courage, Hong Kong’s special economic contribution to the nation and the region can continue and expand in the decades to come.
###
This is the o cial website of the U.S. Consulate General Hong Kong & Macau. External links to other Internet sites should not be construed as an endorsement of the views or privacy policies contained
therein.

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04/03/2019 Hong Kong’s Role in the Indo-Paciﬁc Economy | U.S.

Consulate General Hong Kong & Macau

U.S. Consulate General Hong Kong & Macau

Hong Kong’s Role in the Indo-Paci c Economy

Consul General Kurt Tong

(As prepared for delivery)

Good afternoon, ladies and gentlemen.

Hong Kong’s Economic History: A Cross-Roads for the Indo-Paci c

Key Economic Policy Principles for the Indo-Paci c

Hong Kong’s Strengths Flow from Free Economy Principles

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