Sankaps

Over dinner last night, me and my friends got into an interesting debate about the long-term relevance of Hong Kong, and implications for Cathay.

One school of thought was that Hong Kong would always have a major role as a global financial hub and a gateway to China, and as a manufacturing transit hub, so Cathay had nothing to worry about. Especially with the Dragonair acquisition, they reasoned, Cathay has better China-to-HKG connectivity than ever before and their future looks bright.

The other school of thought was that Hong Kong would gradually become less important over time, with Shanghai and Beijing taking over the financial hub and China gateway role, and places like Guangzhou and Shenzhen taking over the manufacturing transit hub role for the Pearl River delta region. Therefore Cathay, which is HKG-based and is not allowed to fly domestically within China or set up hubs elsewhere in China, would suffer and decline in importance in the longer term. They pointed to the recent cross-straits agreement (which this week allowed direct Taiwan to China travel) as a case in point of why HKG would just not be that important as a hub in the future. They also pointed to high cost and increasing pollution which is driving expats from HKG to places like Singapore.

So what are your thoughts? I personally was initially in the first camp, but am now not that sure anymore...!

christep

China is huge. If there is room for London, Paris, Amsterdam & Frankfurt in an area not much bigger and about equal in population to (Guangdong+GuangXi) then I don't see any problem at all with Hong Kong remaining a major hub for southern China.

number_6

But there hasn't been room for MAN, LYS, BRU or VIE to develop as airport hubs (despite having large population bases). It has been national policy that has determined which airports succeed as hubs and which do not. Sometimes to the chagrin of the airports involved. HKG is safe for the next decade but hard to see it thriving over centuries.

christep

Given that commercial flight has only existed for a few decades, trying to project centuries ahead seems ambitious.

NA-Flyer

I think as long as HKG kept as SAR it will maintain its status as int'l financial center and CX will not affected. However, if HKG to be fully integrated into Chinesse system then it will have less status and become less important city and CX might question its future then as chinese governemnt will intervene in all its operation decisions.

Jane's Addiction

bchl

I totally second the second opinion. The finacial position of HKG is certainly going to decline and therefore not a such good looking future is appearing for CX..

number_6

Just as the future of SIN was extremely bleak 60 years ago. A directly relevant comparison, and an interesting parallel (a lot of the same infrastructure investments in both HKG and SIN). Whether this continues in the future is mainly a political question for HKG. Singapore doesn't seem likely to merge with any neighbouring states in the forseeable future, at least not voluntarily, and thus has simpler political choices.

I do think that when the capital needs of Hong Kong increase as the infrastructure ages out that it will have a harder time competing for new capital with other Chinese cities, esp. as the SAR advantage disappears with all of China becoming a SAR (or worse). Historically the British Empire was quite efficient at capital distribution, unlike some other empires.

QRC3288

Many people painted a bleak picture of the future of HK in 1996 prior to the takeover, and that gang was proven pretty well wrong. Although China could easily hurt HK by eliminating or redefining the SAR status (by taking away HK freedoms, which would likely scare away the platform for the finance industry) China would be foolish to diminish the stature of HK as Asia's financial capital...the fact that HK is so successful paints a nice contrast to China, and also shows what China can aspire to be. China has proved remarkably capable in being progressive when it needs to be. HK is also is a huge boost to China. If HK isn't the financial center of Asia then Singapore will stand up (it already would like to be), and maybe Tokyo will make a revival. But someone will take the role, and given the increasingly large piece of the world market capitalization Asia is (and likely will be) in the future, it doesn't seem like it would make much sense to hurt HK, despite what doomsayers say the mainland government will do. They are, after all, relatively rational.

I really think you can liken HK's finance industry to Macau's gambling industry. A successful financial industry really relies on the free flow of people, information and capital, which China doesn't allow on the mainland. A successful gambling industry doesn't necessarily rely on the above, but it does rely on the fact that gambling is legalized, something that is unheard of mainland China...just like the free flow of people, info and capital are. Yet oddly, since the Macau handover to mainland China, Macau has gotten MORE liberal towards gambling as they broke the casino monopoly and allowed American operators in. Macau, only AFTER becoming a SAR belonging to mainland China, became the world's largest gambling market, surpassing the Vegas Strip.

The point is, China has shown a pretty good tolerance for keeping up their "one country, two systems" bargain, which Deng said would take place for 50 years. I think China would love to see Shanghai compete with HK, which is probably a possibility way way down the line (we're talking 20-30 years, or more), but you have to see full convertibility of the RMB before then, and even given that HK's decades of experience will probably ensure HK is not going down the tubes any time soon, regardless of what happens with direct flights from HK-TPE.

biggestbopper

IMHO, China has made a policy decision that Singapore will grow as the financial HQ, largely at HK's expense.

The current meltdown complicates things since it appears that nobody will be doing a lot of growing in the near future and that there will be a very large reduction in fiscal manuvering in both the short and long run.

cxfan1960

Since when? I doubt if any country likes to create a financial HQ in another country.

coolfish1103

As much as people think China is big, China cannot support that many financial headquarters. China can only have one financial headquarter, and possible two additional financing towns in the north and in the south (Tianjin and Shenzhen?). It's really up to China decision on whether they want to let Shanghai become the top financial headquarter or not. If Shanghai will eventually takeover, then Hong Kong will lose it's competition as the costs of living (not in the cities) and hiring in Hong Kong is still a level higher than Shanghai as of now.

Also, if China do decide to change Shenzhen from it's current manufacture city to financial city, Hong Kong will be in danger. Guangzhou is in no shape to compete with Hong Kong because of it's location... it's not very friendly or necessary to go anywhere that would actually pass Guangzhou a lot... and it is still very substandard if you compare it to the northern cities. Unlike Macau, Hong Kong did not invest into gambling... they will have a harder time to adjust their roles.

Despite the fact that Hong Kong is considered one of the World's Financial Center these days, Hong Kong is comparable to Singapore, where they have no extra lands to improve on. We can see more taller buildings in Hong Kong... but definitely not anywhere wider than they can get as of now. Shanghai and Shenzhen both have places to improve, where I think Shenzhen will eventually take over Hong Kong's role... Hong Kong can never be Tokyo, unless the Japanese government screw up big time... and that's something Hong Kong must realize.

As the cross strait charters between Taiwan and China... it was previously stated in news that about 70% of the traveling to Hong Kong were for business or transits to China for tourism. Currently it's still on charter, so when it opens to unlimited schedule flights, we should see more flights get axed. Currently, the cross strait charters are mainly affecting Okinawa and Jeju, because the new northern route really saved more time than stopping over at the two places.

Therefore, if you reduce the daily 45 flights by 70%, there will be about 15 flights left, where Cathay Pacific and China Airlines would be hurt the most as they have the most flights. However, China Airlines would be able to recover from the addition of flights to China, what's Cathay going to get? This is something to wonder in 2009. With the Taiwanese government being in a mess the past 8 years, Taiwan's cost of living and hiring is significantly lower than Hong Kong... this is something Hong Kong must face and deal with accordingly.

If the current and future Taiwanese government don't do mess up things again, I think in the next 10-20 years, it will be a threat to Hong Kong. As of now, Taipei is no big deal when you compare it to Hong Kong.

virtualtroy

HK seems resilient. I can only comment from the perspective of hotel prices, which broadly are holding up much more so for top end establishments than any other city on the world bar, perhaps, Moscow. The hoteliers seem quite aware of the fact that most of the bookings they'll get will be from people likely not holding visas to the mainland, so they're effectively trapped within a relatively small geographic area with fewer (though many of the best) luxe hotels. It's a tactic frequently employed by cities, without such convenient geographical boundaries around them, which enjoy high conference traffic at certain times of year (Amsterdam, Las Vegas to name but two) where the room prices double, treble and quadruple overnight. I hate the greed of it all, but then I suppose as a business like this you have to look at the seasonality of it all - a bit like seaside towns where the warm months will typically be up to one, and in a good year two to three - distributed.

From a macro perspective, I find neither HKG nor the mainland economies particularly well-equipped to deal with a financial catastrophe of global proportions - disastrous for any air carrier - but in the case of the mainland probably rather better-equipped to bounce back once we're out of it -- while Europe and the US continue to decay.

Or maybe I'm just too much of a BRICS-theory fan.

rkkwan

CX and more importantly the HKIA and high government officials will help themselves a bit by getting off their high horses and make HKG a hub airport for all kinds of passengers and not just the premium business type.

Can you believe that 10 years after this "best airport" of the world opens, we're just getting a 3rd hotel within a few miles of the facility, and it's another premium business type. How about some 2-Star Ibis or Holiday Inn Express types for those who cannot afford US$150-300 a night at an airport hotel?

Second, how about brining the Airport Express' prices more inline with the buses? These days, many locals already travel to SZX to fly to mainland locations as flights are more frequent, cheaper, and the city-to-SZX transit not that bad with the buses and limos?

virtualtroy

For reasons mentioned in my earlier post, I see where you're coming from, but don't happen to agree (though it would be great if it happened).

Chinese, IMO, are the ultimate capitalists -- much more efficient at the business of identifying opportunities, capitalising on them and then milking them than anyone in Europe or the US is (with the odd exception, Messrs. Soros and Buffet). Otherwise everyone in either place is either leeching off the remains of economies with delusions of granduer or just looking for a 'prestigious' shopfront until the old world currencies become mere small caps.

You're right in the sense that every well-designed city deserves a balance of affordability, but this simply isn't what Honkers is about.