In advancing the construction of the Guangdong-Hong Kong-Macao Greater Bay Area, Hong Kong's advantages as an international financial center should be fully leveraged. Efforts should focus on serving the "Belt and Road" Initiative and RMB internationalization to provide financial support for the development of the Greater Bay Area city cluster. On the one hand, countries along the "Belt and Road" have substantial infrastructure needs but lack technology and funding. On the other hand, Hong Kong is the only city in the Greater Bay Area that has joined the Asian Infrastructure Investment Bank (AIIB) as a non-sovereign region. It can provide an efficient fund operation platform for emerging multilateral international organizations such as the AIIB and the Silk Road Fund, helping to enhance their overall operational efficiency and financing capacity, and providing financial support for the "Belt and Road" construction. As the Hong Kong Monetary Authority has stated, for institutional investors with substantial funds, infrastructure plans in emerging market countries are quality investment opportunities at present. (Zhao Haijian)

"Under the 'Belt and Road' Initiative, the ten ASEAN countries are very important. ASEAN is a key hub of the 21st Century Maritime Silk Road and a priority region for advancing 'Belt and Road' cooperation," said Edward Leung, Chief Economist for Asia and Emerging Markets at the Hong Kong Trade Development Council (HKTDC), in an interview with a 21st Century Business Herald reporter.

In July this year, the HKTDC Research Department conducted a series of field trips to Indonesia, Malaysia, Thailand, and Vietnam to identify potential business opportunities for Hong Kong companies in infrastructure development in ASEAN countries.

"In less developed economies such as Indonesia and Vietnam, due to insufficient government fiscal resources and enterprises still building professional knowledge and business capabilities, many industries and projects have huge demand for foreign capital and expertise. Malaysia and Thailand are more developed economies where many local industries have matured, and foreign companies' expertise is only needed in specific technical fields or more specialized industries, such as waste management, water management, green technology, and the overall model for designing transportation operations," he said.

In recent years, ASEAN has become a trade growth engine in Asia, with increasing economic influence. ASEAN has a total population of over 620 million, an overall GDP of more than US$2.4 trillion, and an average annual economic growth rate of about 5% over the past 10 years. At the same time, under the ASEAN+3 (China, Japan, and South Korea) mechanism, the regional economic volume has increased to US$18.9 trillion, accounting for nearly 26% of the global economy.

China and ASEAN countries have significant complementary comparative advantages. Despite the global economic downturn last year, official data show that China-ASEAN trade reached US$452.2 billion for the year, further increasing its share of China's foreign trade. In the first five months of this year, China-ASEAN trade continued its growth momentum, with a growth rate of 16.2%, 3.2 percentage points higher than the national average trade growth rate.

Huge Infrastructure Investment Gap in ASEAN

As is well known, "to get rich, first build roads"—infrastructure is the pillar of global economic development. According to statistics from the Asian Development Bank, the ten ASEAN countries need to invest US$210 billion annually from 2016 to 2030 to meet infrastructure development needs in areas such as power, transportation, information and communications technology, and water and sanitation. Facing severe funding shortages, many ASEAN countries are gradually turning to the private sector and foreign investors for financing, while also using these resources to acquire the technology and expertise needed for large-scale construction projects.

Edward Leung pointed out that the ten ASEAN countries have been actively promoting economic integration in recent years and plan to upgrade transportation infrastructure, which coincides with the "Belt and Road" Initiative. "In fact, many Chinese companies are actively participating in infrastructure projects in ASEAN countries. For example, China Railway Construction Corporation participated in Indonesia's Kayan Hydropower Project with an investment of US$1.7 billion."

"The contract value of infrastructure projects undertaken by Chinese engineering contractors in the ASEAN region reached about US$25 billion in 2015, a significant increase from US$16.6 billion in 2012, with a compound annual growth rate of 11%," he said.

Official data show that as of the end of May this year, Chinese companies had signed cumulative infrastructure construction contracts worth US$296.27 billion in ASEAN countries, with a cumulative completed contract value of US$204 billion. The two sides' enterprises have cooperated in implementing a large number of projects in highways, railways, ports, aviation, power, and bridges.

Taking the Indonesian market as an example, as the largest economy in ASEAN, its population is also the largest in ASEAN. Indonesia is rich in natural resources, but its economic development has been constrained by weak infrastructure and insufficient investment. Edward Leung pointed out that the country needs approximately US$360 billion in infrastructure investment from 2015 to 2019, but the government can only bear about 40% of the financing. "This means most of the funds need to come from private investors, banks, and others through loans or financing. Local investment and financing demand is huge."

To attract overseas investment, the Indonesian government issued a new negative list in May 2016, which removed restrictions on multiple public works, trade, creative economy, and health industries, fully opening them to foreign ownership. The foreign ownership cap for waste treatment, groundwater engineering, airport services, and the internet industry was raised from 49% to 67% or even 100%.

In contrast, Malaysia's infrastructure market is more mature. "Currently, the Malaysian government allows foreign investors to wholly own construction-related enterprises and welcomes foreign companies to participate in public tender projects. The country's public-private partnership (PPP) model has been operating for many years, and local enterprises are fully capable of handling most infrastructure projects. Foreign participation is usually only needed for projects requiring specific technology or high time management requirements," acknowledged Li Zixin, an economist at the Hong Kong Trade Development Council.

It is reported that some large Chinese infrastructure companies are already very active locally. China Gezhouba Group, in cooperation with Sarawak construction company Untang Jaya, is building the Baleh Hydropower Station, scheduled to start construction in October 2018. The Temburong Bridge, in which China State Construction Engineering Corporation is participating, is scheduled for completion by the end of 2019.

She revealed that infrastructure projects currently promoted by the Malaysian government include the high-speed railway from Kuala Lumpur to Singapore, the East Coast Rail Link network, the Greater Kuala Lumpur/Klang Valley metropolitan area, and the 1,073-kilometer Pan-Borneo Highway.

Hong Kong's Dual Role

As a trade community, ASEAN is Hong Kong's second-largest trading partner after Mainland China. ASEAN is also Hong Kong's fourth-largest export market, accounting for about 10% of total exports.

In Edward Leung's view, Hong Kong companies can play a dual role in infrastructure projects in the ASEAN region. "First, as investors. Taking the Indonesian market as an example, infrastructure projects are mainly related to drinking water, sanitation, piers, and communications. Malaysia's infrastructure projects mainly involve piers, while the Philippines' investment focus is on improving the capacity of existing roads and port handling. Investment projects in Thailand and Vietnam are mostly in energy. Second, many Hong Kong companies act as service providers in the ASEAN market, offering services such as architectural design, engineering, surveying, project management, and consulting."

"As of the end of last year, Hong Kong companies' investment in ASEAN accounted for about 10% of total local foreign direct investment (FDI), ranking fourth. Although ASEAN's overall FDI has declined from about US$133 billion in 2013 to nearly US$100 billion currently, as an investment market, ASEAN's investment热度 remains. In the coming years, the 'Belt and Road' Initiative will bring more profound 'paradigm shifts'," he acknowledged.

After three years of negotiations, the free trade agreement between Hong Kong and ASEAN was finalized in early September this year and is expected to be signed in November.

"The free trade agreement mainly covers goods, services trade, and investment agreements. Overall, it helps Hong Kong-funded enterprises expand overseas markets and enables parties to enter each other's markets under preferential conditions. With its unique geographical location, well-developed infrastructure, logistics, and professional services, Hong Kong has become a regional hub and a gateway between Mainland China and the world," he said.

According to an HKTDC survey, ASEAN consumers regard Hong Kong as Asia's fashion center and have huge consumer demand for high-quality and unique products and services. Among them, tourism and leisure, beauty and health, and fashion apparel are most popular among ASEAN middle-class consumers. Edward Leung said that Hong Kong brands have a certain reputation among ASEAN middle-class consumers, which is believed to help Hong Kong products enter the local retail market.

As one of the world's largest market opportunities, ASEAN will surely become a battleground for global consumer goods companies. According to IMF estimates, by 2030, 55% of ASEAN's population will enter the middle class, totaling about 400 million people.