Hong Kong-Taiwan spat threatens cross-strait trade

Official representation between Hong Kong and Taiwan is set to end this year as growing political tensions threaten one of the region’s most important trade and investment ties.

The number of Taiwanese representative office staff in Hong Kong has declined over the past two years as the territory has stopped issuing visas, with the documents of those remaining due to expire at the end of November.

Hong Kong also abruptly suspended the operations of its representative office in Taipei two weeks ago, ending its official presence there. The stalemate has become so serious that Taipei has started to draw up contingency plans for a situation without representation on the ground in Hong Kong, two senior Taiwanese government officials said.

The breakdown in relations follows rising military tensions between Taiwan and China and a crackdown by Beijing on pro-democracy groups in Hong Kong which has led some activists in the territory to seek refuge in Taipei.

China claims Taiwan as part of its territory and has threatened to annex if the island does not submit to its control indefinitely.

Analysts said cutting official channels would undermine Hong Kong’s traditional role as a trade and financial channel between Taiwan and China. Despite the dispute with Beijing over sovereignty, Taiwanese companies are among the the biggest foreign investors, employers and exporters in mainland China.

Military tensions between China and Taiwan have intensified, but investment and trade across the Taiwan Strait remain important for both countries © Ritchie B Tongo / EPA-EFE / Shutterstock

A significant portion of trade across the Taiwan Strait passes through Hong Kong, and many Taiwanese investors in China also use Hong Kong for financial, tax, and legal purposes. Last year, Taiwan was Hong Kong’s second-largest trading partner, while Hong Kong was Taiwan’s fifth-largest, with HK $ 504 billion (US $ 65 billion) in total. Trade. Taiwanese companies invested US $ 912 million in Hong Kong in 2020, while companies registered in Hong Kong invested US $ 555 million in Taiwan.

“Hong Kong has been a springboard for Taiwanese companies to mainland China and it has also been a springboard for the Chinese [companies] in Taiwan, ”said Liu Meng-chun, director of the research section at the Chung-Hua Institution for Economic Research, a think tank backed by the Taiwanese government.

Tensions between Hong Kong and Taipei have escalated over the past two years after the territory began requiring Taiwanese diplomats to sign documents declaring their country part of China as a prerequisite for visa issuance. .

After Taipei’s refusal, the number of employees at its Hong Kong office began to decline from 20 to eight today, according to the Mainland Affairs Council, China’s cabinet-level political body. Taiwan.

Hong Kong, meanwhile, said it was temporarily closing its Taipei office because “the series of actions by Taiwan in recent years have severely damaged Hong Kong-Taiwan relations.”

A Hong Kong government official suggested the suspension came on instructions from Beijing.

“I think Beijing is of the opinion that [Taiwan’s representative office] affects national security, ”said Sung Yun-wing, professor of economics at the Chinese University of Hong Kong, who is also a member of a semi-official think tank, the China Association for Hong Kong Studies and from Macao, to Beijing.

“It has been reported that Taiwan has encouraged the protest movement in Hong Kong, which has turned violent, so the protest movement is not only against the Hong Kong government but also against Beijing,” Sung said. He added that China is also concerned that Taiwan will “harbor” the Hong Kong protesters.

While Taipei has been careful to avoid being seen as make it too easy for Hong Kong dissidents To flee to Taiwan, civil society groups in the country supported the protest movement with advice, money and logistics. “This is something we cannot interfere with because they haven’t done anything illegal,” a senior Taiwanese Chinese politician said.

Historically, Hong Kong’s most important economic role in Taiwan-China trade has been as a sea and air transshipment hub for Taiwanese companies to supply their factories in southern China with components.

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While analysts have suggested that much of this trade could continue even if official Taiwan-Hong Kong ties are severed, they predicted a huge impact on financial services, tourism and education.

“Hong Kong plays a very important role for Taiwanese private wealth management,” said Patrick Chen, Taiwanese research manager at CLSA, the brokerage house.

He said many Taiwanese had accounts in Hong Kong, where local units of Taiwanese banks offered them offshore investment products that were not accessible under the island’s more stringent regulations.

Liu of the Chung-Hua Institution for Economic Research said that many Taiwanese companies keep profits from their China operations with their Hong Kong subsidiaries for tax purposes.

“These things would get a lot heavier without official representation, because you would have to start sending documents back and forth for legalization,” Liu said.

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