The Hong Kong-Taiwan shoulder threatens business across the strait

Official representation between Hong Kong and Taiwan will end this year, as growing political tensions threaten one of the region’s most important trade and investment relations.

The number of staff at Taiwan’s representative office in Hong Kong has declined over the past two years as the territory has stopped issuing visas, with documents due to expire in late November.

Hong Kong also abruptly suspended operations at its representative office in Taipei two weeks ago, ending its official presence there. The confrontation has escalated so much that Taipei has begun making contingency plans for an unrepresented situation on the ground in Hong Kong, two senior Taiwanese government officials said.

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

China claims Taiwan as part of its territory and has done so threatened with annexation if the island is not subject to its control indefinitely.

Analysts said cutting official channels would undermine Hong Kong’s traditional role as a conduit for trade and financial exchanges between Taiwan and China. Despite the dispute with Beijing over sovereignty, Taiwanese companies are among the countries the largest foreign investors, entrepreneurs and exporters from mainland China.

A significant portion of trade through Taiwan’s strait trade 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, with A $ 504 billion (US $ 65 billion) in total bilateral trade. Taiwanese companies invested 912 million US dollars in Hong Kong in 2020, while companies registered in Hong Kong invested 555 million US dollars in Taiwan.

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

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

Following Taipei’s refusal, the number of staff in its Hong Kong office began to decline, from 20 to eight today, according to the Mainland Affairs Council, China’s Taiwanese cabinet-level political body .

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

A Hong Kong government official suggested the suspension was due to instructions from Beijing.

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

“There have been reports that Taiwan has been encouraging the protest movement in Hong Kong, which has become violent, so the protest movement is not only against the Hong Kong government, but also against Beijing,” he said. Sung. He added that China was also concerned that Taiwan would “protect” Hong Kong protesters.

While Taipei has been careful not to be seen as making it too easy for Hong Kong dissidents to flee to Taiwan, the country’s civil society groups have supported the protest movement with advice, money and logistics. “This is something we cannot interfere with, as they have not done anything illegal,” a senior official of Taiwan’s Chinese policy said.

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

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Although analysts suggested that much of this trade could continue even if official ties between Taiwan and Hong Kong were severed, they predicted a considerable impact on financial services, tourism and education.

“Hong Kong plays a very important role in managing Taiwan’s private wealth,” said Patrick Chen, head of Taiwan’s research at CLSA, the brokerage.

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

Liu, of the Chung-Hua Institute for Economic Research, said many Taiwanese companies maintained the profits from their operations in China with their Hong Kong subsidiaries for tax purposes.

“These things would be a lot heavier without official representation because you would have to start sending round-trip documents for notarization,” Liu said.