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Speech - The best is yet to come. Past, present and future of the EU-Hong Kong relationship
Commission Européenne - SPEECH/13/966 22/11/2013
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José Manuel Durão Barroso
President of the European Commission
The best is yet to come. Past, present and future of the EU-Hong Kong relationship
European Chamber of Commerce/Hong Kong
22 November 2013
Ladies and gentlemen,
Let me first of all thank you for giving me the opportunity to address you, who have a finger on the pulse of Hong Kong's economy and society as no one else has, and discuss the current state of our relationship.
My visit to Hong Kong rounds off two very intensive weeks of engagement with Asia, which started in Brussels with a Summit with Korea, continuing with a visit to Mongolia and the two official Summits with Japan and China. This demonstrates how much Asia is now at the forefront of the European Union's priorities.
Is this year precisely 500 years after the first European contact with Hong Kong. It could only be a compatriot of mine, Jorge Álvares, that according to the encyclopaedias was the first European to come to this part of the world, to Hong Kong, in 1513. I know how important Hong Kong is in the relationship between Asia and Europe.
Together, Europe and Asia represent half of the world population, more than half of the world's GDP and 55% of world trade. These are impressive figures, which show the centrality of Europe-Asia relations in today's world. This relation is indeed key for the world's prosperity and stability. I think it is fair to say that Europe has a stake in Asia's prosperity as much as Asia has a stake in Europe's prosperity.
One of the pillars of this relationship, of our joint prosperity and even global growth is the EU-China relationship. This is a relationship which has been growing in statistics and in quality, in depth and breath. We now have dialogues in almost all areas relevant to each other's development, political, economic and people-to-people. And at the very heart of this relationship with China is our support of the principle 'one country two systems' and our unique relation with the two Special Administrative regions, Hong Kong and Macao. In fact tomorrow I will visit Macao, I feel a special relationship with Macao because as Foreign Minister of my country I was negotiating during two years the transition of Macao to China.
For a European, the unique combination of dynamism and history that is ever-present in Hong Kong remains as fascinating as ever. What concerns us most at this point in time, of course, is how we can use that energy to intensify our common future.
Indeed, the facts show that relations between Hong Kong and Europe are firmly forward-looking.
European companies are already playing a key role in Hong Kong's economy: there are close to 2,000 European firms based here, and no less than 453 of them have their regional headquarters here, outnumbering both American and Japanese businesses.
European investments keep coming in: EU companies are key players in the banking, insurance and securities sectors, just to name a few.
European products are wanted here: our exports of goods in the last two years have grown particularly on the back of robust demand for luxury goods, food, wine, cars and machinery.
And European citizens want to come here as well: apart from very strong historical links, the personal bond between Hong Kong and Europe keeps getting stronger. There is a very sizeable community of European citizens here, coming from all corners of the EU.
All this goes to show that we value the future even more than the past, and we are more than excited about Hong Kong's potential in the years and decades to come.
This is a relationship based on shared interests, shared prospects and on a shared view on basic principles such as a belief in free trade and in the rule of law. It is important to us in different ways and, together with business communities on both sides, we want to continue to strengthen it.
Ladies and gentlemen,
The mutual benefits of the fruitful trade and investment relationship between Hong Kong and the European Union will be clear to all of you.
European companies and know-how contribute directly to what Hong Kong is: a fantastic high-quality services provider where economic openness, legal transparency and social open-mindedness reinforce one another. This is a wonderful climate to do business in.
For that reason, Hong Kong is Europe's 20th largest trading partner for trade in goods and our surplus is increasing, with a record of €23 billion out of a total trade in goods of €44 billion. For trade in services, Hong Kong is our most important partner in Asia after China, Japan and Singapore, with a strong focus on transportation, business and financial services.
As a result, Hong Kong also contributes greatly to the European economy. It is a large investor in the European Union, ranking 8th in terms of stocks and 6th in terms of flows (both in 2011). This is a prime example of the fact that today's global economy is more than ever a single system, interconnected by veins and arteries pumping trade and investment flows from one end of the world to the other and back.
And in this system, the EU-Hong Kong connection plays a key role. Hong Kong is often our companies' starting point for their activities in the rest of Asia and, as you know, our trade agenda in the region is very ambitious.
We have concluded FTA negotiations with South Korea and more recently with Singapore. We are negotiating with other ASEAN partners like Malaysia, Thailand and Vietnam. Negotiations with India continue as well, and we have launched negotiations with Japan earlier this year.
Like Hong Kong, we believe trade liberalisation is in our own best interests, as well as beneficial for our prime economic partners.
With 176 European companies registered as 'Hong Kong Service Suppliers', the European Union is also the leading source of foreign companies using Hong Kong as the hub to mainland China, enjoying the provisions of the Closer Economic Partnership Arrangement (CEPA). About 17% of all European investment in China flow through Hong Kong. These are impressive figures.
The fact that Hong Kong has Bilateral Investment Treaties with 9 of Europe's larger Member States has certainly played a role.
At this week's EU-China Summit, we have formally launched negotiations for an investment agreement with China. We expect it to be a comprehensive investment deal covering both investment protection and market access. This is an important step in the progressive evolution of this already intensive economic relationship.
Just two decades ago, the importance of trade between China and the EU was marginal. Today, we form the second-largest economic partnership in the world. In a remarkably short timeframe, our economies have integrated to a point where it is difficult to imagine one without the other. Our bilateral trade in goods reached € 434 billion in 2012. We now trade over € 1 billion a day.
And yet, we want to get even more out of it. With European investments in China representing only 2% of our worldwide FDI, and Chinese FDI to the European Union standing only at 1% of total inflows, there is still huge potential in this area. As our bond with Hong Kong proves, investment is a natural counterpart of trade.
These negotiations will remove restrictions and progressively liberalise investment, leading towards reciprocity in access for European and Chinese investors to each other's markets. They will send a clear message to companies and investors on both sides: if we, at political level, are willing to constructively engage and progressively invest in this relationship, so can you!
Given the key role of Hong Kong as a hub between China and the European Union, such an agreement will provide a platform to intensify relations with Hong Kong as well.
Ladies and gentlemen,
While Europe continues to firmly believe in Hong Kong, we cannot ignore voices that cast doubt on Europe's own future prospects.
I believe these opinions stem from a distorted, outdated and often downright wrong perspective of what the European Union has achieved over the last months and years, both in terms of our economic fundamentals and of the political progress we have made.
It is true that our economy was hit particularly hard by the global economic downturn. And yet, as an economic bloc, we will emerge from it stronger, more united and more competitive than we were before. The crisis has forced us, more than ever, to reassess our economic policies, to fundamentally revise our public finances and to deepen our economic and monetary union in a way that we were unable – in some cases unwilling - to do before.
Our economic potential remains huge. Europe is the largest economy in the world. With over 500 million consumers, with an average per capita GDP of 25.000 euro, it represents a €12.6 trillion economy. Only the United States is in the same league, worth €11.3 trillion, while even China remains considerably smaller, at €4.6 trillion.
We have managed to hold our own in the face of strong competition from emerging economies. Europe has a manufacturing trade surplus of almost 300 billion euros, five times as large as it was in 2000. Our services surplus has expanded to over 100 billion euros. And our agricultural trade has shifted from a deficit to a surplus.
The EU maintains its global leadership in high-value-added products and in high-tech. It remains the world's largest importer of both manufactured goods and services. And not only do we still have the largest stocks of foreign direct investment abroad, we are also the largest host of foreign direct investment in the world.
We are now slowly gathering pace again. Growth is on the rise and expected to gradually regain traction, up to 1.4% in 2014. Of course it will be a modest growth, of course we don't have the potential of growth that some emerging economies have, of course the crisis has hit hard, and we cannot say we are out of the crisis when we have such huge figures in terms of unemployment. But if we look at Europe, how we were, let's say, two years ago, what was the common market analysis regarding for instance the survival of the euro and then you see what is the situation now you see that in fact we have crossed a very important point. If we go further on the road to real economic and monetary unification, as we are doing, there is no reason why our financial-economic foundations would not be as strong or even stronger than those of the other big economic blocs. Right now we are moving ahead, to note the most important example, in establishing a genuine European banking union in which supervision and, where necessary, resolution of banks take place at the appropriate level: the European level. As you know, we have already agreed on the Single Supervisory Mechanism and I am confident we are going to agree until the end of this year at political level on the Single Resolution Mechanism.
It is the first and most urgent phase on the way to further deepening of our economic and monetary union. It is the way to create more stability, and to make progress in decoupling bank from sovereign risk. It is a necessary and natural consequence of the interdependence of Europe's economy, especially, of course, in the euro area.
Because as we have to understand, when you share a currency of course we need a stronger level of integration, not only monetary policy but also in economic and fiscal aspects, and we are doing it, in fact.
So, do not underestimate this, the European Union is now better equipped to deal with challenges arising from its place at the heart of the global economy. It has matched its economic interdependence with political integration. Our growth model, based on internal reforms and openness to external activities, is more sustainable now than it was before. Also because of the pressure, the market pressure, and also because of new rules of governance in the European Union, now many of our countries are doing, sometimes extremely painful reforms, but they are reforms for more competitiveness, so that growth can come in a sustainable manner and not as it happened before either funded by excessive levels of public debt or in some cases also excessive private debt.
For all those reasons, Europe will continue to be an indispensable partner for an ambitious and highly developed economy such as Hong Kong.
Ladies and gentlemen,
I believe we will reinforce and tighten the bonds between us, and reap even more of the benefits in our common interest. If there is one thing that binds us, despite our many differences, it is the belief that openness is beneficial to all. And indeed, we have to strive for openness in the world economy and why not in the world system.
Hong Kong hosts a vibrant civil society and it serves fundamental freedoms. The judiciary and legal professions remain strong pillars upholding the Rule of Law and zealously guarding its status.
Hong Kong was always at the forefront of establishment of Rule of Law in this part of the world. That is why the European Union established a diplomatic mission in Hong Kong back in 1993, the office is now celebrating its 20th anniversary, almost to the day.
Political openness and transparency are not always the easiest, but certainly the most sustainable way to develop our societies and will continue to cooperate in promoting this view.
Economic liberalisation has proved to be a powerful engine to growth, both in the case of Hong Kong and for the European Union and we will always stand together to defend it at home and abroad. And economic and social development go hand in hand, this is what makes Hong Kong so special and so captivating.
I have no doubt that this will remain a place of unparalleled action and fascination for the decades to come, a city that never sleeps, because it is always turning to the rest of the world. And one should never doubt Europe's determination to be part of the continuous success story that is Hong Kong.
I thank you very much for your attention and if you wish I am now ready for some comments or questions.