On November 2, the choice of US voters once again shaped
our world for another four years. Although some believed
that the World might become a safer place had President
Bush lost, the US policies do become more predictable
thanks to his victory. Historically, a republican administration
tends to be more business friendly, in favor of tax
cut and most importantly, free trade.
After the 911 attack, the Bush Administration put counter-terrorism
as a top priority while his diplomacy focused mainly
on the Middle East and European countries. With a weak
economy, tax reductions and fighting two wars, US fiscal
deficits rocketed yet again.
President Bush re-election also means that the growing
strain between the Muslim world and the US will unlikely
be eased in the coming 4 years, terrorism attacks might
even be escalating. Most investors will shun Muslim
countries, leaving even fewer choices of investment
destinations.
To solicit support to fight terrorism, the US will
have to strengthen its diplomatic tie with China. In
fact, the Sino-US relationship has been improving since
the 911 attack, best shown when Chinese Premier WEN
Jia-bao was greeted on the South Lawn of the White House.
The improvement is quite clear in view of the fact that
no Chinese leaders were ever treated with same level
of state ceremony under the Clinton administration.
On economic front, the U.S. exporting market is paramount
to stabilize China's employment outlook; therefore,
unless the Taiwan issue brings about abrupt changes,
we can expect a steady growth in the bilateral trade.
Recently, the US Secretary of State Colin Powel remarked
that the US opposed any action towards Taiwan independence,
underlining US determination to maintain a stable relationship
with China.
On January 1, 2005, under an agreement reached with
the World Trade Organization (WTO) 10 years ago, the
US is scheduled to abolish its textile quota system.
On October 29 shortly before the Election Day, President
Bush pledged to consider adopting new trade restrictions
on Chinese textile products. Clearly, President Bush
was responding to a widespread forecast that Chinese
textiles would dominate 70% of US market in 2 years'
time after the abolition of the system. On the other
hand, China had stated that it would retaliate on any
unreasonable restrictions.
Although the U.S. textile trading disputes will definitely
ignite arguments on both sides, it is not uncompromising.
China has a history of flexing its muscle before trade
negotiation. As one of the most important trading partner
of the US, it does not mean China would not give in
subtly. One of the possible outcomes is that Beijing
would widen the floating range of RMB with the US dollar
to appease US domestic discontent about the trading
imbalance.
Actually, the Chinese government has been planning
to float its currency for some time. RMB is currently
a partly convertible currency, many regions that maintain
close relationship with China have demand for the currency.
Also, China has accumulated enormous foreign reserve
to deal with any sudden impacts. Even if RMB revalues
upwardly, China's export competitiveness would unlikely
be eroded significantly. However, it would help to alleviate
domestic inflation pressure. As a result, the hype around
RMB appreciation will continue. With China's export
momentum continues, Hong Kong's financial, transportation
and logistic sectors will thus continue to benefit.
Amid a lackluster job market, outsourcing also triggered
fierce debate in the presidential campaign. Senator
Kerry relentlessly condemned President Bush's policy
encouraging American Inc. to outsource their jobs offshore.
According to an exit poll, those who lost their jobs
over the past 4 years tended to vote for John Kerry.
It is very interesting to see whether President Bush
will restrict job outsourcing in his second term. However,
restricting outsourcing is not a major concern for China,
where servicing industry is still in its infancy. On
the contrary, China must import financial and service
professionals to sustain its strong economic growth.
Since it is highly improbable for China to turn out
enough professionals in short term, while the influx
of foreign investment and growth in international trade
ask for a pool of working force with reasonable English
proficiency, Hong Kong becomes China's most favorable
answer.
Standing on China's doorstep to the West, Hong Kong
will have to further enhance its IT infrastructure and
English competence. Although President Bush's victory
is against all odds, and his foreign policy may not
appeal to the Chinese government, Sino-US relationship
is now clearly on the right track. Against such backdrop,
the coming 4 years may be full of opportunities to Hong
Kong business community, especially the SMB.
(Last updated: 25th November, 2004)
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