The United States’ new tariff offensive against China is threatening to trigger a new trade war, posing challenges to the Hong Kong Special Administrative Region, given the heavy weight of re-exports in its economy. So it becomes all the more imperative for Hong Kong to seek ways to diversify its economy and enhance the city’s overall competitiveness in the face of new challenges looming on the horizon.

Indeed, the SAR government has long realized the need to diversify the local economy as well as its overseas markets since the first Trump administration launched a trade war against China in early 2018. Efforts have been stepped up over the past few years in this regard.

For example, the SAR government has set its sights on developing the city into a high-value-added supply chain management center, as Financial Secretary Paul Chan Mo-po revealed on the sidelines of the World Economic Forum 2025 in Davos, Switzerland, recently. Conceivably, such a drive is part of a desired transformation in trade aimed at buffering the adverse impact of a trade war on the city, which relies heavily on transshipment services.

Chan’s vision of a transformation in Hong Kong’s trade sector puts an emphasis on developing the city into a high-value-added supply chain management center, which is indeed the key to enhancing the city’s competitive edge in the trade sector.

Recent years have witnessed significant shifts in the global trade landscape: The world’s largest and second-largest economies are caught in a trade conflict; the US has been promoting “de-coupling” or “de-risking”, while China seeks to further the globalization process by strengthening global supply chains; and the Global South and participating countries in the Belt and Road Initiative are playing growing roles in international supply chains, with countries such as Vietnam, Indonesia and Mexico becoming the new “factories of the world”.

Amid these changes, Hong Kong is uniquely positioned to develop itself into a high-value-added supply chain service center with a focus on three areas:

First, Hong Kong should promote the development of the headquarters economy. On the one hand, it should attract major Chinese mainland enterprises to set up their regional headquarters and supply-chain management bases in the city and use the city as a platform to promote Chinese brands to the world; on the other hand, it should attract international players to set up their procurement centers in the city.

Second, Hong Kong should strengthen its credit services. The Hong Kong Export Credit Insurance Corp should help enhance the city’s position as a “super value-creator” in the global supply chain by providing ample credit insurance services to enterprises and expanding financing support for e-commerce. Meanwhile, Hong Kong should introduce the China Export & Credit Insurance Corp to the city so that it can provide export credit services to both mainland and international enterprises operating in Hong Kong.

Third, Hong Kong should promote digital transformation. Technological cooperation with the mainland should be strengthened to fight fraud and facilitate cross-border data flow and digitization of international trade, with the aim of enhancing services.

Another way to boost Hong Kong’s competitiveness is to integrate the city’s strength in research and development (R&D) with the “smart manufacturing” sector in the Guangdong-Hong Kong-Macao Greater Bay Area.

Hong Kong’s strength lies in R&D. According to Invest Hong Kong, the number of startups in Hong Kong hit a record high of 4,694 in 2024, increasing 10 percent year-on-year, and creating more than 18,000 jobs, up 7 percent. Hong Kong’s potential in scientific research is self-evident.

The cluster of five world-renowned universities in a city of 7.4 million people makes Hong Kong one of the most “scientific” cities in the world — 70 percent of the scientific research projects carried out in Hong Kong are world-leading level. The Hong Kong University of Science and Technology, for example, has given rise to more than 1,700 startup companies over the past three decades. Among them, 10 are unicorns and 11 are listed companies.

The SAR government has long realized the need to diversify the local economy as well as its overseas markets since the first Trump administration launched a trade war against China in early 2018. Efforts have been stepped up over the past few years in this regard

Besides the high-performing universities, the “big-three” — Guangzhou, Shenzhen and Hong Kong — in the Greater Bay Area was ranked second in the 2024 Global Innovation Index. The trio forms an ideal ecosystem for scientific research outcomes achieved by Hong Kong to be industrialized in Shenzhen and Guangzhou, leveraging their manufacturing prowess.

Of course, Hong Kong can also enhance its competitiveness as an international financial center by consolidating its role as a top-notch wealth management center.

Sergio Ermotti, Group CEO of UBS Group AG, was quoted by the Financial Times in June as saying that Switzerland, the world’s wealth management hub, could lose its crown to Hong Kong. The city’s wealth management sector is expanding at a compound annual growth rate of 7.6 percent and is set to overtake Switzerland by 2027, he opined.

According to the Boston Consulting Group Global Wealth Report 2023, Switzerland is currently the world’s largest wealth management center, with $2.4 trillion in assets under management (AUM), followed by Hong Kong, with $2.2 trillion in AUM. The report predicted that by 2027, the latter will overtake the former as the world’s largest wealth management powerhouse, with a whopping $3.1 trillion in AUM.

These third-party perspectives endorse Hong Kong’s competitiveness in the global financial arena. Global investors’ confidence in Hong Kong is underpinned by the city’s social stability, vibrant financial market, sound legal system, and efficient regulatory regime, ensuring a fair playing field.

Xia Baolong, director of the Hong Kong and Macao Work Office of the Communist Party of China Central Committee, has repeatedly urged the SAR to take proactive strategies to cope with changes. He hopes that Hong Kong will embrace reform and innovation with great courage. Hong Kong won’t disappoint him if it can achieve major breakthroughs in the areas mentioned above, which would boost the city’s competitiveness and development momentum.

The author is vice-chairman of the Committee on Liaison with Hong Kong, Macao, Taiwan and Overseas Chinese of the National Committee of the Chinese People’s Political Consultative Conference, and chairman of the Hong Kong New Era Development Thinktank.

The views do not necessarily reflect those of China Daily.