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Hong Kong could have major finance role in China’s new East-West trade route

China’s Belt and Road Initiative

By Ian Lavis on behalf of Praxity 

China’s mammoth project to create a third global trade axis is taking shape and Hong Kong is ideally positioned to take advantage. 

Businesses and governments around the world are eyeing up potentially lucrative deals as part of China’s Belt and Road Initiative (BRI) to increase trade between East and West.

The hugely ambitious scheme, also known as One Belt One Road (OBOR), is beginning to roll-out along key routes across Asia, Africa and Europe. It promises to transform the infrastructure and economies of more than 60 countries.

Hong Kong could be one of the beneficiaries, according to a leading tax specialist at international accounting firm Mazars.

Michael To, Managing Director of Tax Services at Mazars’ Hong Kong head office, says Hong Kong’s geographical proximity to China, and its cultural and language diversity make the city “the ideal coordinator” for BRI projects. 

He cites other key factors in Hong Kong’s favour as:

  • a strong track record in international trade and finance businesses
  • active IPO markets and accessibility to funds
  • seasoned professionals who are experienced in international accounting standards
  • an international capital market

These factors combined are likely to “attract investors to use Hong Kong as a finance hub for BRI projects”, according to the Mazars tax specialist, while the territory’s simple tax structure and free flow of capital make it “an ideal location for treasury activities”.  

New demand for services

This is good news for investors in Hong Kong as well as accountancy firms. New investments and activities through or in Hong Kong are likely to create new demand for accountancy services in the territory.

Hong Kong is governed under the principle of ‘one country, two systems’, under which China has agreed to give the region a high degree of autonomy and to preserve its economic and social systems for 50 years from the date of the handover from the British in 1997.

Explaining how Hong Kong’s judicial system impacts BRI, Michael To says: “After the return of Hong Kong to China regime, Hong Kong continues to adopt common law judiciary system which is different from the statutory law system in Mainland China. International business operators prefer to resolve legal dispute under the common law system in Hong Kong, while Hong Kong positions herself as the regional arbitration center in Asia that helps settlement of dispute on BRI projects.  This also offers opportunity to accountants who may be involved to serve as expert witness in the legal proceeding.”

Benefits for international accountancy firms

Commenting on the potential benefits of BRI for accountancy firms, he says: “Horizontally, the new BRI investors, and in particular their companies in Hong Kong, would boost the demand for accountancy services in Hong Kong. Vertically, it is expected that there will be new advisory and compliance assignments arising from the operational chain of BRI projects, for example planning on investment structure, cross-border tax and customs, and transfer pricing documentation.”

These benefits are not just local. Michael To believes there will be a “significant positive impact on the global accountancy industry” as firms seek to position themselves to take advantage of BRI projects.

Mazars is already working with clients on BRI projects. One of these, a leading roofing, cladding and façade specialist contractor, is involved in the construction of the Hong Kong Passenger Clearance Building of the Hong Kong – Zhuhai – Macao Bridge. Similarly, a leading manufacturer of aluminium alloy extruded products, is supplying products to train manufacturers in China as part of the BRI. 

Sharing expertise

Mazars’ expertise in Hong Kong means that it is well placed to share knowledge with other independent accounting firms through Praxity Global Alliance, the largest alliance of its kind in the world. 

This knowledge exchange is likely to involve not only accountancy firms in Hong Kong but throughout China and along the East-West trade route as well as international firms with clients looking to invest in BRI projects.

Wenli Wang, Partner in Charge and China Practice Leader at the San Francisco office, of Praxity participant firm Moss Adams, says: “We will see more demand in financial and legal services along the OBOR countries by Chinese companies as they expand to those countries. There will also be a further push of Chinese accounting firms to go global to meet clients’ needs.”

She adds: “I have had conversations with accounting firms, law firms, and banks and see increased interest in establishing offices along major locations on OBOR. It could be a massive undertaking and it is progressing pretty slowly so a lot of service providers have the ‘wait and see’ attitude.”