Expert: Risk of complacency for HK, Macao, Taiwan

More than half of Hong Kong's exports go to the mainland and over 75 percent of its inbound foreign direct investment and foreign visitors come from the mainland.

Identity matters but so do living standards.

In the past 14 years, Hong Kong, Macao and Taiwan have benefited hugely from the mainland's expansion, through trade, investment, tourism and financial services. These growth rates are reflected in the compound annual growth rate, which was 3.1 percent for Hong Kong and 2.6 percent for Taiwan during the period.

Starting from a far lower base, the mainland's growth rate was 14.9 percent. It is this extraordinary growth record that supports the mainland's structural reforms, amid the shift of its growth model toward innovation and consumption.

The same does not apply to Hong Kong, Macao and Taiwan. In each case, the growth model remains similar and structural reforms have been deferred.

Hong Kong continues to rely mainly on its financial sector, even as it is struggling with soaring property markets, inadequate housing, rising inequality and aging population. While Macao has become the world's largest gaming center, its industrial structure has not been diversified, even though gaming revenues will moderate, the huge financial sector is exposed to external shocks, and an aging population means rising spending needs.

Taiwan's sustained growth is predicated on the 2010 Economic Cooperation Framework Agreement with the mainland and its complement, the Cross-Straits Service Trade Agreement, which would open the mainland's industries to Taiwan's investment.

To thrive in the future, Hong Kong and Macao need structural reforms and deeper integration with Guangdong province and the Pearl River Delta region, while Taiwan needs deeper integration with the mainland as a whole. The challenge for the mainland, Hong Kong, Macao and Taiwan is to advance economic integration, while respecting unique identities, which reflect the resilience of Chinese culture and local responses to the history of Western colonialism.

Conversely, the risk of complacency - deferred structural reforms, inadequate diversification and decelerating growth - would be erosion of economic growth and falling living standards.

That is not in the economic interest of Hong Kong, Macao and Taiwan, for even unique identities thrive on sustained living standards.

The author is research director of International Business at India China and America Institute (US) and visiting fellow at Shanghai Institutes for International Studies (China) and the EU Centre (Singapore).