Why Hong Kong’s era as a global financial centre is far from over

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Star Ferries cross Victoria Harbour flanked by the skyscrapers that make up Hong Kong’s financial district in December 2019. Photo: May Tse

Rumours have it that rival cities such as Singapore and Tokyo are trying to lure talent and capital away from Hong Kong’s financial industry following the passage of the national security law. Some even argue that as economic and financial integration between Hong Kong and mainland quickens, the city’s role as an international financial centre will diminish and it will become solely a financial hub for the mainland.

However, in light of the horde of US-listed mainland enterprises lining up for secondary listings on Hong Kong stock market, I beg to differ. The influx of Chinese companies seeking initial public offerings in Hong Kong made the Hong Kong exchange the world’s largest bourse in terms of market capitalisation in June.

First, since the late 1990s, Hong Kong’s stock exchange has been a destination for mainland IPOs. It is true that currently there are only a few overseas companies listed on the Hong Kong exchange, apart from world-renowned brands such as Samsonite, Prada, L’Occitane and Budweiser. But as of August, more than half of the companies listed on the exchange were from the mainland, with nearly 80 per cent of the bourse’s total market capitalisation accounted for by nearly 1,300 China-oriented enterprises.

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In addition, the fundamentals that makes our city an appealing financial hub will remain strong despite the Covid-19 pandemic – an open capital market, pro-business environment with an effective regulatory framework, a reliable legal system based on common law, preferential access and proximity to the Chinese market, excellent infrastructure and more.

While sceptics may counter that Hong Kong’s stock market is overwhelmingly Chinese in character, the various stock and bond connect schemes between Hong Kong and the mainland ensure the global orientation of Hong Kong’s financial sector because international investors cannot resist the opportunity to invest in the lucrative Chinese markets through these unique arrangements.

The Shanghai-London Stock Connect could be a competitor, but time zone differences between the two markets and exchange rate risks could be an inconvenience.

Besides, the “Opinions concerning financial support for the establishment of the Guangdong-Hong Kong-Macau Greater Bay Area” jointly promulgated in May by the four mainland regulators – the People’s Bank of China, China Banking Insurance Regulatory Commission, China Securities Regulatory Commission and State Administration of Foreign Exchange – could further boost financial integration and cross-border capital flows within the Greater Bay Area, destined to facilitate overseas investment and project financing.

This will consolidate the role of Hong Kong as the region’s financial hub. For financial and investment companies in Hong Kong, this presents expanded markets and opportunities with Chinese residents now gaining access to financial products in Hong Kong without the need to cross the border.

The partial liberalisation of China’s capital control as a result of the promulgation of the opinions also enables the local wealth management industry to tap into China’s 25 trillion renminbi (US$3.5 trillion) wealth management market, as the appetite of some of the nation’s richest in the tech and manufacturing hub of Guangdong for new investment opportunities and diversified portfolios is growing rapidly.

Certainly, one should avoid putting all one’s eggs in one basket. In addition to serving the fundraising needs of companies of the world’s second-largest economy, Hong Kong should continue to adapt and evolve to explore on new financial frontiers, including fintech, blockchain, big data as well as green finance.

In this respect, there is more to be done. A key factor to keep our finance sector thriving would be a continuous flow of highly skilled and experienced professionals. We will need to encourage tertiary students and fresh graduates to pursue a greater understanding of the mainland market and the opportunities it presents.

Who wins, who loses in race to connect wealth in China’s bay area?

A financial professional with a bilingual international education, and well-versed in Chinese customs and culture, will undoubtedly be able to act as a super-connector between China and the world, through Hong Kong. As the macro and external economic environment turns increasingly hostile, this is a good time to look to the Chinese market as the next growth engine.

Academic collaboration would make a great starting point; I would like to see more resources in the upcoming chief executive’s policy address allocated to assisting Hong Kong universities to strengthen exchange programmes with their mainland counterparts.

Change is probably the only constant in the finance industry. We need to constantly review Hong Kong’s value proposition and growth strategy. Be it individuals, companies or the government, it is critical to continuously adapt, invest, plan, and above all anticipate changes. In this way, Hong Kong will continue to shine as a financial centre.

Ken Chu is group chairman and CEO of Mission Hills Group and a national committee member of the Chinese People’s Political Consultative Conference

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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