Knight Island: Hong Kong is still the leading international financial center?

Chivalry Island Press

Today, the island wants to discuss an important topic that has been discussedfor a long time. Will Hong Kong still be a top international financialcenter?

In the short term, after the Hong Kong incident, many analysts said thatcapital may accelerate to neighboring Singapore, triggering a change in theranking of global financial centers from New York Harbor to New YorkSlope. In the short term, Singapore will replace Hong Kong.

However, from a longer-term perspective, the development and construction offinancial centers cannot be separated from the support of the times, thedevelopment of industries, and the support of the economic hinterland. TheHong Kong issue still needs to be discussed from a long-term perspective.

On the other hand, China has been advancing the construction plan of Shanghai'sfinancial center. Today, Shanghai has established national financialmarket systems such as stocks, bonds, currencies, foreign exchange, futures,derivatives, and gold. By 2018, the number of registered financialinstitutions in Shanghai will reach 1,605. In the long run, will Shanghaishake the status of Hong Kong's financial center?

In response to the above issues, we specially invited Ai Zehuan, chiefeconomist of Bank of China Hong Kong and academic member of the InternationalMonetary Institute of Renmin University of China. Based on her many years ofwork experience and impressions in Hong Kong, she looked at her from theperspective of Islanders.

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since 2019, escalating trade war with China had a negative impact on our economy. Especiallyin the recent period, the continuous fermentation of the revision storm hascaused a huge blow to Hong Kong's tourism and retail industries, causing HongKong's economy to fall into a technical recession, and the possibility of a downturnin the whole year has increased significantly.

The real economy is struggling, which will affect the performance of financialmarkets to a certain extent. In the long run, this may also weakeninternational investors' confidence in Hong Kong's financial markets and posesome challenges to the status of international financial centers. Forexample, due to the impact of the revised storm, in August 2019, the Hong Kongstock market listed only one new stock and raised HK $ 967 million, the lowestlevel since September 2012.

The 26th Global Financial Center Index Report (GFCI 26), jointly released bythe British think tank Z / Yen Group and the China (Shenzhen) ComprehensiveDevelopment Institute, also shows that the top five global financial centerindices are New York, London, Hong Kong, and Singapore. And Shanghai. Interms of specific scores, Hong Kong's score has fallen by 12 points, wideningthe gap from New York's number one ranking.

The turmoil in Hong Kong from the real economy to the financial industry hadalready foretold many years ago.

Judging from the economic development of Hong Kong more than two decades afterits return to China, Hong Kong, as a small open economy, is extremelyvulnerable to global economic fluctuations due to external demand drivingeconomic growth. Especially after the global financial crisis broke out in2008, the global economic recovery momentum has been insufficient for a longtime, and the Hong Kong economy is facing tremendous downward pressure.

In addition, structural issues such as the solidification of the industrialstructure, the outward orientation of the service industry, and thenon-independence of monetary policy have also greatly increased the risk ofHong Kong's economic fluctuations.

In recent years, Hong Kong has gone through three periods of difficult economictransformation, prominent social conflicts and intensified external shocks,resulting in insufficient momentum for economic growth. From thisperspective, the social unrest in Hong Kong has certain economicroots. Hong Kong's economic downturn will pose a shock and challenge tothe development of Hong Kong's financial center.

Two

Hong Kong can meet it? According to the author's research and experience,Hong Kong's financial center is still able to operate normally and has acertain degree of resistance to impact and resilience. The main reasonsare as follows:

First, Hong Kong's financial market is offshore. Mainland companies account forabout 70% of the market value and trading volume of the Hong Kong stockmarket. As long as the Mainland economy maintains steady growth, the HongKong stock market will remain attractive to global investors. Throughoutthe year of 2019, Hong Kong's IPO has maintained a global leading position dueto a series of large-scale financing projects by mainland companies such asAli, Shen Wanhongyuan, China Oriental Education, and Xinyi Energy. Alllisted in Hong Kong.

Second, the Hong Kong dollar interest rate and exchange rate are

fifth. The interconnectedness of Hong Kong's financial market with the Mainlandprovides an internal stabilizer for Hong Kong's financial market to respond toexternal shocks. In recent years, with the advancement of RMBinternationalization, the Mainland has successively introduced mechanisms suchas Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, BondConnect, and mutual recognition of funds to promote system convergence andpolicy integration, helping Hong Kong's financial market to withstand externalshocks and maintain The market is stable.

From the perspective of the real economy supporting financial development, onAugust 15, 2019, the Hong Kong Financial Secretary announced a series ofmeasures to support businesses and citizens, including tax deductions, studentallowances, electricity subsidies, and public housing rent reductions. And CSSAbenefits, as well as measures to support businesses and protectemployment. Overall, the value of the preliminary measures is about RMB19.1 billion, which is equivalent to 0.3 percentage points of boosting theeconomy.

The Hong Kong Special Administrative Region Government is also vigorouslypromoting innovation and technological development. At the same time,actively increase the supply of land and housing, control the rise of the realestate market from the source, reduce overall operating costs, and promote thedevelopment of the real economy.

The combination of short-term relief measures and long-term structural policieshas increased the flexibility of Hong Kong's economy to a certain extent andprovided support for the development of financial centers.

Third,

looking at the development process of international financial centers, thesupport of economic fundamentals is only a basic factor, and financial centersthemselves have a complete set of development logic.

From the international experience, the establishment and development offinancial centers depend on three main factors: talent, regulatory environmentand market liquidity. In addition, the depth and breadth of financialmarkets are important criteria for measuring the maturity of a financialcenter, and the formation of financial market liquidity is relatively complexand requires many factors accumulated over many years.

With Hong Kong as the center, the overall size and structure of Hong Kong'sfinancial industry has undergone tremendous changes in the past 20 years,jumping from a regional financial center to a world-leading internationalfinancial center.

This leap-forward development is inseparable from two pillars.

The first is the growing economic and trade relationship between the Mainlandand Hong Kong. It can be said that the high market liquidity of HongKong's financial centers is directly related to the rapid expansion of theMainland economy in recent years.

In the 1970s, Hong Kong seized the opportunity of economic and financialglobalization, cancelled foreign exchange controls, gold controls, and relaxedbank controls, and became an important node for European and American financialinstitutions to engage in financial activities in the Asia-Pacificregion. In the 1990s, Hong Kong actively attracted mainland companies togo to Hong Kong for listing and financing, raising Hong Kong's capital marketto a new level. For more than a decade, Hong Kong has grasped the trend ofRMB internationalization and vigorously expanded offshore RMB business,becoming the oldest, largest and most standardized offshore RMB center.

Secondly, Hong Kong's favorable business environment, simple and low tax rate,free capital flow, widely recognized common law system, efficient financialsupervision and the freest economy are also important pillars for the healthydevelopment of international financial centers.

The organic combination of the above two factors is the winning way for HongKong to meet challenges, seize opportunities and accelerate the construction ofan international financial center.

Fourth,

at this point in this article, difficulties, opportunities, and developmentlogic have been analyzed. It is time to discuss countermeasures. Howshould Hong Kong maintain its status as a financial center and even revitalizeitself? In my opinion, there are 23,360 paths.

The first is to take advantage of the Mainland's economic restructuring andregional development layout to promote the structural transformation of HongKong's economy and support the steady development of the financial industry.

New momentum of mainland development is emerging one after another. Thenew round of opening up and corporate reform will have a deeper impact on themarket, which will bring new development opportunities to the Hong Kongeconomy. The Mainland has continued to promote the "Belt andRoad" initiative and the construction of megacities in the Guangdong-HongKong-Macao Gulf region.

For the past 20 years, Hong Kong, as a free port for global funds, has improvedits links with major global financial markets through cross-regional financialcooperation. Therefore, China's financial industry has also made full useof Hong Kong's regional radiation advantages and strengthened its internationalmanagement and operation capabilities.

The leapfrog development of Hong Kong's financial center fully reflects theimportance of relying on the Mainland and strengthening economic and tradecooperation.

It is an indisputable fact that Hong Kong's financial industry is facingpressure and challenges today. Faced with the fierce internationalcompetition of "not advancing or retreating," Hong Kong needs torecognize that the Mainland is the strong backing of Hong Kong, and activelyintegrating into the development of the Mainland is the future.

(Original title: [Island Reading] Will Hong Kong become a top internationalfinancial center? )