It seems the development of the Hong Kong-Qianhai special zone is lagging that of the Shanghai free trade zone.
Does Hong Kong enjoy any advantage when competing with Shanghai? What should financial professionals consider when choosing Hong Kong or Shanghai? What should the Hong Kong government and the financial sector do to improve Hong Kong’s competitiveness?
Some of my overseas counterparts have asked me if it is business as usual in Hong Kong given the ongoing political situation.
One asked me if Hong Kong will lose its image, reputation and position as one of the world’s leading financial centers.
I asked myself what the financial sector can do to improve or at least maintain Hong Kong’s competitiveness.
Hong Kong’s financial system is considered one of the most solid in the world.
According to the International Monetary Fund, Hong Kong’s financial system has passed numerous stress tests with flying colors.
This is encouraging news. I am confident that Hong Kong will be able to maintain its world-class financial system and stability given the experience and expertise we have accumulated through different economic cycles.
But Hong Kong cannot be too complacent. Our neighbors are stepping up their financial markets.
Singapore is already the largest wealth management center in Asia. In China, the most significant developments that affect Hong Kong are the establishment of the Shanghai free trade zone and Qianhai.
I would interpret Shanghai FTZ as a new ecosystem wherein a new species of companies is being created in a new environment and new rules are being born.
It’s a key strategic move to maintain China’s competitiveness in global trade ahead of the establishment of Trans-Pacific Partnership.
Shanghai FTZ also provides a platform and testing ground for further liberalization of China’s financial sector, including the internationalization of the renminbi, liberalization of interest rates, tax reform and ensuring ease of doing businesses.
Although there have been recent concerns about the slow development of Shanghai FTZ, I believe its purpose is to reshape China’s long-term competitiveness in global trade and finance.
The development of Qianhai has focused attention on Hong Kong over the past two years because the two sides are linked.
Some have described Qianhai as the backyard of Hong Kong’s financial industry.
From the outset, Qianhai has been envisioned as a gateway for Hong Kong businesses to establish closer ties with the mainland.
The Chinese government specifically handpicked a number of industries, notably professional services (such as accounting and banking), allowing them greater access to the mainland Chinese market via Qianhai. China will benefit, too.
We know the Chinese government is determined to develop the domestic services industry. The quickest and most effective way is to import foreign talent.
Qianhai would be an ideal platform to import professional expertise and experience from Hong Kong. In turn, Hong Kong will benefit as Qianhai brings more business opportunities. There are clear mutual benefits for Hong Kong and mainland China.
It is pleasing to see China determined to develop and enhance its financial services industry at a rapid pace.
However, in my opinion, Hong Kong will still have competitive advantages over China.
China has a long way to go before its financial market is fully in line with international standards.
Just to name a few of the key issues: internationalization of renminbi, liberalization of interest rates and free flow of capital. These are not issues that can be dealt with overnight.
The Shanghai Stock Exchange saw its market capitalisation grow exponentially from 2006 due to market reform in 2004-2005, especially an overhaul of listing rules.
Obviously, market reform is not the only reason for that, but I want to stress the importance of government policy in China’s efforts to reform the financial market, especially in relation to the future development of Hong Kong.
Will this be a threat to Hong Kong?
I personally do not think so, if we look at the bigger picture.
There is no doubt logistics companies and international trade services providers in Hong Kong may be at a disadvantage.
However, Hong Kong service providers may benefit from enhanced trade and investment activities in Shanghai FTZ, not to mention opportunities from the development of renminbi business in the special zone.
Qianhai is designed primarily as a two-way platform to help Shenzhen upgrade its services industry (particularly professional services) and allow Hong Kong to use it to further integrate with southern China and expand its reach into the mainland Chinese market.
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