For many years, Hong Kong was a city of trade and commerce, of creativity and innovation, and most importantly, an international financial center. With a comprehensive financial ecosystem encompassing many, if not all, fields of finance, Hong Kong connects markets and people around the world, providing countless opportunities for businesses of all kinds. However, the city’s prestigious status has been under increasing scrutiny following a few years of disruptive events and economic hardship. Looking ahead, Hong Kong can leverage its unique advantages of being the hub of offshore renminbi (RMB) transactions; environmental, social and governance (ESG) investment; and financial innovation, and transform itself into an international financial center for the future.
Years of development and cultivation has made Hong Kong what it is today. Since 2007, Long Finance’s Global Financial Centres Index has consistently ranked Hong Kong among the top five financial centers in the world, with the latest ranking being third place, just shy of New York and London. The Economist has also ranked Hong Kong one of the freest economies in the world since 1995.
The strength of Hong Kong’s financial sector is evident, as the industry accounts for over 22 percent of the city’s GDP. Globally, Hong Kong is one of the cities with the highest levels of concentration of banks, the most open insurance sector, and the most active IPO market. It ranks No 1 among offshore RMB centers, No 3 among OTC interest rate derivative markets, No 4 among foreign exchange markets, and No 5 among stock exchanges in terms of market capitalization. In Asia, it is the largest asset management and wealth management center and has the fourth-largest bond market.
To solidify Hong Kong’s status as a global financial center, a series of reforms and regulatory changes were introduced over the past decade, aiming to expand the city’s business scope, upgrade its financial infrastructure, and strengthen its ties with global markets, especially with the Chinese mainland.
Between 2014 and 2017, the introduction of the Stock Connect and “northbound” Bond Connect programs integrated the onshore Chinese markets into the global markets, creating more cross-border investment opportunities for both domestic and overseas investors. The reform of stock listing rules in 2018 made the Hong Kong stock market more accommodative and attractive to technology firms and other “new economy” companies, leading to a wave of secondary listings by US-listed Chinese companies since then.
On top of these reforms, more initiatives were launched in 2021 to further improve the connection between Hong Kong and the Chinese mainland. In September, the “southbound” Bond Connect was kicked off, giving mainland investors a new channel to invest in overseas bond markets. In October, the Cross-boundary Wealth Management Connect Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area was introduced, providing easy access to a variety of wealth management products to Greater Bay Area residents. Given Hong Kong’s easy access to global financial markets and its expertise in wealth management, the program will likely help Hong Kong attract more capital and enhance its status as a leading wealth management center in Asia.
Over the years, Hong Kong has displayed great resilience and adaptability in the traditional financial markets. It has built a sophisticated network of financial institutions globally that is hard to break. It has also attracted many top talents and prestigious institutions from around the globe, which have started to feed into each other. Such network effects and cluster effects are unlikely to disappear, providing long-term support for Hong Kong to maintain its role as an international financial center.
Looking ahead, Hong Kong is also well positioned to become an international financial center for the future. We see three areas of great potential for Hong Kong.
First, to maintain and expand its leading role as a hub of offshore RMB transactions. As China marches toward becoming the largest economy in the world, the RMB will likely play a much more important role in global commerce and finance, such as trade invoicing, financial product denomination and pricing, clearing, and settlement. Already a leader in facilitating offshore RMB transactions, Hong Kong is best positioned to expand its offshore RMB ecosystem to a much larger scale and reap the fruits of the internationalization of the RMB.
Second, to become a center for global ESG investment and sustainable finance. As ESG investment has gained a strong foothold globally, Hong Kong is best positioned in Asia to channel global capital into the region’s sustainable sectors. With its top-notch financial infrastructure, high-quality professional services, and a well-educated talent pool, Hong Kong has all the elements to help global investors identify and invest in Asian companies with the best ESG practices and sustainable futures.
Third, to become a center for financial innovation and fintech experiments. Being one of the most open, freest and safest cities in the world, Hong Kong is attractive to global talents, especially those with innovative minds. By establishing a friendly regulatory framework toward financial innovation and leveraging its vast pool of traditional financial assets and wealth, Hong Kong has the potential and capability to cultivate an ecosystem for crypto asset traders, decentralized-finance startups, non-fungible token creators and collectors, metaverse players, and other types of blockchain innovators and fintech firms.
If Hong Kong succeeds in any of these three areas, it should easily pass the baton of “international financial center” to its next generation.
The author is deputy chairman and CEO of Haitong International Securities Group Ltd, chairman of Haitong Bank SA, and chairman of the Chinese Securities Association of Hong Kong.
The views do not necessarily reflect those of China Daily.
