Hong Kong ranked fourth in the latest Global Financial Centres Index jointly released recently by the Z/Yen Partners in London and China Development Institute in Shenzhen. Obtaining a total of 722 points in its overall score, the city is merely one point short of Singapore (723, third place).
Hong Kong and Singapore have been in a tight race, taking turns for the third-place spot, which suggests that the two cities are neck and neck in terms of financial prowess. The latest rankings thus are no cause for alarm.
Let’s look at some of the indicators pertaining to the two cities’ financial capacity. The banking industry of Singapore has total assets of $2.8 trillion, whereas Hong Kong has $2.3 trillion. Hong Kong’s stock market has a capitalization of $3.9 trillion, while Singapore’s stock market has a capitalization of $700 billion. Hong Kong’s bond market is valued at $323 billion, whereas Singapore’s is at $113 billion. Foreign exchange market daily trade volume averages at $782.9 billion in Hong Kong, vis-a-vis the $660 billion in Singapore. Hence, except for the total assets of the banking industry, Hong Kong is well ahead of Singapore in other financial indicators.
Indeed, the two cities are each gifted with advantages. In the foreign exchange market, Singapore has an inherent advantage in serving the multicurrency Association of Southeast Asian Nations region, while Hong Kong is one of the major US-dollar exchange centers in the world. Meanwhile, Hong Kong boasts its distinctive status as the premier offshore renminbi business hub, with renminbi deposits amounting to nearly 1 trillion yuan ($145 billion) by the end of last year.
Following the bankruptcy of Silicon Valley Bank and the Credit Suisse debacle, capital in the scale of hundreds of billions of dollars has been flowing out of the US and European markets, and reportedly seeking safe havens in Hong Kong and Singapore, which attests to the two cities’ reliable financial stability and security.
In terms of asset and wealth management, Hong Kong’s financial sector managed $4.5 trillion of assets at the end of 2021, of which two-thirds were overseas funds. Singapore, which is also picking up steam in this area, has reportedly raised total assets under the management of its financial sector by 15.7 percent from 2018 to 2019, 17 percent from 2019 to 2020 (a growth rate exceeding that of Switzerland), and 16.4 percent from 2020 to 2021. According to data analytics company Handshake, the number of family offices in Singapore has also risen from about 221 in 2020 to about 1,500 in 2022.
The liquidity problems of some small and medium-sized American banks and Credit Suisse have created widespread concern among investors and clients about the safety of their money, triggering the current flight of capital from the US and European markets. Among them, funds held by ethnic Chinese mainly sought a haven in Hong Kong, while funds held by non-Chinese nationals by and large have ended up in Singapore, which seems to be more attractive to outbound European and American capital.
What constitutes an international financial center is its ability to ensure the free flow of money. In this regard, Hong Kong plays the key role as a financial intermediary between the Chinese mainland and the rest of the world by leveraging the city’s numerous facilitation arrangements, such as the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, Cross-boundary Wealth Management Connect, Bond Connect, etc. This is where the city’s greatest potential and strength lies.
The central government has set China’s economic growth target at about 5 percent this year, which is double that of the world’s developed economies. The economic growth of the world’s second-largest economy will conceivably generate a robust driving force for Hong Kong’s financial industry in the years ahead.
That the Chinese mainland is unlikely to fully liberalize its capital account in the short to medium term allows for division of labor between Hong Kong and mainland cities. Shanghai can play a key role in facilitating “internal circulation” as mainland investors and fundraisers normally opt for Shanghai’s platforms. Hong Kong, on the other hand, is indispensable to promoting “external circulation” as it provides a platform for mainland investors to go overseas and for foreign capital to enter the mainland market.
No place is in a better position than Hong Kong to facilitate capital flow between the mainland and overseas markets. While overseas investors may not be familiar with the socialist market economy of the Chinese mainland, they are familiar with the capitalist economy and common law system of Hong Kong. The city, therefore, offers the most ideal channel for matching mainland and overseas investors with fundraisers. From this perspective, Hong Kong should expand its financial intermediary capacity.
The end of the COVID-19 pandemic has brought about the resumption of exchanges between Hong Kong and the mainland as well as with the international community; the mainland’s economic development will increasingly benefit Hong Kong’s financial sector. President Xi Jinping’s high-profile visit to the Middle East last December was a major diplomatic success, which paved the way for Chief Executive John Lee Ka-chiu’s fruitful visit to Saudi Arabia and the United Arab Emirates last month, during which Lee led a delegation to promote the city’s unique advantages. The diplomacy has started to bear fruit as Saudi Aramco, the largest oil producer in Saudi Arabia, is exploring the possibility to be listed in the Hong Kong stock market with an initial public offering in the scale of tens of billions of dollars. This is just one of the examples of how the country’s major power diplomacy can benefit Hong Kong.
What may also come as a boon to Hong Kong’s financial sector is the introduction of new regulations that raise the threshold for mainland enterprises to go public overseas, which will prompt more mainland companies to list in Hong Kong.
The central government agencies have recently promulgated the “Opinion on Providing Financial Support for the Comprehensive Deepening Reform and Opening Up of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone”, which entails a series of financial reforms and innovative measures that will promote the alignment and high-level cooperation between the financial markets of Hong Kong and Shenzhen. This will again yield more opportunities for Hong Kong’s financial sector.
On each occasion, the release of the Global Financial Centres Index invariably triggered comparison between Hong Kong and Singapore. However, we should set our sights beyond Singapore and aim to catch up with London and New York as well as seize the opportunities offered by the mainland’s development and the global economy. If we want to raise the bar for Hong Kong’s financial sector, we must focus on the big picture and think from a broader perspective.
The author is vice-chairman of the Committee on Liaison with Hong Kong, Macao, Taiwan and Overseas Chinese of the National Committee of the Chinese People’s Political Consultative Conference and chairman of the Hong Kong New Era Development Thinktank.
The views do not necessarily reflect those of China Daily.
