Straight Talk's Eugene Chan (left) interviews Andrew Sheng, former head of the Securities and Futures Commission during the Straight Talk show on TVB, April 4, 2023. (PROVIDED TO CHINA DAILY)
Former head of Securities and Futures Commission and currently a member of the Council of Advisers Andrew Sheng is on the show this week.
Sheng says the new world order has displaced conventional superpowers in the world, and that the digital finance world has regulators scrambling to react and they need to rethink their approach. He also says Hong Kong can continue to play a vital role amid the fast-changing world that evolves around new tech, but we need to attract and nurture talent to achieve this.
Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Andrew Sheng.
Chan: Good evening! This is Straight Talk with Eugene Chan. Our guest tonight is Tan Sri Andrew Sheng, a renowned economist and financial analyst with over four decades of experience in the field. Sheng was recently appointed as one of the Chief Executive’s Council of Advisers, and is the Chief Adviser to the China Banking Regulatory Commission, and also serves as an adviser to the UN on sustainable financial systems. Previously, he was chairman of the Securities and Futures Commission of Hong Kong, and a central banker at the Hong Kong Monetary Authority. This evening, we will be exploring the question of whether there is a new world order emerging in the wake of recent economic and geopolitical developments.
Welcome, Andrew!
Sheng: Thank you very much, indeed, for having me here.
Chan: Thank you for coming to the show. And let's begin with the topic of the show: is there a new world order, especially emerging in the world today in the area of finance and economy, and actually what has brought that on?
Sheng: Well, the new world order is already here, it's moved from a unipolar order to a multipolar order. That means there are many more players in the game. This has made many major changes. As we all know, geopolitical tensions have risen. Technology has changed, climate change is a huge issue. The north, which is the rich is aging, the young is … the young are mostly in the south. And they're growing. So, they want to have a voice in the new order. And there's a tension, because the current order, which is run fundamentally by the West, led by the United States is feeling slightly insecure. And as long as those who run the order are insecure, the system is insecure.
Chan: Right. So, what has brought all these on suddenly. I mean, it was … things were kind of feeling very fine, like, a few years back, but suddenly everything turned in such a … what we call a turmoil in recent years. Why does it happen?
Sheng: Well, the situation after World War II was the emergence of America as the greatest of powers, militarily, economically, technologically. You know, and completely defended by two oceans, the Atlantic and the Pacific. And before that was the British Empire for nearly 200 years. And before that was the rise of the West when Europe started, you know, discovering Americas, and finding the new route to Asia. But before 1500, the world was basically mostly Asia, 50 percent of the world's population was in China and India. And at around the turn of the millennium, which is 1AD, there were two greatest empires – the Roman Empire and the Chinese Empire. And these hardly met but was connected through the Silk Road. So, if you look back in history, the West has risen very fast, basically since 1500, but the acceleration was after 1750 when the British conquered India, and America got independence 1776. And then after that, the industrial revolution, but today with the spread of technology, you know, China, India, Russia, Brazil, Indonesia, you know, all rising.
Chan: So, with all these changes, as you have just mentioned, I mean, look at it from a macro view. With you saying that the West primarily leading by the United States are feeling a bit insecure. And that's the reason why we had all this recent turmoil. So, how is all this change affecting the global financial system, especially our economy that affects all of us?
Sheng: Well, the world is an American, you know, Pax Americana, of which one of the pillars is the American dollar. And, you know, the dollar counts for roughly 60 percent of the world's foreign exchange reserves. Sixty percent of the transactions you know, in trade finance for example is in dollar, foreign exchange markets with 40 plus percent. So, the dollar is very, very important. But as the other currencies begin to emerge, there are some questions being asked, I don't see the major change in the dollar for quite a few decades yet. But, you know, as you all know, there's a split in the supply chain, so-called decoupling of the supply chains on along technological and geopolitical lines, people are friends-shoring, the restrictions on technology exports, all these make life very complicated for businesses. And in finance area, we now face cyber currencies.
Chan: So, with all that mentioned, you kind of look at the west side of sharing the leadership side and with the East now move, with mainland kind of in power. So, how is all these affecting countries like Hong Kong and other Asia-Pacific cities, Asia-Pacific regional cities, how is it affecting us?
Sheng: Well, Hong Kong is an international financial center, no doubt about it. Hong Kong is right at the heart of Asia, I mean, East Asia, particularly, it is in the very fast growing zone. You know, there's a lot of trade, it's a very important window of China, to the world, and the world to China. So, there's no doubt Hong Kong is, you know, in the middle of this. How we navigate all this is very, very critical, and that I think we all need, you know, very clear heads, patience, and deep understanding of all these very complex trends today.
Chan: Right, you just mentioned that there's a shift of power, again, from the west to the east, and Hong Kong is and other Asia Pacific cities are in this region. Hong Kong, I'm sure, as an international financial center has benefited a lot in the past. But how all this geopolitical factors are going to affect Hong Kong now, will Hong Kong still be have the extra advantage or being affected by it?
Sheng: Oh, absolutely, I think one should never doubt the historical and strategic importance of Hong Kong. Take, for example, the recent Silicon Valley Bank, I wouldn't say collapse. It was taken over by the FDIC, and then the, I could say the rescue of Credit Suisse by merger with UBS. This has shaken the confidence of people in the West's management of finance. If you're going to lose money, by investing in the 81, tier 1 bonds, of Credit Suisse, you will start you know, questioning, are my deposits safe? Or my investment in this area safe? And if I'm, in what appears to be a sensitive area, or I never was thought that I was in a sensitive area, but I could be dealing with a sensitive person and that person sanctioned or I'm sanctioned, life gets extremely uncomfortable. You have no certainty these days, right. And so, I think finance rests on trust, you know, trust in the institution, trust in the currency. And if these are shaken, I think, you know, life becomes much, much more complicated.
Chan: Yes. Since you mentioned about that, how can Hong Kong minimize all these negative effects? What can we do?
Sheng: Well, Hong Kong has got a very, very strong record, it's got a link to the US dollar, you know, all the top banks in the world, asset managers are here. It's gone through, storms before and, came through very, very well. Right, steady as she goes, that's the whole thing about finance. So I, I'm very confident that, Hong Kong can come through this very with flying colors.
Chan: Right. One word that constantly comes up in Straight Talk is sort of Singapore's new position. So, do you think Singapore is competitive enough that it's going to set a new order in this part of the world?
Sheng: Well, Singapore, you know, punches above its weight. It's only a city of about five and a half million people. And it's in the same time zone as Hong Kong. So, Asia is big enough to have several financial centers, up north there is Tokyo, then there's Shanghai and Beijing. Shenzhen is emerging. So, having Singapore, and you can't rule out Jakarta as a very important financial center in the years to come. So, you know, it's all good. That's the multipolar world, right? That means you got multipolar hubs.
Chan: Andrew, one area before we go to the break is I want to ask you about digitalization, that's affecting everyone's life. And people say that COVID-19 has actually changed, you have sort of kind of accelerated. So, what is your view on that? I mean, how is that going to change the way we're doing money and, and other financial transactions?
Sheng: Well, money is a virtual other side of real goods, right? It's a representation. And I think the rise of digital currency has demonstrated that you can virtually create currency with no change in the underlying, which is the physical assets. And that itself is danger, because that can create inflation. Okay. But digitization can't be stopped. It's changing in ways that we have not even dreamt about. I mean these last few months, the emergence of ChatGPT, artificial intelligence is revolutionary. This is not even evolutionary, this is revolutionary, right? You know, in the next 5-10 years, you'll be talking to an asset manager, your financial analysts, virtually in a hologram. And it is not a real person. But he's got all the data and the analysis behind him in the cloud. So, digitization is changing finance, dramatically.
Chan: Right, Andrew. We have to go to a break now. And viewers do stay with us. We'll be right back.
Former head of the Securities and Futures Commission Andrew Sheng attends the Straight Talk show on TVB, April 4, 2023. (PROVIDED TO CHINA DAILY)
Chan: Welcome back! We have been talking with Andrew Sheng about the economy in Hong Kong, how it might be influenced by the geopolitics, and also the impact of digitalization, both its opportunities and challenges. Let’s go on to talk more about the need for regulations and what all these means for Hong Kong. So, Andrew, just before the break, we just touched on digitalization. And we said it is affecting everyone’s life. And you mentioned ChatGPT, which is something more than revolutionary. So, can we just spend a bit more time on that issue because a lot of people are starting to say, “Hey, this is getting dangerous. Will we be one day taken over by all these technology or AI?” What do you think?
Sheng: Well, some things change, some things don’t, but the speed of things change is now much much faster. What we saw in the Silicon Valley Bank is a bank run, which has been going on for since the banks evolved, which is people taking money out of the bank, at Twitter speed, that means you have rumors over a bank, and over the next few days, you see amounts of money being taken out electronically, so fast that the bank has all its assets being sold at losses, which causes the collapse of the bank. And therefore, the regulators need to understand this. It is not just the regulators, it is the central bank, because “who provides the liquidity for this?” But ultimately it is about how do you regulate now, therefore, banks. And the basic … what has happened with Credit Suisse and Silicon Valley Bank, is that the regulatory model of bail in, which is implemented since 2008, as you recall in 2017, the Mark Carney, former governor of the Bank of England, said, “We’ve solved all the fault lines of the financial crisis that started in 2008.” Nothing has been solved. If anything, because they said banks will not be too big to fail, and if they fail, you would allow the orderly exit of these banks. And you bail in, all the shareholders take the loss. But guess what happened? The central banks have all, in the US and Switzerland, essentially guaranteed all the deposits, including the uninsured deposits, just the stop the bank run. So, I think we are now emerging into a phase of in which regulation will have to rethink the whole model. And secondly, rethink how digitization is going to change the game. There is a lot of study on this, but the people tend to forget that the cutting edge of digital central banking… central bank digital currency, a lot of experimentation pilot is being done here in Hong Kong.
Chan: Right. So, Andrew, since you mentioned about all these regulations, I mean that with all these use of digital finance, all regulatory frameworks to address, issues such as cyber security and data privacy that we listen to all the time. I mean even like the TikTok matter we talk about all these. So, all these institutions are going to have … bank books … all these complex rules. So, aren’t the investors or the consumers that want to bear all the costs?
Well, I think, you know, when the … this is the model of Caveat Emptor, right? You know, “Buyer Beware”. But the buyers are now saying to the regulators and the central banks, and all these “things are getting very, very complex, you know if you pass the risk to me, and if I am unsure, you know, I will run”. And so how we make that balance between government, state intervention, to safeguard the system, and yet the risks are not going to be created through, what is classically called, moral hazard, is very very critical. There's no hard and fast rule in this, everything is a matter of judgment. And I think because there are big waves out there geopolitically, we are moving into a little bit of uncharted territory, because technology is just moving very, very fast as I said, right? And finance is at the heart of the geopolitical tension. So, it is extremely important that we have total cooperation, that means all the global central bankers, the financial community, the business sector, should be talking to each other, and see how we can work together to create much more stability in the system.
Chan: Right. With all the regulators having to impose new rules, I am sure they tend to be very cautious, and they want to be securing their own interests. So, how can they make it more user-friendly? Because eventually I think the costs are going to pass to us as a consumer?
Sheng: Well, you can see what is happening with technology, right? Technology makes certain things simple and easy and user-friendly, and at the same time it makes everything even more complicated.
Chan: Right, right.
Sheng: Right? That is the bandwidth problem that we are dealing with. You know there is no more simple easy. It’s everything is much much more complicated. You can’t take anything for granted, many things are possible because of technology. So, therefore, the consumer needs to understand that ultimately if anything … it there are losses, it is their money. At the same time for the finance industry, you are managing other people's money, and therefore you have a fiduciary responsibility to manage it well. So, don't buy things that you don't understand, for the consumer. And for the finance industry, don't sell anything you don't understand either. So, I think the responsibility is all-round.
Chan: Right. So, Andrew, in earlier part of the show, you said Hong Kong is definitely an international financial center, and you know we are going to develop also as an international innovation and technological hub as well. So, you have just told us about the impact of digitalization on the financial system and our economy. What does this all mean for the future of finance and the real economy in Hong Kong? Because things are changing, and what opportunities and challenges do you foresee have for Hong Kong?
Sheng: Well, Hong Kong is strategically positioned, right? It is literally in the middle of the north Asia, east Asia particularly, and also in ASEAN, which is nearly 700 million population. It’s going to be the fourth largest economy in the next 10 years. And then on the west side, you got Europe. And the east side, across the Pacific, you got American markets. So, Hong Kong is very well positioned, and it is a matter of building on these comparative advantages, understanding the technology, and have a clear eye how Hong Kong can play a supportive role to the changes in the real economy.
Chan: Right. Andrew, you know the Hong Kong government has spearheaded our I&T development by injecting more than $150 billion since 2017, and introduced comprehensive I&T policies. When Dr Kennedy Wong was here a couple weeks ago, he said that after the Two Sessions, we also heard that Hong Kong businesses should leverage on the tremendous opportunities arising from the national development. So, what about with all the challenges you have mentioned, you now being a member of the Council of Advisers to our chief executive, you mentioned you guys met last week. So, how would you advise the government and policy makers, especially about such major global changes that we mentioned for the whole show?
Sheng: Well, it is very clear to me that going forward, competitions about a knowledge-based economy, whoever has the technology, whoever has the know-how, whoever has the management of the technology itself, right? The human capital, the social capital, the organizational capital, are going to be winners. So, ultimately, it is all about a talent war. And I think for Hong Kong to be opened to the world's talent, is very very critical.
Chan: Right.
Sheng: The environment is very important. People love to work in this kind of free open discussion of ideas, in order for innovation to go forward. It is very very critical.
Chan: So, you just also mentioned the word “talent”. I mean that word, we know that Hong Kong is having a talent shortage at the moment, and the government is actually encouraging talent migration in Hong Kong. But on the other hand, some of our local workers, may be displaced by all these new technology, how can the government help them to acquire new skills, and to find new jobs? As our economy, just now you talked about we used to be bank tellers to look after the customers coming for the bank run, but now we can just do it over your handphone, for example. So, what would you advise the government in this part?
Sheng: Well, you know, I have come to realized that going forward it is all about technology, tourism, and talent, right? I mean the technology can't replace a brilliant cook, a technology can’t replace a very good person who can give very good service, you know in health, in dentistry and…
Chan: Thank you.
Sheng: … you know, in education, right? All these are personal services, and people are going for high value services, good quality services, trusted services. And that is all about people, so it is talent.
Chan: Talent. Andrew, we are running out of time, but very briefly, what steps can the government take to ensure that the benefits of all these shifts are shared amongst widely across the Hong Kong society, not just to one particular sector? Your advice.
Sheng: I think being more inclusive is very very important. That means life is not about being rich, life is being about wellbeing and happiness. And happiness of the many, for the many, is what will take us forward.
Chan: Right. Thank you, Andrew, for giving us a bird's eye view of the changing dynamics of the global economy, and the impact on Hong Kong’s financial sector. It is important that we can all ride this wave of opportunity, and are also well-equipped to meet the challenges arising for these challenges. Have a good week and good night!
