Amid intense competition from other financial centers, Hong Kong must have crisis awareness and continue to strengthen and consolidate its status as an international financial center. It must not indulge in a false sense of security, thinking that it will automatically regain the talents and business it has lost when the pandemic fades away.
Article 109 of the Basic Law stipulates that the HKSAR Government shall provide an appropriate economic and legal environment for maintaining Hong Kong’s status as an international financial center. In his important speech delivered on 1 July, President Xi Jinping stressed the Central Government’s full support for Hong Kong in its efforts to maintain its distinctive status and strengths, to cement its status as an international financial, shipping and trading center, to keep its business environment free, open and regulated, to maintain the common law, and to expand and facilitate international ties.
Hong Kong’s sound common law system, free flow of information and capital, and regulatory system that is in line with international standards have all been important factors in its emergence as an international financial center. After many years of development, Hong Kong has made remarkable achievements and now ranks as the world’s third international financial center, with its financial service industries making outstanding contributions to its economy. Nevertheless, it is undeniable that Hong Kong has experienced internal troubles and external uncertainties for some time, with factors such as the China-US rivalry and anti-epidemic strategies presenting challenges to its status as an international financial center. Amid the complex and volatile international situation and intense competition among various economies, Hong Kong must have crisis awareness to maintain its unique position and strengths arising from the motherland’s strong backing and its own connection with the wider world, while stepping up efforts to drive the upgrading of its financial system towards diversification and sustainability.
Early border-opening roadmap needed to address alarming brain drain
First of all, to meet the requirements of both China and foreign countries, the HKSAR Government has adopted relatively strict anti-epidemic strategies and quarantine policies to cope with the unpredictable resurgence of COVID-19 and continued emergence of stronger infectious variants. Consequently, entering and leaving Hong Kong is less convenient than before, thus putting to test Hong Kong’s role as the Asia-Pacific regional headquarters for multinational corporations and leading to a brain drain. Some companies and employees have relocated to Singapore or Dubai, while many foreign financial institutions have decided to station their employees in the Mainland to handle their business, thereby avoiding the quarantine procedures for travelling between Hong Kong and the Mainland.
This situation is reflected in the latest World Competitiveness Yearbook, an annual report published by the Swiss-based International Institute for Management Development (IMD) in Lausanne. According to the report, Hong Kong’s ranking in “labor market” dropped sharply from eighth last year to 20th. The HKSAR Government should formulate a border-opening roadmap as soon as possible to ensure Hong Kong’s competitiveness, appropriately easing quarantine arrangements for inbound travelers from overseas and discussing with the Mainland to start border opening in a “closed-loop” and “point-to-point” manner on the basis of further improvement in local epidemic management. At the same time, the Government must be more proactive in promoting Hong Kong and recapturing business, such as attracting Southeast Asian companies to Hong Kong for public listing after joining the Regional Comprehensive Economic Partnership Agreement (RCEP). Hong Kong must not indulge in a false sense of security, thinking that it will automatically regain the talents and business it has lost when the pandemic fades away.
Drive development of offshore RMB business and green sustainable finance
Secondly, Hong Kong must have crisis awareness amid intense competition from other financial centers. As the saying goes, “it takes a good blacksmith to forge good tools”. The best way for Hong Kong to win back the companies and talents it has lost is to continue enhancing its competitiveness. This not only requires the HKSAR Government to step up efforts to push the development of Hong Kong’s financial system towards diversification and sustainability, but also needs the support of digital infrastructure, taxation system and talent policies. In my view, there are two main development directions that can be explored in depth, which are offshore RMB business and green sustainable finance.
Regarding offshore RMB business, Hong Kong, which is currently the world’s largest offshore RMB business hub, boasts the largest RMB capital pool outside Mainland China, with a scale of over RMB900 billion. Going forward, for international trade, especially trade with ASEAN countries, Hong Kong should push for settlement in RMB. With regard to investment, Hong Kong should create more RMB-denominated investment vehicles and channels, and carry out formulation of institutional arrangements for an international RMB asset center and risk management center, as well as enable trading of shares in RMB via the southbound Stock Connect link and encourage the issuance of RMB-denominated bonds in the capital markets. In terms of reserves, the HKMA should gradually reduce its holdings of USD assets and increase its holdings of RMB assets. In addition, Hong Kong should strive to become a pilot area for international cross-border payments in digital RMB, and put them into actual regional applicable practice in ASEAN to expand the international influence of digital RMB.
Regarding green sustainable finance, Hong Kong must solve the pain point that there is no unified standard for green finance and should also actively nurture relevant talents to capture the HKD500 trillion of climate investment opportunities in Asia over the next 30 years. It should also explore the establishment of a carbon trading market in the Greater Bay Area to support the country’s targets of achieving carbon emissions peaks in 2030 and carbon neutrality in 2060 it set in 2020.
Finally, given the impact of international geopolitics, besides capturing the opportunities arising from the return of Chinese concept stocks, the HKSAR Government must consider ways in a forward-looking manner to deal with the financial war to safeguard the financial security of Hong Kong as a fully open financial center.
This is a free translation. For the exact meaning of the article, please refer to the Chinese version.
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