I recently chaired a panel in which a trio of greats from Hong Kong, Tokyo and Singapore each claimed their city’s claim to be Asia’s premier financial center. The atmosphere echoed a family game of Monopoly entering its third hour: elusive victory, good-naturedness quickly fraying and no one really knows who’s next.
The debate has been heated, as participants sailed through waters that have been completely choppy for the past 18 months, even without the additional disruption from Covid-19.
Street protests, disturbing arrests and the passage of the National Security Act in Hong Kong in June have confirmed the theory that the former British colony’s status as a financial center is in structural jeopardy. It may be a Beijing strategy or the accidental consequence of China’s inexorable political instincts. There is a legitimate concern among foreign financial institutions in Hong Kong. Their dilemma is not just about unquantifiable risk, compulsion and where to draw their lines of tolerance, but how to be provocative when transgressions of those lines are committed.
Despite the cold, the disappearance of the territory as a financial hub is a theory awaiting a real test. Friends in Hong Kong Financial Services repeat stories of international moving companies that have shied away because of departures, and they all know someone or a fund that is considering leaving. They are wary of their own exit plans.
Yet Hong Kong’s position in our debate was the most defensive. The eleventh-hour suspension of what would have been the largest public offering in history – Ant Group’s $ 37 billion listing – this month may have a complex and contested origin. But it has hovered above the discussion as the big signal “told you so” of Hong Kong’s less and less control over its own destiny.
On the other hand, there was little cover-up that the question marks over Hong Kong were seen as opportunities for Singapore and Tokyo. Each has stepped up its efforts over the past year to attract both capital and those who control it. Tokyo’s solicitations, which include direct engagement with Hong Kong-based funds, appear significantly better thought out and supported at a higher political level than its many previous campaigns. Tokyo, where only two of the 2,657 stocks listed on the main market are foreign, has also become more sensitive to recognize its biggest twists: high tax rates, bureaucracy and language being the most important.
Singapore, meanwhile, has always played on security, its role as a gateway to South-East Asia, its important private banking and wealth management sector and the image of the Monetary Authority of Singapore as a leading innovator in financial technology.
As compelling as the Tokyo or Singapore pitches are, any exits they induce from Hong Kong now will likely be marginal, regional fund managers and other institutions tell me. Anything more important would require a tipping point which, while now easier to consider under National Security Law, has yet to be reached.
The truth is, all of the real market action has to do with China. It’s a barbed wire story, but the best there is. Serious capital and its entourage cannot resist it and “will explore every conceivable workaround to stay in its close orbit before looking at other planets,” says a Hong Kong-based fund manager. Many global financial firms have long had operations in Shanghai and Beijing and will decide – reluctantly, but with calculated gentleness – that these must become models for a continued presence in Hong Kong.
Three days after the roundtable, 15 countries sealed the Pan-Asian Regional Comprehensive Economic Partnership, a trade pact that binds economies representing nearly a third of the world’s gross domestic product and carries China, Japan and South Korea. in such a deal for the first time. . Its implications as a supranational organization with rules set by consensus and not involving the United States are diverse and broad.
The specific implications for Hong Kong as a financial center are considerable: many of the countries now enrolled in RCEP have been intimidated by China and have reason to be suspicious. Keeping the pact functioning can take a lifetime of concessions. Despite this, the participating nations chose – pragmatically – to support RCEP as an embodiment of the Asian narrative with China at its center. The financial sector is making a very similar decision vis-à-vis Hong Kong. Either way, the bet will work – until very suddenly it doesn’t.