Hong Kong’s undersecretary for financial services and the treasury, Julia Leung, has spoken out against accusations that Hong Kong is complacent over its position as China’s international financial hub amid rising competitive pressure from Shanghai.
“Many commentaries I have heard say we have no forward planning, no positions,” she snorted at the Hong Kong Investment Funds Association’s sixth annual conference yesterday. “[Our stance is] to just let the free market move. This is very much a misunderstanding.”
Leung expressed her belief that Hong Kong will still have a place as Asia's international financial centre, much like the role that London plays in serving continental Europe.
She pointed out that Hong Kong would continue to benefit from first-mover advantage as it still has the edge in terms of a free-flowing capital market and leading policies, such as being the first (and only) city to offer renminbi-denominated qualified foreign institutional investor (RQFII) funds.
In an on-the-spot poll of fund managers and service providers at the HKIFA event, some 70% of respondents saw Hong Kong and Shanghai as partners as much as rivals in their bid to be crowned China’s global financial centre.
But Yang Qiumei, head of mainland development for Hong Kong Exchanges & Clearing who has 10 years’ experience at the China Securities Regulatory Commission, sounded a warning, pointing out that once the renminbi is a convertible currency, Hong Kong will feel more competitive pressure from Shanghai.
In another quick poll, 40% of delegates said they expected the Chinese RMB to become fully convertible within five years.
“I guess the only difference between Hong Kong and Shanghai now is that the RMB is not fully convertible,” said Yang, “[but] when the Chinese government decides to move, it moves so fast that sometimes you cannot even follow.”
Leung countered by saying RMB liberalisation would also benefit Hong Kong, opening up liquidity in the market. For example, full convertibility would allow mainland residents who are no longer bound by capital controls to buy A-shares in Hong Kong – provided trading hours and transaction costs are competitive, among other things.
She continued by pointing out that Hong Kong has a concentration of Chinese banks and securities firms supporting the city’s financial centre status, which would attract fund flows and wealth from the motherland to Hong Kong.
She suggested that the city would likely retain its edge for at least the next five years, with delegates noting that Hong Kong’s legal system and regulatory framework, along with the standard of professional services and ethics, were of a higher quality than in Shanghai.
But Yang noted, too, that Shanghai was catching up quickly in terms of professional services and ethics. On top of this, she cited other benefits too, including the offer by the Shanghai government to executives from top financial firms to relocate to the city, including a 40% tax rebate and a Rmb200,000 ($32,000) housing allowance.