Hong Kong's future as Asia's financial centre | FT Film

[Music] new york london and hong kong are by most measures the world's top three financial centres other cities can claim to be part of the conversation but if you're doing business in the west you go to new york or london in asia you come to hong kong but hong kong is in trouble on multiple fronts politics and protests kovids and china and the problems are forcing everyone hong kongers and expats alike to re-examine whether the city can still offer them what they need and whether hong kong can maintain its status as asia's premier financial centre

hong kong is the ultimate gateway between china and the rest of the world the biggest thing that is going to determine hong kong's success is going to be the need for capital in china the beating heart of hong kong's financial sector is a thin sliver of land between the sea and the mountains where banks and financial institutions have clustered retail giants like hsbc and standard charted famous wall street names like goldman sachs and jp morgan and chinese rivals like citic and cicc are among the dozens of banks that populate central hong kong they specialize in

pulling in institutional capital from around the world and deploying it into chinese companies the prime recipient of these funds is hong kong stock exchange it's the fifth largest stock exchange in the world but what makes it stand out is that it's the best and safest place to invest in china where the banks go others follow insurers wealth managers stock brokers hedge funds consultants and lawyers all taking advantage of the world's appetite for exposure to the chinese economy while positioning themselves for the day that china opens up its capital accounts and permits access to a wallet

worth 50 trillion dollars hong kong is a city that is caught up in this massive geopolitical storm there is no way to maintain hong kong's reputation as an international financial center when you have those type of upheavals in society it makes it very uncertain for foreign investors to come in [Music] finance is a lucrative business every city in asia wants the same high-value well-paid jobs as central hong kong but finance is also demanding yes it requires deep pools of capital and a strong financial infrastructure but it also requires an attractive place for people to live

and that means stable politics a happy society and the freedom of people to move and the freedom of information until 2019 hong kong ticks all of those boxes but then long simmering discontents with the territory's governments and its relationship with mainland china changed everything it all started with a bill which was proposed by the hong kong government suggesting that there would be extradition arrangements between hong kong and mainland china that the sense of betrayal was what triggered hong kong people to protest what triggered two million people more than a quarter of the city's population came

out scenes of clashes between police and protesters tear gas using pepper spray produces throwing petrol bombs for 3 4 months in nearly every part of the city the chinese government saw them as open rebellions and therefore use extra constitutional means to introduce this national security law aiming at outlawing acts of subversion succession terrorism inclusion with foreign forces hundreds of pro-democracy campaigners and government opponents like student leaders joshua wong and agnes chao academic benitai and media mogul jimmy ly have been jailed samuel bickets an american lawyer was imprisoned after an altercation with a police officer during

the protests others like political activist nathan law have been forced to live in exile i left hong kong in june 2020 a few days before the implementation of the national security law and the law criminalized free speech it's a crime to stand against the government now for some people the national security law made living in hong kong a far riskier prospect but for global business the impact of the law has been nuanced [Music] it's hard to understand how it will be enforced and how someone could be on the hook as a result of the national

security law so as a result of that a lot of businesses became more quiet a lot less outspoken and concerned about what could hit them at any time i think to be quite blunt the national security law has been reasonable for the financial sector it's been a good thing for the financial sector and so far it gives certainty and i think that certainty gives a lot of investors confidence in hong kong that could have been shattered or was shattered for some people during the protests western companies will need to take into account very seriously the

changes happening in hong kong including the erosion of the rule of law the rule of law matters because it's the assumption that the courts and law enforcement operate separately to the government in terms of international contracts and the things that foremost concern to businesses rule of law seems intact and comfortable but in our latest survey we've noted that pessimism has started to creep in i don't think hong kong has role flow anymore they can easily manipulate political cases i don't think we are far away from the date that they could also manipulate cases on commercial

arguments and make favorable judgment to beijing after six months of political disruption in 2020 the covert 19 pandemic led the hong kong government to impose a fiercely isolationist zero covered strategy that has further thrown into question the city's future as a travel and financial hub we have been seeing strict social distancing rules in hong kong we have been seeing strict quarantine rules of up to three weeks we have been seeing flight bans we have been seeing hong kong being increasingly isolated with the rest of the world the zero covet policy implemented in hong kong is

one that clearly comes from beijing but after two years watching the rest of the world uh with the exception of china really emerge from kovid and learn to live with it people are really tired and fed up so it's created this mini exodus which has really shifted the atmosphere the data show the extent of the brain drain from hong kong many hong kongers have fled to the uk while expat workers have permanently or temporarily relocated to singapore or tokyo or returned to their home countries the migration has fueled conversations about whether alternative cities in asia

have expressed their ambitions to become global financial centres could challenge hong kong's dominance there are three other cities in asia that can credibly claim to be regional financial hubs singapore tokyo and shanghai singapore has english and it's used to bringing in expatriates and it's asia light in the sense that it's very comfortable for people to be there it's definitely a place which is seen as the sort of second option as a financial hub in asia but singapore isn't perfect it definitely does not have the financial flows and the capital markets that hong kong has while

singapore has one of asia's biggest wealth management sectors its stock market is shallow and under capitalized i don't think it's an alternative to hong kong because simply put it doesn't have the connectivity to china that hong kong does there's people moving to tokyo the idea that banks or investment banks in tokyo are going to rival the american banks or the chinese banks or become a financial center threat to hong kong is kind of ridiculous to be quite blunt japan is the world's third largest economy and tokyo has deep capital markets however tokyo has some big

disadvantages its finance sector actually has closer financial ties with europe and north america than it does with the rest of asia and japan's risk-averse financial culture makes it unattractive for many investors at the end of the day you know the japanese financial sector is really good at raising money for japanese banks and japanese capital and japanese companies it is really bad at raising global funds for anything outside of japan shanghai is already a far bigger financial centre than hong kong in terms of overall value it has asia's biggest stock markets and a huge market for

bond trading banking and trade finance the problem is that no city in mainland china can realistically play a significant international role china does not have an open market it does not have the infrastructure that hong kong has to handle this immense flow of money and deals and people moving about freely beijing demands control over the flow of both money and information china severely limits access to media from outside its borders while currency controls stop people from moving their money abroad so i think that you have to you know stop this competition thing because really every

place has natural advantages if you want to access u.s capital you go to new york you don't go to london in the short term hong kong status as the gateway to mainland china appears unassailable but in the long term things aren't quite so clear in the rest of the world financial centres thrive on freedom of information of people and of capital and that clashes with china's insistence or control [Music] hong kong is becoming and arguably has become a chinese city a china-focused financial center which allows chinese companies to list raise money still do business with

the rest of the world on chinese terms if one is willing to accept that and sees the opportunities associated with that they have a strong future in hong kong but for people expecting hong kong to be like it used to then hong kong is gone one hong kong government official said to me china really just wants to shut that window of foreign influence in hong kong you know the idea of wylo or foreigner or expat hong kong is actually a funny thing we're going to look back on this 30 years from now and wonder wow

how did it go on for so long as china has growing confidence over its more totalitarian technologically sophisticated aurelian model there's no need for them to keep hong kong as an example for them to catch the west we definitely haven't seen the end of the line for hong kong as a financial center beijing has still been giving support to hong kong in terms of financial services there's still a lot of dependency on hong kong for its financial services for its unique position there is an awkwardness for american companies when it comes to china in terms

of risks and rewards walking away from it is simply not a choice that they have is the financial sector going to be bigger here in 10 years than it is today absolutely unless we think china's going to stop growing they're going to need more financial help they're going to need to be integrated further in the global financial system and this is going to be good for bankers here bankers here will still be able to make good money going forward hong kong is an incredibly resilient place and the entrepreneurial spirit of people in hong kong will

go a long way to keep hong kong as a viable financial center albeit somewhat diminished hong kong is still asia's leading financial centre even though its reputation has been tarnished but it should come as no surprise that beijing has tightened its grip over the city like it or not ultimately beijing is in charge and even though china needs international finance in order to invest trillions of dollars of household wealth over the next few decades it will require those intermediaries to be subservient to the needs of the chinese communist party international business in china faces a

choice play by china's rules or leave that makes some people uncomfortable but for others it's a compromise they're more than willing to make especially those that see an opportunity to make far more money in china