It’s a fair question to ask: have the street protests in Hong Kong made it impossible for the city to carry on as before as the great financial market hub in Asia – or can it continue to thrive?
I should make clear from the start that I think the Hong Kongers who are frustrated will find their niches, eventually, and thrive. In the longer term they will find a way to progress and their demands for an expansion of political rights will be hard for Beijing to ignore.
Meanwhile, as their quest for justice plays out, many business decisions will be made. How will heartless market forces decide?
Not surprisingly, opinions are divided and the answer depends on the vantage point of the observer. I recently posed this question to a couple of old friends who are expatriates and who have been in the financial sector in Asia for decades – and got two diametrically differing responses.
My first approach was to a friend who has been a senior executive in the fund management sector in Asia for over 25 years, with many years of experience in Singapore and Tokyo. In his opinion it’s game over for Hong Kong and game on for Singapore in pole position. But there are some secondary advantages possible for Tokyo, as well, he suggested.
I mentioned that Singapore lacks land for much further development of housing, offices and the additional foreign schools that would be needed if there were to be a substantial shift by international banks and non-bank financials from Hong Kong. But he thought that this would be less of a problem than I imagined, since existing office complexes and schools could be expanded and enhanced.
Singapore could certainly expand its office space and housing stock to some degree, and Changi International Airport has recently completed an expansion project and is now able to handle millions more passengers every year. It is widely acknowledged by business travelers as one of the best airports in the world.
On my most recent Singapore visit it took only a very few minutes to complete the entry procedures, collect my bags and head to the taxi rank where a pleasant cab driver loaded my bags into his cab and less than 20 minutes later dropped me off at the front of my hotel.
After a long flight there is a lot to be said for sheer efficiency. But not necessarily enough to convince me that Singapore will be the standout winner of the Asian financial hub sweepstakes.
This friend was less sanguine about Tokyo’s ability to win financial hub operations away from Hong Kong. That seems right to me.
There is room to expand the footprint of existing foreign schools in Tokyo, and the range of housing is abundant from the smaller apartments, suitable for single foreign employees, to the larger homes for senior executives who have spouses and children.
But the Japanese market remains very Japan centric, and that means that there are limited numbers of potential employees there who have had experience in global financial markets and transactions and who speak English fluently.
These challenges probably explain why many global financial companies have historically sited their Asian operations in Hong Kong, or Singapore in some cases, and refer to these hub offices as their “Asia Ex-Japan” offices. And then they operate in Japan on a stand-alone basis without reporting lines to their other operations in Asia.
My next contact was with a friend who has been in Asian markets research as a senior analyst for nearly 30 years. He has been based in Hong Kong itself for most of his time in Asia and is there now. I put the question to him and got a succinct reply: “Hong Kong will be fine” as a hub for foreign financials – “but not for the Cantonese.”
Regarding the first part of his opinion, he meant that Beijing is not about to turn its back on Hong Kong as a global financial hub for both Asian countries in general and mainland China in particular.
Many foreign institutional investors do not want to buy bonds or stocks directly from exchanges on the mainland because they prefer to buy in Hong Kong where the governing law is common law, based on English law from Hong Kong’s days as a British territory. Singapore, too, is a common law jurisdiction, but lacks the proximity to the Chinese mainland that gives Hong Kong a tremendous advantage over all other markets in Asia.
The view that this friend and I share, that Hong Kong will continue to be the prime choice by foreign financials when setting up Asian hubs, has a lot to do with its ease of access to mainland China. From my base in South Korea it is possible to fly to Beijing and Shanghai directly, but there are not a great number of flights available and many find it best to connect via Hong Kong for flights to many cities on the mainland.
Hong Kong’s position as a financial hub depends in some measure on its role as a regional transportation hub for business travelers from across the region and elsewhere in the world. And Hong Kong’s airport is consistently rated one of the world’s top-tier facilities.
For that reason alone, Hong Kong is very likely to remain the first port of call for business people who want to do business with mainland companies. They can meet the Hong Kong-based executives of many mainland companies in Hong Kong, and many business visitors never go beyond Hong Kong to other places in China. Hong Kong provides one-stop shopping convenience, and that gives it an advantage that is hard to beat.
Speaking of shopping, the local retail goods market in Hong Kong is of some interest to business visitors and tourist visitors – but it is simply not that important for business relationships, which increasingly focus on mainland companies and industries.
Mandarin vs Cantonese
But what about my friend’s jibe, “not the Cantonese”? What did he mean by that harsh-sounding remark? Well, it’s simple, really. He meant, and I agree, that Beijing expects the local Hong Kongers not to be the prime beneficiaries of what happens there financially – and expects them to learn from that a political lesson.
Of Hong Kong’s population of close to 8 million, well over one million are mainlanders who have settled in Hong Kong over the past 22 years since the British left. Many of them fully support Beijing’s policies or at least have not participated in the protests, even the peaceful ones.
The majority of the population are what we usually mean when we say “Hong Kongers” and they are natives of Hong Kong and their primary language is Cantonese, a regional dialect of Chinese as opposed to the Mandarin Chinese that is the standard Chinese spoken by most mainlanders. My friend was simply suggesting that the protests have been driven primarily by Hong Kongers and that Beijing has taken note.
But for a considerably longer time the job market, relatively neutral politically, has been sorting the people of Hong Kong. Ask anyone in the industry and you’ll be told that foreign financials want to hire bright mainland university graduates who come to work in the Hong Kong offices.
The local Cantonese graduates can still find employment at foreign financials, but they tend to find opportunities in middle-office administration and back-office transactions-processing work rather than the front-office sales and corporate advisory roles that have been going increasingly to mainland graduates in Hong Kong.
The upshot is that Hong Kong remains indispensable to the continued growth of mainland China’s companies due to global investors’ receptivity to Chinese bond and stock issuance in Hong Kong.
The common law basis for financial transactions that Hong Kong provides gives a layer of certainty to foreign investors that is still not available in mainland China since the legal system on the mainland remains opaque and difficult for foreign investors to use effectively.
Hong Kong’s financial advantages cannot be replaced in the near term, but the beneficiaries of the employment generated by foreign financials will increasingly be mainland Chinese.
And so my second friend’s conclusion is one that I can agree with. Hong Kong will push past the local protests and continue to function effectively as a regional hub for global financial companies seeking to work with Chinese mainland companies that in turn are seeking access to global investment and finance. It will continue to be the premier financial hub in Asia for Chinese-related business.
As such, it will generate many positive opportunities for Mandarin-speaking mainland Chinese, but unfortunately this may not be a time of rapidly expanding opportunities for local Cantonese-speaking Hong Kongers.
Hong Kongers who have sought and will continue to seek justice (and who, I personally think, deserve justice), will be “punished,” in the short to medium term, by the invisible hand of market forces – without much need for mainland authorities to dirty their own hands administering that punishment.
Based in Seoul for over 35 years, Hank Morris has had a long career in the Korean securities and asset management sectors. He was chief manager for several UK brokers and merchant banks and continues to be active in research on Korean financial markets. He is a non-executive director on the board of the Seoul Financial Forum, a non-government body that seeks to enhance the development of the Korean financial sector.