I recently chaired a panel in which a trio of grandees from Hong Kong, Tokyo and Singapore each staked their city’s claim to be Asia’s premier financial centre. The atmosphere echoed a family game of Monopoly running into its third hour: victory elusive, bonhomie fraying fast and no one quite sure whose turn it is next.
The debate was choppy, as participants navigated waters that have been thoroughly whipped up over the past 18 months, even without the additional disruption of Covid-19.
Street protests, troubling arrests and the passage of Hong Kong’s national security law in June have entrenched the theory that the former British colony’s status as a financial centre is in structural jeopardy. This may be a strategy by Beijing or the accidental consequence of China’s inexorable political instincts. There is legitimate disquiet among foreign financial institutions in Hong Kong. Their dilemma is not only about unquantifiable risk, constraint and where to draw their lines of tolerance, but how defiant to be when transgressions of those lines are made.
Despite the chill, the territory’s demise as a financial hub is a theory still awaiting a real test. Hong Kong friends in financial services repeat stories of international moving companies being run off their feet by departures, and they all know of someone or some fund planning to leave. They are circumspect on their own exit plans.
Still, the Hong Kong position in our debate was the most defensive. The eleventh-hour suspension of what would have been history’s biggest initial public offering — the $37bn listing of Ant Group — this month may have a complex and contested origin. But it loomed over the discussion as the great “told you so” signal of Hong Kong’s fast-diminishing mastery of its own fate.
On the other side, there was little disguising that the question marks over Hong Kong have been seen as opportunities for Singapore and Tokyo. Each have in the last year intensified efforts to lure away both capital and those who control it. Tokyo’s solicitations, which include direct engagement with funds based in Hong Kong, appear significantly better thought-out and supported at a senior political level than its many previous campaigns. Tokyo, where just two of the 2,657 listed stocks on the main market are foreign, has also become more sensible about acknowledging its biggest turn-offs: high tax rates, bureaucracy and language being the most prominent.
Singapore, meanwhile, has consistently played up safety, its role as a gateway to south-east Asia, its large private banking and wealth management industry and the image of the Monetary Authority of Singapore as a cutting-edge innovator on fintech.
However compelling either the Tokyo or Singapore pitches may be, any exits they induce from Hong Kong now will probably be marginal, the managers of regional funds and other institutions tell me. Anything more significant would require a tipping point that, while now easier to envisage under the national security law, has yet to be reached.
The truth is that all the real market action is China-related. It is a barbed narrative, but the best one out there. Serious capital and its entourage cannot resist it and will “explore every conceivable workaround to remain in its close orbit before looking at other planets”, says one senior Hong Kong-based fund manager. Many global financial firms have long had operations in Shanghai and Beijing and will decide — grudgingly, but with calculated meekness — that these must become the templates for a continued presence in Hong Kong.
Three days after the panel discussion, 15 nations sealed the pan-Asian Regional Comprehensive Economic Partnership, a trade pact that binds economies representing almost a third of global gross domestic product and draws China, Japan and South Korea into such a deal for the first time. Its implications as a supranational organisation with rules set by consensus and not involving the US are various and vast.
The specific implications for Hong Kong as a financial centre are substantial: a good number of the countries now signed up to RCEP have been browbeaten or bullied by China and have cause for wariness. Keeping the pact functional may demand a lifetime of concessions. In spite of that, the participating nations have chosen — pragmatically — to back RCEP as an embodiment of the Asia narrative with China at its centre. The financial industry is taking a very similar decision vis-à-vis Hong Kong. In both instances, the bet will work — until very suddenly it doesn’t.