Hong Kong as an International Financial Centre

Last week I was in Hong Kong leading our annual Australian Mission to the Asian Financial Forum, an event that gets bigger and bigger each year with over 2,000 delegates attending from around the Asian region.

The Hong Kong Trade Development Council (HKTDC), led by Executive Director, Fred Lam (pictured with me above) does a fabulous job in hosting such a large gathering of financial services professionals, including hosting high profile plenary speakers and panel discussions, a "Deal Flow" session designed to match investors with interesting projects from around the world, and a number of networking and business matching events. It's the perfect start to the New Year.

Hong Kong's role as an international financial services centre is now undisputed. In December 2011, the World Economic Forum’s fourth annual Financial Development Report ranked Hong Kong in first place, above the US and UK. Hong Kong is the first Asian financial centre to achieve this position, bolstered by strong scores in non-banking financial services such as IPO activity and insurance. The results remained relatively stable among the rest of the top 10. Singapore’s decline to 4th place is a result of the securitisation markets drying up and a weakening banking system. Australia, Canada and the Netherlands maintained their positions at 5th, 6th and 7th place, respectively. Japan and Switzerland traded spots in the rankings to place 8th and 9th overall. Norway jumped into the top 10 because of strong IPO activity.

Here are three key observations gained from attending the Asian Financial Forum in 2012:

1. Hong Kong is fully recognised by China as their international financial centre

Whilst Shanghai will one day become an important international financial centre, many senior Chinese officials and business leaders continue to stress the importance of Hong Kong as the facilitator and intermediary for investment business between China and the rest of the world. Hong Kong's role in the internationalisation of the RMB was a particularly hot topic at the AFF following a visit to Hong Kong in November 2011 by China’s Vice Premier Li Keqiang and the announcement of new changes to the legal framework governing yuan-denominated trade and financial transactions between Hong Kong and mainland China. Mainland Chinese entities are now expected to issue even more renminbi-denominated (known as "dim sum") bonds in Hong Kong following the implementation of these new measures, which is likely to exceed the RMB 88 billion (US$13.7 billion) worth of these bonds issued in 2011. UK Chancellor Exchequer, George Osborne, trumped the Conference by announcing a co-operation agreement for London to work with Hong Kong to trade the yuan internationally, an opportunity which has apparently been offered to Australia aswell, without a response so far.

My take on all this is that Hong Kong is the largest, most important and dynamic financial services centre in the Asia Pacific region, supported by the "wall of money" moving in and out of China. The numbers speak for themselves. Australia's local financial services industry needs to quickly work out how they can participate in this, rather than continuing to promote the credentials of Sydney as a regional hub. Responding to Hong Kong's invitation to participate in RMB trading would be a good start, and there are many other opportunities for our leading players to participate in the sector. The race to be the regional hub is well and truly over.....it's time to accept this and get on board!!

2. Hong Kong has an important role to play in facilitating Indian investment into China

This was an interesting comment from Indian entrepreneur, Mr K.K. Modi, Chairman of the K.K. Modi Group, during the Panel Discussion on Global Investment Opportunities on Day 1, which was not widely picked up by the media. Mr Modi made the point that India as a country and Indian entreprenuers are keen to invest and do business in China, but for a wide range of historical, cultural, language and other differences, they find China complex and difficult to understand. Hong Kong, on the other hand, shares a similar colonial history with India, an English rule of law, an established bureaucracy, and a wide range of common values and shared experiences. In addition, there are over 20,000 Indian expats living in Hong Kong, many of whom run successful businesses and are experienced in managing cross-cultural relationships with their Chinese counterparts.

Bearing in mind, the importance of the China/India relationship in the future (and intra-BRIC trade for that matter), Hong Kong has an important role to play as a intermediary of two-way business and investment between these two economic super-powers. Mr Modi urged Hong Kong to focus more on working with India to facilitate trade and investment into China. I don't expect Hong Kong to be slow in meeting this challenge. Watch this space!

3. Don't forget Guangzhou and the Pearl River Delta region!

In the rush to Shanghai and Beijing, foreign investors, entrepreneurs and business leaders often forget the importance of the nine cities which make up the Pearl River Delta economic zone, and particularly the largest city in the region and the provincial capital, Guangzhou. On the third day of our mission we visited Guangzhou's new financial district which is transforming the city into a striking, attractive and modern city which is now regarded as the most liveable city in the region and a serious alternative to Hong Kong for those whose focus is on China but prefer to live in the south. Many of my Hong Kong friends, and some of the senior Chinese bankers I met during our visit, confirmed that they prefer living in Guangzhou to Hong Kong, an idea which was unthinkable only 10 years ago!

In 2010, the Pearl River Delta accounted for:

  • 12.2% of the annual growth of China's GDP
  • 4.2% of China’s total population
  • 9.4% of China’s GDP
  • 10.3% of China’s gross industrial output
  • 27.4% of China’s total exports
  • 9.8% of China’s total retail sales of consumer goods

Please make a note of the dates of next year's Australian mission to the Asian Financial Forum: 13th to 17th January 2013 and contact us at support@thinkglobal.com.au for more information....

In the meantime, please watch our short video podcast this month from Hong Kong and Guangzhou: