Yan-leung Cheung - Hong Kongs Global Financial Centre and Chinas Development

This book provides an overview of Hong Kongs role as an international financial center, focusing especially on how Hong Kong has contributed significantly, and continues to contribute significantly, to Chinas economic development. It considers the importance of Hong Kongs stock market in raising finance for Chinese companies, explores the potential of Hong Kong as an offshore financial center, and discusses recent regulatory reforms. It concludes by assessing the prospects for Hong Kongs continuing success as a global financial center, and puts forward recommendations for policies which would help secure continuing success.

Yan-leung Cheung is President and Professor of Public Policy at Education University of Hong Kong.

Yuk-shing Cheng is Head and Associate Professor in the Department of Economics at Hong Kong Baptist University.

Chi-keung Woo is Professor in the Department of Asian and Policy Studies at Education University of Hong Kong.

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19Hong Kongs Global Financial Centre and Chinas Development

Changing roles and future prospects

Yan-leung Cheung, Yuk-shing Cheng and Chi-keung Woo

Yan-leung Cheung, Yuk-shing Cheng and Chi-keung Woo

First published 2017
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2017 Yan-leung Cheung, Yuk-shing Cheng and Chi-keung Woo

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ISBN: 978-1-138-18765-8 (hbk)
ISBN: 978-1-315-64302-1 (ebk)

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This book, by Yan-leung Cheung, Yuk-shing Cheng and Chi-keung Woo, fills an important void in the literature on Hong Kong as an international financial centre and Mainland Chinas highly successful economic reform and opening to the world beginning in 1978. It takes a comprehensive look at the role of Hong Kong in the financing of the development and reform of the Mainland economy and its active participation in the world economy. The financial institutions in Hong Kong provided the crucial services necessary to support the international trade and direct and portfolio investment, first in-bound and more recently out-bound, of the Mainland. They were also responsible for the bulk of the offshore capital- and debt-raising by Mainland enterprises and institutions.

The authors also compare Hong Kong with other international financial centres, such as New York and London, making use of the various rankings compiled by different parties. They also identify the Renminbi business as the most important growth area for Hong Kong, which has a unique comparative advantage relative to the other offshore financial centres. However, the profitability and potential scale of the offshore Renminbi business depends on the continued existence of capital controls, interest rate differentials, and the stringency of financial regulations. For example, the Euro Dollar market developed in London in part to facilitate the avoidance of the more onerous U.S. regulations and taxes. The Mainlands need for the inflow of foreign capital will be declining over time as it is an economy with significant surplus savings. Its need for foreign exchange will also be declining as the Renminbi becomes used more and more as a medium of world payments. Hong Kong should begin to focus on how it can help to redeploy the surplus savings from the Mainland to the rest of the world and try to achieve a division of labour with Shanghai. The Mainland economy is certainly large enough to support two or even more international financial centres.

In addition to market-based data, the authors have also collected and analysed very valuable survey data from the market participants, including local and foreign enterprises as well as enterprises from the Mainland, that reveal their different expectations, intentions and concerns. They are right to point out that a pro-active government is necessary in order to lower the cost of doing business in Hong Kong, to collaborate with Hong Kongs competitors on the Mainland, and to maintain political and social stability so essential to Hong Kongs continued prosperity.

This book should be read by everyone who is interested in Hong Kong as an international financial centre and in the future evolution of the Renminbi.

Lawrence J. Lau
Ralph and Claire Landau Professor of Economics
Lau Chor Tak Institute of Global Economics and Finance
The Chinese University of Hong Kong

November 2016
Hong Kong

This book originates from The Role of Hong Kongs Financial Center in Chinas Development, a Strategic Public Policy Research (SPPR) project undertaken during 201114 and funded by the Research Grants Council (RGC) of the Government of the Hong Kong Special Administrative Region (HKSAR).