Partnership with Shanghai would break new ground
WILL the mainland - and Shanghai or Guangzhou in particular - pose any serious challenge to Hong Kong's status as an international banking centre any time in the near future? Mention this to any bank official in Hong Kong and one is likely to get a derisive smile. How can China's banking system - one of Asia's most tightly controlled - compare to probably its most liberal in Hong Kong? What about 20 or 50 years later? The derision is more than likely to give way to murmurs about the risk Hong Kong will be living in the shadow of the mainland, forecast to become one of the world's economic superpowers in the next century.
The most talked-about candidate to take over from Hong Kong is Shanghai. Which is why government banking officials, both in the mainland and Hong Kong, feel the need to take every opportunity to talk down the concerns.
'It's our firm belief that Hong Kong and Shanghai will join hands to break new ground in the financial sector and that the two jewels will shine brilliantly with each other's light,' Anthony Neoh, chairman of the Securities and Futures Commission, said recently in an interview with Xinhua (the New China News Agency).
Zhao Qizheng, vice-mayor of Shanghai, has driven home a similar message with another metaphor.
'With the two lamps lit and shining together, the financial corridor on the west bank of the Pacific Ocean will be brighter and more brilliant,' Mr Zhao says.
The very fact that these and other officials repeatedly stress the need for both 'jewels' to shine together reflects the deep concern among many local and international bankers about the status of post-handover Hong Kong.
Many of Shanghai's banking officials like to remind visitors of its former role as the Far East's financial centre in the 1940s, at a time when Hong Kong was nothing more than a trading port.
Official media often trumpet the metropolis' ambitious efforts to regain that position and build itself into a world financial centre.
Economists and banking officials said, however, it would probably take several decades before Shanghai could be on a par with Hong Kong in the banking sector.
The gap is difficult to bridge. Hong Kong, which has free-port status and low taxation, is the Asia-Pacific hub of operations for 85 of the world's top 100 banking institutions. It has a convertible currency and its daily volume of foreign exchange trading is the fifth highest in the world.
Shanghai, meanwhile, had largely been an industrial and commercial centre since the People's Republic was founded in 1949.
Only in the early 1990s has the city started to build up its financial strength with the blessing of China's late paramount leader Deng Xiaoping, according to Liao Qun, a senior economist at Standard Chartered Bank.
In addition to 16 mainland banks, Shanghai is home to branches of only 47 foreign and Hong Kong banks.
Only recently have nine of them won approval to do business in yuan within the confines of the Pudong New Area.
China's currency can be convertible only for current account transactions. The Government maintains tight restrictions on the capital account.
It has so far been unable to give a timetable for full yuan convertibility, which analysts say is still years, if not decades, away.
Hong Kong Monetary Authority figures show about 90 per cent of syndicated loans to mainland clients are arranged through Hong Kong.
All these factors would make it difficult for Shanghai to compete with Hong Kong, Mr Liao said.
In addition, he and other bankers said Hong Kong, with its well-established infrastructure and international practices, would continue to serve as the regional headquarters for foreign banks.
That also partly explains why mainland banks have been stepping up their presence in Hong Kong, Mr Liao said.
However, Mr Liao and other economists said Shanghai was catching up fast.
The city is already home to an increasing number of national financial markets - in inter-bank lending, stock, foreign exchange and insurance - however primitive and restrictive they may be.
Many banks, including Hongkong and Shanghai Banking Corporation and Standard Chartered, have moved their China headquarters to Shanghai.
But bankers say even after Shanghai has developed a strong financial sector, there will be enough business for both cities.
'Consider this: the World Bank has estimated that in the next 10 years the mainland will need US$800 billion (HK$6,192 billion) alone for infrastructure to sustain growth,' one banker said.
