HK as a world financial centre? Sorry, professor, it's just one more of those tall stories
with Jake van der Kamp
'We have many professionals including investment bankers, accountants and lawyers that can help such firms with due diligence and the arrangement of deals. They know the market and also understand the demands of the mainland companies.'
Professor Chan Ka-keung
Financial services secretary, Feb 7
There's the academic in the ivory tower for you again - dream, dream, dream. This time Prof Chan dreams of making Hong Kong as big a financial centre as London or New York within five years by pitching listings to poor Chinese provinces.
He has obviously not read the list of listings recently. The investment bankers have been there before him. If there is any corner of China that these salivating listings salesmen have not long explored and exhausted for every tall story they can publish in a prospectus, well, I would like to hear about it.
But I'm far from as confident as he is about the level of professional expertise in Hong Kong. To my mind it consists mostly of a keen intuitive feel for how to get tall stories past the listing committee and then to sneak them under the nose of the Securities and Futures Commission - although, come to think of it, this has never been very difficult.
But when it comes to mergers and acquisitions, the staple diet of investment banking in developed markets, there is not much Hong Kong has to offer. Our market is based on family companies and connections. We don't have mergers, while acquisitions consist of simple uncontested purchases of other family assets.
To the extent that our market now has a greater emphasis on mainland listings, we have even less than this. The families and connections are in Shanghai and Beijing. Hong Kong families just play minor property games there or moan that they are being driven out of their low-end industries because workers want to be paid more. So tragic.
As to our accountants and lawyers, their biggest objective is always to keep their trades - oops, sorry, professions I mean - reasonably clean of outsiders from abroad who might threaten the fee structure if too many of them took up work here. Our accountants and lawyers don't look outwards. They look inwards.
But I concede that they do, as Prof Chan says, know the market, which is to say that they know the fee structure for being familiar with the shifting (mostly receding) minimum standards of the listing committee and the lies it is willing to accept as long as those lies bear signatures.
They also, as Prof Chan says, understand the demands of mainland companies. It is really only one demand - 'I want the jackpot, too. Whoopee! You got it for me. Here, have some for yourself.'
Hong Kong is no international financial centre. It is hardly even a regional one. It is only a country one. We specialise in China business. When the chance came along to widen the geographical scope of this business we told Rusal that it could not sell its shares to retail investors.
They were too risky, said the SFC, entirely ignoring the sky-high tall stories that China listings tell retail investors. The message that this is a two-tier listings market is not something the financial world can easily miss.
The Hong Kong financial centre has not only restricted itself to China. It has also restricted itself to initial public offerings. This is all we really do.
The game is to clear the listing committee hurdle by the thinnest possible margin and then reroute capital from the mainland to buy the stock on the pretence that it is foreign capital.
In almost every other form of international financial activity, Hong Kong is, at best, a low-tax booking centre. We have no real expertise in fixed-income finance or commodities trading, certainly not compared with New York or London, and in derivatives we have been little more than a dumping ground that New York banks use to lay off the bad bets on their books.
Even in equities our stock exchange has become increasingly uncompetitive among its counterparts because of its high fee structure, while its turnover has been undercut by 'dark pools' that give their institutional clients the privacy they seek.
And that IPO business, on which we rely, is very much a fair weather friend. As the chart shows, we get it in bull markets times. In slower times it deserts us. The boom in China will last forever, will it?
Wake up Prof Chan. Fall asleep on campus if you want, but not in office.