A new financial council won't take us anywhere
To develop HK’s financial services, just let us get on with things the good old way
Jake van der Kamp
"I will establish the FSDC [Financial Services Development Council] as proposed in my Manifesto immediately. It will provide a high-level and effective platform for stakeholders to explore ways to complement the internationalisation of the financial market of our country. It will also help facilitate the further development of ... blather, blather, blather"
Chief Executive Leung Chun-ying
2013 policy address
I want to sit on this council. Yum-yum-yum. Rarely in the history of mankind will any group of people be able to dine so well and so often as this bunch will, both at home and around the world, in their pursuit of financial development. I look forward to a new gastronomes' Bible.
But as to getting anything more, I have grave doubts. This thing sounds too much like the Trade Development Council, and in the TDC we already have a government production long past its sell-by date. We need to shut it down, not start up another like it.
The best way "to complement the internationalisation of the financial market of our country" is already perfectly apparent. It is for Hong Kong to do what the mainland cannot do or will not do in financial services. This, in fact, has always been the foundation of Hong Kong's entire economy.
The less said about it, the better in financial services, however. Too often, it involves evasion of mainland taxation or of regulatory authorities.
We may wish rather to say that we can offer our greater experience and our legal system to the mainland although neither gives us much to lean on. Our experience is soon matched across the border and it doesn't require an FSDC to give us an edge in law. What we need most in law is an assurance from Mr Leung that Beijing will not turn our Court of Final Appeal into a Quarter-Final Appeal.
But to be a worldwide force in financial services, it helps to have a strong domestic market in the financial services you target. So let's go down the list.
In fixed income (the bond market), we have nothing. To establish a domestic bond market, you need two things: (1) a liquid and actively traded government debt instrument that establishes the benchmark rate of return on bonds in your currency and (2) enough bond issuance to satiate every insurance company offering coverage in your currency. Without it, all outstanding bonds are swallowed up and no secondary market arises.
Hong Kong satisfies neither of the requirements. In baseball parlance, we can't even make it to first base in fixed income.
It also helps to have an active domestic market in some commodity. Any commodity will do, the more the better.
Yes, start scratching your head. Metals? No. Agricultural goods? No. Natural resources? No. I think we might possibly claim a thriving domestic market in illegal drugs but, otherwise, in baseball parlance again, we strike out. Our stock exchange may have acquired the London Metal Exchange but this will stay in London.
We do have a thriving stock market and it does trade in Hong Kong dollars but only by ignoring that the underlying currency for most of the market capitalisation is now yuan and that Hong Kong's regulatory writ does not extend to the mainland. This is no base for an international centre in equities.
In banking, there is no international appetite for Hong Kong dollar financing and even fund management is now increasingly deterred by regulatory stringency.
All we can really do, in short, is what I take it that Mr Leung wants us to do, which is to try help Beijing find foreign takers for yuan financial instruments, a task better suited to Shanghai on the sell side and London and New York on the buy side.
But then I think the real reason he wants us to do it is to gain credit with Beijing, which may give him some needed brownie points but doesn't really do much for Hong Kong.
So here is an idea for you, C.Y. Just let your FSDC members munch their way through every classy restaurant in the world in search of new financial ideas for us while we just get on with things the good old way.