Mr. Shangkong

Is the market reform a true 'win-win' for Shanghai and Hong Kong?

For Hong Kong to maintain its financial hub status in the long run, new edges are needed other than just relying on its offshore yuan business

PUBLISHED : Monday, 14 April, 2014, 5:07am
UPDATED : Monday, 14 April, 2014, 7:51am

On the mainland, the term "win-win" has been popular for quite some time, replacing the term "zero-sum" game we often heard during the Cold War era.

Many mainland officials and businessmen like to say "win-win" when trying to reach a deal.

In the Western world, there is still a lot of debate about how people can make such a thing happen.

In Hong Kong these days, is the newly announced Shanghai-Hong Kong stock market "through-train" scheme really a "win-win"?

The days for the Hong Kong dollar are numbered ... That day will come, sooner or later

The so-called win-win is just like the merger of two companies. In the financial world, I believe many bankers will agree on this fact: there is no such thing as a "merger", only an "acquisition".

This is certainly the case if you look into the details of merger and acquisition deals. One company must be relatively bigger, or at least more powerful, to acquire the other. They can put their names together for a new brand and logo, just like my old employer Thomson Reuters, but people really know who acquires whom rather than two companies joining hands and announcing a 100 per cent equal merger.

The new "through-train" scheme to allow Hong Kong investors to directly buy Shanghai-listed shares, and vice versa, appears in the win column, at least for the short term.

As Bill Stacey, chairman of local think tank Lion Rock Institute, said at the Redefining Hong Kong debate hosted by the South China Morning Post on Friday, the "through-train" scheme is definitely not a "zero-sum" game between Shanghai and Hong Kong.

"It leads to a more thriving market condition amid a likely increase in volume," he said.

If we take a more strategic view of the potential impact of the scheme over the long term, is that still considered a win for both financial centres? The answer may not be as clear.

Some analysts have made the point that the scheme may be the first step towards getting the market systems in Hong Kong and Shanghai on the same page.

But what about the longer term? In the coming decades, the scheme may be more about the relationship between the yuan as the mainland's official currency and the Hong Kong dollar, a legacy of the city since its colonial days. In other words, the days for the Hong Kong dollar are numbered. We don't know when this may happen, but that day will come, sooner or later.

As the moderator for the debate, I asked the panelists what unique advantage Hong Kong had to remain a leading financial centre in the long run, other than the red-hot offshore yuan business, which will eventually fade away when the yuan is more liberalised and the onshore market becomes more interesting.

Mark Hyde, Clifford Chance's head of finance in Asia-Pacific and a longtime Hong Kong resident, said the rule of law should be the city's advantage compared with the mainland.

I'm still looking for more practical suggestions - not just "you win and I win" - about how Hong Kong can retain its advantages in the long run.


George Chen is the financial editor and a columnist at the Post. Mr. Shangkong appears every Monday in print and online. Follow @george_chen on Twitter or visit