Shanghai faces taxing issue in tale of two cities
The overwhelming trump card Hong Kong holds in the struggle to be accepted as the financial capital of the nation boils down to 15 per cent
When discussing the growing rivalry between the financial centres of Shanghai and Hong Kong, some say the competition is more about personnel than about how many skyscrapers each city boasts.
One of the biggest edges that Hong Kong has in attracting financial talent - and one that Shanghai is unlikely to match in the near future - is the personal income tax rate. In Hong Kong, most people pay no more than 15 per cent, while in Shanghai the tab can reach 45 per cent.
When I mentioned to officials in the Shanghai government what a challenge such a high tax rate posed, some tried to argue that the salary levels in the financial industry in Hong Kong were much higher than in Shanghai.
So, they contended, while an employee might benefit from a lower tax bill, his employer would be spending more money on labour costs in Hong Kong than Shanghai. Really?
I know that Bao Fan, chairman of China Renaissance Partners, the mainland's biggest privately held investment bank, has been busy hiring for his new Hong Kong office.
I asked him about the difference in labour costs between Shanghai and Hong Kong.
As an employer, he said: "Initially, I was a bit worried but later I found the difference is actually very limited in terms of the amount of money - before tax - that I give to my employees."