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HKMA chief executive Norman Chan says we can position ourselves to capture the growing opportunities in China.
Opinion
The View
by Peter Guy
The View
by Peter Guy

Hong Kong needs to reinvent itself in globalised world

City needs to reinvent itself on the public policy front as technological and socioeconomic forces pose challenges to the financial services industry

Bankers and business people reacted with scepticism and disbelief over my previous column on the scenario of an exodus of financial institutions from Hong Kong to the mainland. The subject represents a great concern not only to finance professionals and regulators based in Hong Kong, but to local graduates with their employment hopes. What can Hong Kong do to reinvent itself?

Norman Chan Tak-lam, chief executive of the Hong Kong Monetary Authority, told an economic summit and the on December 1: "Some people believe Hong Kong is on borrowed time, that our golden time was in the 1980s and 1990s when the city was acting as the sole gateway between China and the international world."

He also rejected arguments that Beijing wanted another mainland city, such as Shanghai with its free-trade zone, to replace Hong Kong. "Hong Kong is no longer the sole agent for China, but we still have a role to play as long as we can position ourselves to capture the growing opportunities in China."

Illustration: Lau Ka-kuen
Unfortunately, Chan does not fully comprehend the non-political, but inexorable technological and socioeconomic forces that already conspire against Hong Kong and its financial services industry.

The city is a victim of global trends that are driven by technology, which has accelerated globalisation. Very low communication, execution and transaction costs have transformed the world into a much closer, single, huge global market for labour and capital. Even though labour is not fully mobile, the other factors such as technology and capital increasingly are.

As a result, the various components of global business chains can easily move to the location of labour and clients with little friction or cost. Banks' information and processing systems are more mobile than ever, thanks to cloud technology. Tradeable services such as asset management, corporate or technology consulting are increasingly large components of advanced economies, which depend on mobile talent and knowledge.

Perhaps a deep and experienced Hong Kong fund management industry would be in a stronger position to innovate more yuan products. Instead, the city is not contributing a full range of asset management talent to the mainland. Its asset management industry is dominated by expatriates who usually return home after a rotation or when emerging markets turn down and funds flow out of the city.

This depletes the overall talent pool and hurts the development of experienced managers, resulting in too many young and inexperienced people employed in the local industry. In the United States or Britain, a credible asset manager needs at least 20 years' experience to understand a complete set of economic and market cycles.

The Hong Kong talent pool ebbs and flows. Hong Kong dollar asset management is not a priority for foreign banks or asset managers. US asset managers remain in the US when their stock market declines. Their human capital pool is retained, unlike Hong Kong's.

Technology has spawned economic anomalies where increased productivity is not accompanied by rising incomes. The US has one of the world's highest levels of real gross domestic product per capita even as its median income has stagnated for two decades. This problem has been mirrored in Hong Kong.

Hong Kong is in a better position to reinvent itself compared with an ailing city like Detroit. While Hong Kong has a budget surplus, its public policy response is the crucial next step. The US car industry is not returning to Detroit. It thrives in new places like Tennessee or North Carolina. It has evolved into a complex, global industry that requires advanced manufacturing methods and supply chains, all of which are flexibly linked by technology.

As Hong Kong begins to lose its financial services industry and its high-paying jobs, it needs to avoid becoming an economic and social backwater, a suburb of Shenzhen. But it might resemble Monaco, a tax haven for the rich that is a metaphor for big money, low taxation and ways of spending it. However, workers in Monaco live reasonably cheaply in adjoining southeastern France.

Will the government take a more commanding role in determining public policy? Can a business-dominated government effectively act as a transformative force for Hong Kong society?

This article appeared in the South China Morning Post print edition as: New role for HK in globalised world
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