Hong Kong faces risks from QE exit, Shanghai zone

Business leaders say twin challenges in the new year may lead to fund outflow, higher interest rates and the city losing lead as financial centre

PUBLISHED : Tuesday, 26 November, 2013, 3:02am
UPDATED : Thursday, 28 November, 2013, 4:26pm

Hong Kong is facing twin challenges next year, with increased market risks due to the expected ending of monetary easing in the United States and keener competition from regional rivals such as Singapore and Shanghai's free-trade zone, the city's central bank chief and business leaders said yesterday.

At a General Chamber of Commerce business summit, Hong Kong Monetary Authority chief executive Norman Chan Tak-lam warned local businesses and investors to beware of the risks of an outflow of funds and a sharp rise in interest rates if, as expected, US monetary policy changes next year.

Another challenge is competition from rivals, with a chamber survey released at the summit showing 73 per cent of members considered Singapore a better financial centre than Hong Kong.

The survey, to which 319 member companies responded, also showed 60.2 per cent thought Hong Kong's competitiveness had deteriorated in the past year, against 31.7 per cent who said it was unchanged and just 8.1 per cent who thought it had improved.

It also found that 53 per cent of companies plan to give pay rises of up to 5 per cent next year, with about 20 per cent of firms planning rises of between 5 and 10 per cent, but 23 per cent not planning any rise at all.

Chan warned Hongkongers to beware of the risks related to the impending US exit from the quantitative easing programme - the monetary easing policies adopted by the Federal Reserve since the global financial crisis in 2008.

The QE programme has injected US$2.8 trillion into the market to boost the US economy but has also led to capital flowing into Hong Kong's stock and property markets. An outflow is likely when QE ends.

"US can't have QE forever," Chan said. "The US government will exit from the market sooner or later. It may be in March or May next year. We will keep warning the public not to incur excessive debt simply because interest rates are currently at very low levels.

"The exit from QE will have a negative spillover effect here. We need to stand ready to face the shockwaves."

HSBC Asia-Pacific chief executive Peter Wong Tung-shun said at the summit that Hong Kong companies needed to prepare for challenges from Shanghai and other mainland free-trade zones, which would compete with Hong Kong for talent and business.

"We need to have the right attitude to face these challenges," Wong said. "We need to position ourselves to prepare for the next 10 years of development of China. We need to stay ahead."

He said Hong Kong needed to think of its position when the yuan became freely convertible, maybe as early as in 2020, or when Shanghai introduced an international board.