Hong Kong urged to raise its game as Asia's financial hub

Financial forum warns of multiple challenges, with HKEx chief saying that by 2020, there will be 'one country, one system' in economic terms

PUBLISHED : Wednesday, 15 January, 2014, 12:00am
UPDATED : Wednesday, 15 January, 2014, 2:09am

Finance industry leaders have delivered an icy assessment of Hong Kong's claim to be Asia's commercial centre.

They warn the city faces rising competition from the mainland as Beijing continues its reforms and further loosens its grip on currency and interest rates.

"Economically, mainland China and Hong Kong will be one country, one system by 2020," Charles Li Xiaojia, chief executive of Hong Kong Exchanges & Clearing (HKEx), said at the Seventh Asian Financial Forum in Hong Kong yesterday.

"By then, the Chinese economy will be entirely open and its currency should be fully convertible, on top of the reforms of the financial system."

On a brighter note, the Heritage Foundation, a US-based think tank, announced in its annual report that Hong Kong was the world's freest economy yet again, capping a two-decade reign at No1.

But Singapore, in second place, narrowed the gap.

Li said that in the face of globalisation, the gap between the mainland and Hong Kong was narrowing. That was levelling the playing field economically, yet Hong Kong was not diversifying quickly enough the range of products it offers investors.

His downbeat assessment of prospects for the city's finance industry comes as it faces numerous challenges from rival cities.

Singapore has been actively luring fund management and offshore yuan business, while Shanghai has established its much-hyped free trade zone, part of a state-planned agenda for that city to be a fully fledged global financial centre by 2020.

Other participants seemed to agree with Li. Lawrence Lau Juen-yee, chairman of CIC International (Hong Kong) - the first overseas business unit of China's largest sovereign wealth fund, CIC - said investment capital should be able to move in and out of the mainland freely by 2020.

He urged Hong Kong to make the most of its competitive advantage, as Beijing was pressing for full convertibility of the yuan and liberalisation of its capital account - meaning its use for investment and financial transactions rather than those related to trade.

The HKEx has broadened its outlook, buying the London Metal Exchange last year to develop commodities trading and diversify from stock and financial futures trading. Li, who led that acquisition, said Hong Kong must take steps to avoid being caught out by a multibillion-yuan outflow into the city's market.

He said the mainland had "too much capital" and warned: "When the capital is coming out, I challenge you, Hong Kong is not ready for that."

Shanghai's free-trade zone is seen as a threat to Hong Kong's status as the gateway to China, as mainlanders will be allowed to use it as a base for investment overseas. It will also make it easier for foreigners to bring in capital.