Reform crucial to Hong Kong economy, says treasury chief
Treasury chief Chan Ka-keung says reform on the mainland and at home will sharpen the city's competitive edge as a financial centre
Reform features strongly in the vision of the future that Secretary for Financial Services and the Treasury Chan Ka-keung sees for Hong Kong.
Whether it is structural economic change on the mainland, political reform here in the city, or regulatory shifts to keep Hong Kong competitive with international rivals, the "R-word" is inescapable.
It cropped up repeatedly in an hour-long interview with the South China Morning Post yesterday in the government offices complex at Tamar, a stone's throw from the Central financial district that is Hong Kong's economic heart - the place pro-democracy activists plan to bring to a shuddering stop later this year if they are unhappy with proposed political reforms for use in elections in 2016 and 2017.
International investor attention is gradually focusing on the potential risks to the city's status as a financial centre if electoral reform fails to achieve a broad consensus. Investment bank UBS released a high-profile report at the end of March that set out its view of the impact on real estate companies if protests were worse than expected.
Meanwhile, many business leaders - whether in the financial sector or not - worry that the government's pre-occupation with political reform is diverting attention away from economic planning, just when international competition is intensifying.
"I can see that," Chan concedes, before swiftly explaining why he believes the worriers are wrong.
"Clearly it is a very important element of Hong Kong's development, no doubt about that. It is not a question we can escape. It is what went on before 1997 and it is what has been going on since. In that sense, I don't think financial market development is distracted by this discussion. We are accustomed to this discussion and that this discussion would not be easy," Chan said.
"I do not believe that Hong Kong's status as an IFC [international financial centre] is in any way affected by the discussions that we have on the political level. The international community, I believe, understands the importance of Hong Kong as an IFC and how we contribute to Chinese market reform."
It is this contribution to mainland market reform that Chan, the political guardian of the city's financial services industry, believes is far more likely to shift the value proposition that Hong Kong offers to international investors.
He sees Beijing's structural reform programme providing the city with an additional role as the facilitator of change, alongside its traditional position as the principal intermediary for international capital flows into and out of the heavily regulated mainland.
"We are filling a niche that is something very new. Instead of selling Chinese shares, instead of just selling Chinese investment projects overseas, we are filling a demand in China which is about achieving market reform in a risk-controlled manner. That is key," stressed Chan, a professor of business and finance in the United States and Hong Kong before joining the government in 2007.
He says the complexity and expense of mainland regulatory change needed to satisfy Beijing's economic reform agenda has created a new market opportunity for the city and cites two examples to back up his view - the so-called Hong Kong-Shanghai "through train" scheme to allow seamless trading access between the two financial centres and the development of the city's offshore yuan deposit, lending and investment market.
In both instances, Beijing takes the role of figuring out how onshore yuan gets to Hong Kong and it leaves the city's regulatory and financial institutions the more intricate tasks of creating market demand for products and their compliance with international regulatory frameworks - areas in which the mainland has comparatively limited global experience.
"From a regulatory standpoint that is quite smooth and the cost for China is relatively low. You don't have to open up your own market, change your regulations, deal with offshore [participants]. You just let Hong Kong do the work," Chan said.
Chan believes Beijing will increasingly look to use Hong Kong's international financial centre connections and experience to sidestep reforms that, for now, remain simply too difficult to deliver directly on the mainland.
He also believes it raises the pressure on Hong Kong to constantly look for ways it can reform regulations to maintain a competitive edge against international rivals and cement its role as the third of the world's true global financial centres alongside New York and London.
"The legal environment, the international setting, our approach to regulation - these are the attributes of all the top international financial centres. If you don't have all of that you can't even play the game," Chan said.
And while geographic, cultural and constitutional links to the mainland give the city some unique advantages, it is still necessary to continually review the areas of commonality with competitors in order to achieve lasting success.
That means being prepared to never say never, particularly in the wake of the decision of mainland e-commerce giant Alibaba Group to pursue a potential US$15 billion listing in New York after a rancorous campaign failed to persuade regulators here to agree to terms that would allow executives holding a minority of the firm's shares to effectively control board appointments.
"We shouldn't be saying 'No' to any kind of listing rule changes. We should always be looking at possible listing rule changes," Chan said, before adding that any change to rules had to accommodate the entirety of the Hong Kong corporate governance regime and that his answers were not specific to the Alibaba issue.
"From the government's standpoint, let me be very clear, we believe there needs to be balance," Chan said.
"You cannot just lower quality because you want to get the business, obviously. But on the other hand if we are not responsive to new demands, we lose our relevance to the market. It is a balance," he said.
"We are actually very pro changes that make Hong Kong responsive to new corporate forms or new corporate vehicles. It is just balancing."