Mr. Shangkong | Jockeying for position
Hong Kong finds itself dealing with an increasingly assertive rival to be China's leading international finance centre, as Shanghai starts to nip at its heels.
One country, two international financial centres?
That's the question facing Hong Kong as Shanghai starts to flex its commercial muscle. In July 2009, when Beijing really started to push its currency offshore, it picked Hong Kong to be the sole proving ground to settle cross-border trade in yuan. It was among the first steps in a long-term plan to turn the yuan, which isn't easily convertible, into a global currency.
The idea is partly to use the special administrative region as a laboratory to internationalise the currency by letting individuals and companies outside the mainland buy and sell yuan. For now, Chinese officials paint Shanghai's role as being complementary to that, mostly concentrating on building an onshore yuan trading market, while Hong Kong develops as an offshore yuan business centre. But there is cause for future unease.
"If the yuan became fully convertible some day, the offshore yuan market would of course be gone. Then, Hong Kong will have to find its new way," said Gonzalo Torano, head of Asia-Pacific at BBVA, Spain's No 2 bank, which has 200 staff at its Asia-Pacific headquarters in Hong Kong, and maintains a small representative office in Shanghai. "By then, perhaps we will move our regional office to Shanghai and our size [in Shanghai] will be bigger than in Hong Kong."
What's more, in the near term, London and Singapore are nipping at Hong Kong's heels to become premier offshore centres for yuan-related business for Europe and Southeast Asia, respectively.
The city is already a recognised global financial centre with a deep pool of capital- markets-related expertise and a major stock exchange. Hong Kong also boasts an attractively low individual tax rate of 15 per cent. In Shanghai, by comparison, this can reach 45 per cent, a particular worry for well-paid expatriate bankers.