JAKE'S VIEW
Jake's View
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Qianhai is no match for Hong Kong, let alone Greenwich

The planned new financial services hub just across the border lacks basics like the rule of law and free flow of information; it’s not just about building nice offices

PUBLISHED : Sunday, 09 April, 2017, 1:16am
UPDATED : Sunday, 09 April, 2017, 1:25am

Known as the Qianhai SZ-HK Fund Town, the new area is scheduled to finish construction in October with 29 buildings that can accommodate 100 fund management companies...

The concept follows the American model of Greenwich in Connecticut, which was established as a hub for hedge funds and financial services firms.

SCMP, April 7

 

The story of the three little pigs unavoidably comes to mind. Here we have the house built of straw, you see, and there can be little doubt when the big bad wolf comes round that he’ll huff and he’ll puff and he’ll blow that house down.

But even Greenwich, Connecticut, is not quite up to the house made of brick in which the wise little pig lived safe from the big bad wolf, although it is certainly built much stronger.

Let us think of some of the ways in which it is stronger.

In the first place, no one ever established it as a financial centre. It grew there on its own because financial people are generally better paid than others and can afford to live in more salubrious surroundings than New York City.

Thus large numbers of them did so and when they got a little tired of the traffic jams in the morning or of hanging on a strap in a crowded commuter train, large numbers of them said to themselves, “Now, why am I doing this? Why am I going to New York? Why don’t I make New York come to me?”

The deed followed the wish and many fund management offices moved to Connecticut. They made the brokers and other hangers-on go to them there. In the finance business you go where the money is. I was once a broker. I went to Connecticut.

Now try to imagine fund managers going to Qianhai because they think that this polluted mudflat and the neighbouring traffic-choked concrete horrors of Shenzhen are salubrious surroundings. Yes, try to imagine it. Try harder.

Then we have rule of law. In Connecticut, as in New York, a contract is binding and the law will hold both parties to it even if one of them is a certain over-elevated New York developer who has never been wrong about anything.

Qianhai signs on 23 financial firms in its SZ-HK Fund Town

In a financial centre you must have this (and tolerate the developer, a pity).

Perhaps I do Qianhai an injustice and the principle of rule of law now rules there rather than just the principal ruler of law. But in these matters we also have the principle of Caesar’s wife. She must, said Caesar when divorcing her, not only be virtuous but be seen to be virtuous.

I am afraid contract law across the border does not yet live up this standard. The authorities in Qianhai simply have it wrong. The foundations of a financial centre are not made of concrete but of trust in the law. It is a big mistake.

Consider also the requirement for the free flow of information. You need consider it no further than by trying to access Google across the border.

It may not be as absolute a requirement as rule of law but it comes pretty close and where you cannot even get Google, let alone an uncensored news feed, you will not get much international finance.

All of this assumes that there is in Guangdong a natural market for the financial services that Qianhai hopes to offer. There is indeed and it is offered by Hong Kong, not Qianhai. Capital flight from the mainland has been running for two years at more than US$600 billion a year.

But Beijing has decreed that it must stop. Hello, Qianhai, great time to start up a financial centre. What was your opening date to be again?

There is always the Dubai technique, however. Offer your target banker a sum of US$100 million to manage if he hires two local princelings for show and gets his bank’s name up in big lights visible from the airport.

Don’t be picky about his fees. It works.

Nothing much else will.