Hong Kong's financial services account for 13 per cent of gross domestic product, but only 6 per cent of employment. This is clear affirmation of the high productivity and high value-added from that activity. While it leaves little doubt as to the importance of financial services to Hong Kong, other business services perhaps merit as much recognition, too. Where exactly Hong Kong ranks in international league tables is of secondary importance. The key requirements for maintaining the position as a business centre are to ensure sound infrastructure, maintain critical mass in a full range of services, and create an ambience which, in terms of both quality and price, encourages people and businesses to locate here. Over the years, Hong Kong has made huge strides in developing the necessary technical and regulatory infrastructures. But, beyond a certain point, there may be diminishing returns from further refinements. And, however fine the facilities we create, there can be no guarantee that people will use them. For example, Hong Kong was a world leader in the 1990s in introducing real-time settlement in its HK-dollar payment systems. Extension of this facility to US-dollar payments in 2000 proved successful enough, but the extension to the euro, introduced last year, is crawling at a pace that must cast serious doubt on its viability. This imaginative local initiative may, anyway, be eclipsed ultimately by competition for such settlement activity from the international consortium CLS (continuous linked settlement). It has been functioning smoothly for nearly two years, now, and will soon incorporate the Hong Kong dollar as one of its eligible currencies. In a similar vein, Hong Kong led most of the world in the 1990s in establishing its Central Moneymarkets Unit for the electronic custody and settlement of debt issues such as bonds. A couple of years ago, this was usefully linked up to the world's leading system, Euroclear. But links to the equivalent systems in Australia, New Zealand and South Korea, heralded as opening the way for reciprocal investment opportunities, have lain obstinately dormant for some years. And a link to the trading platform of the company BondsInAsia, designed to facilitate the holy grail of electronic straight-through processing, came to naught when that company went out of business last year. I confess to having been personally involved in some of those failed initiatives. Fortunately, none of them involved a major commitment of public funds. And nothing ventured, nothing gained. If the authorities had never chanced their arm at innovation, Hong Kong would always have limped along behind other financial centres. What of the future? Modern technology has rendered much financial business footloose. 'Location' may be increasingly hard to identify. Is it where some computer mainframe or call centre telephonist sits, or where a deal is most conveniently booked for tax or legal reasons? What concerns us is to secure the important, high value-added element. This means, putting it bluntly, getting the bums of the key movers and shakers onto seats in Hong Kong. In that sense, the city has a clear comparative advantage as a centre for mainland business, and this is the niche which is being developed. While it may be tough to present ourselves as an international financial centre in the same league as London, we can strive to be the business centre for China. But, however we angle the marketing, we should remember that success depends not only on the technical services offered and on a welcoming business environment, but also on Hong Kong providing the quality of life to attract the executives generating the high value added. If the top executive personally likes the city's feel, that is half the battle won. Tony Latter is a visiting professor at the University of Hong Kong
