Making HK the third global hub
Last week I noted that the taxpayer-funded Financial Services Development Council (FSDC) looked like it was becoming a talking shop for industry leaders to recommend reforms to help their own businesses. A conflict of interest is always going to occur when participants on such a body are not independent from the need to report quarterly profit figures. The FSDC should have been designed like a judicial review. A small panel, led by a single authoritative figure, would direct independent analysts to research the industry. Rather than ask Hong Kong people to give tax breaks to hedge fund managers and venture capitalists, a review panel would identify initiatives needed to help Hong Kong’s financial service sector. The following suggestions are considerably cheaper than having 58 busy CEO-types giving up their time because I am publishing them here for free!
The fundamental financial concept Hong Kong must grasp is we have to become the third global hub for financial market trading, taking over after the New York close and handing the books onto London at the European open. This is vital for Hong Kong’s future success. We are in an ideal location in regard to time zones and as a gateway to the Chinese mainland. We need to proactively market ourselves before someone else claims the crown.
We must force New York, London, Frankfurt and Zurich to think of Hong Kong as the world’s third financial center by being the natural choice. In a world where Main Street works 24/7, should their financial instruments work at least 24/5? Why do markets for global companies close at 4:30 pm when investors and businesses work around the clock? Global stock exchanges have been in a frenzy of mergers and cooperation ahead of continuous trading. We must ensure Hong Kong is at the forefront of this.
The next recommendation for Hong Kong is to resist demands like those from the Singapore government, which demand that banks and financial companies set up regional centers in the Lion City. As a young professional, establishing an office in Hong Kong in 1988, I was under constant pressure from my largest client, the Singapore government, to set up there.
Singapore, subsequently, became the Asian headquarters of many global companies — and the people that served them such as lawyers, accountants, consultants and other businesses. These should have all been, by right, Hong Kong’s due to our natural advantages and proximity to the mainland. As a result, Singapore’s development as a financial center has far outstripped Hong Kong’s.
We should reward firms who locate or co-locate their regional headquarters here with permanent resident status. Accelerated regulatory permission and other advantages could also be given to companies residing in Hong Kong.
Singapore has even sought to mitigate its location disadvantages by making Mandarin its national language — after English. Our English language skills are nowhere near those of Singapore. This is not helped by the insistence of global financial firms in Hong Kong for Cantonese speakers. Finance needs English, then Mandarin, as well as logic and initiative skills. But these are not adequately provided by our higher education system.
Singapore has long offered financial education at post-graduate level such as its private banking school. Hong Kong-based firms largely use on-the-job training with inexperienced mentors. A better use of government money would be to build an independent finance university. This could encourage practical post-graduate financial education. It could also sponsor PhDs and two years of rotational vocational training.
Hong Kong needs to better direct its excellent regulatory reputation towards encouraging development of the financial sector. We should be proud of our regulations, such as the recent HK Stock Exchange stand against Alibaba’s demands to change the listing rules in its favour. The system must make the rules (not the fat cats). This is essential for developing a third hub. However, inhibiting the establishment of new financial companies and the licensing of individuals and ideas using a box-ticking exercise is not a good idea. It is also unlikely to stop a systemic financial crisis the way the US Treasury or the European Central Bank did in 2008. Good regulation is about understanding the market, financial creativity, behavioral finance and, above all, risk. It is not clear that the authorities understand that more specific risk often delivers less systemic risk — and vice versa.
To become a third hub, we must be different. Hong Kong authorities have had two outstanding successes: the Hong Kong-US dollar peg and the Tracker Fund. These required knowledge, boldness and conviction.
Dealing with the future of Hong Kong’s financial sector is too important to be left to a group of lunch companions — a mere industrial council — senior though they may be. Our financial sector is too important. I want a professional financial review commission to be established. It can then develop policies to turn Hong Kong into a third hub. We must do this before someone else does.