Mak­ing HK the third global hub

China Daily (Hong Kong) - - HK COMMENT - RICHARD HAR­RIS The au­thor pi­o­neered the mod­ern in­vest­ment man­age­ment in­dus­try in Asia and is founder of Port Shel­ter In­vest­ment Man­age­ment in Hong Kong.

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.

Richard Har­ris

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