Opening-up brings sea change in city’s function
Zhou Bajun notes HK’s expanding stock connect schemes offer ideal platform to revise its role in a fast-changing country
On April 10, President Xi Jinping delivered the keynote speech at the 2018 Boao Forum for Asia held in idyllic Hainan province. He spoke on “Openness for Greater Prosperity, Innovation for a Better Future” with absolute calm despite ferocious waves of unilateralism and protectionism from the United States.
Xi summed up the experience of the country’s four decades of reform and opening-up and announced to the world a series of key measures to further open and reform the country and its economy. At the same time, he elaborately expounded the direction and path of development for Asia and humanity at large. He emphasized that China is eager to develop global partnerships and firmly supports multilateralism, as well as taking an active part in promoting global governance system reform, reshaping international relationships and promoting a community with a shared future for mankind.
China started its reform and opening-up program in rural areas and Guangdong province 40 years ago. At that time, the Chinese mainland was still an agricultural society and Hong Kong was its sole, limited economic link with the outside world, mainly the West. After four decades of comprehensive and intense reform the country now aims at full establishment of a fair, just and efficient socialist market economy with Chinese characteristics. China’s further opening means relaxing restrictions on market access, creating a more alluring investment environment, strengthening protection of intellectual property and expanding imports.
Hong Kong and the Pearl River Delta made their special contributions during the country’s reform and opening-up process. That period was characterized by the “three-plus-one” trading-mix (custom manufacturing with materials, designs or samples supplied and compensation trade). The division of labor was Guangdong manufacturing the products and Hong Kong doing the trading part. Nowadays the focus of the country’s further opening has shifted to the financial industry, among other sectors. Therein lie new opportunities for Hong Kong, especially in the realm of finance.
On April 11 People’s Bank of China Governor Yi Gang gave the Boao Forum concrete measures and a timetable for further opening of the financial industry to foreign investors. That included optimizing the stock connect mechanism between Hong Kong and the mainland, with the daily southbound quotas for the ShanghaiHong Kong and Shenzhen-Hong Kong connects quadrupling to 42 billion yuan ($6.68 billion) from 10.5 billion and northbound quotas to 52 billion yuan from 13 billion as from May 1. The sharp increase in stock connect quotas implies further integration of Hong Kong’s stock market with those of Shanghai and Shenzhen. The direct consequence of that would be a major uplift in trading volumes of the three bourses and higher volatility in stock prices. The indirect consequence would be the gradual convergence of their regulations and ultimately full integration.
The huge increase in stock connect quotas also reflects Beijing’s determination to push for full convertibility and internationalization of the renminbi. Yi clarified to media on April 11 that the central government would not weaken the yuan to cope with the trade war waged by the US. Such are the actions of a big country and reflect the central government’s confidence in realizing full renminbi convertibility and internationalization.
For more than 10 years Hong Kong has viewed offshore renminbi business and opening its stock market to the mainland as a source of selfdevelopment and as a contribution to the country’s development. With the central authorities announcing a series of measures to further open the mainland’s financial sector, the SAR government and Hong Kong’s financial sector as well as other sectors should not only continue with such convictions but also advance with the times, change their mindset and proactively participate in the process with the aim of integrating the SAR’s development into the country’s overall development strategy.
Over the past two months, Chew Sutat, executive vice-president of Singapore Exchange, and Beh Swan Gin, chairman of Singapore’s Economic Development Board, have separately questioned the ever-closer relations between Hong Kong and the mainland. Chew pointed out that “Hong Kong is part of China, whether you like it or not. Singapore is not.” So he queried: “Is Hong Kong really the best place to list, where China has some influence on the Securities and Futures Commission?”
Beh said Hong Kong is increasingly “Chinese-centric” so it may not be a suitable place for enterprises to coordinate and manage their regional businesses in Asia.
Such arguments overlook the reality that the world’s economic center of gravity has been shifting gradually toward the East (Asia) from the West (the US and Europe) and reflect an obsessively Western-centric view. Hong Kong people must refrain from such Western-centric obsession. Instead, they should develop a strong sense of self-pride and responsibility over the fact that Hong Kong is a global financial center of China; Hong Kong should further enhance its role as the premier renminbi offshore center and intensify the integration of its stock market with those of Shanghai and Shenzhen.
At the same time, in the process of further opening up the mainland’s financial industry, Hong Kong’s financial sector should not only seek more business but also contribute to ensuring national financial security.