THE NEXT 20 YEARS

The Peak (Hong Kong) - - The View From The Peak - RYAN SWIFT As­so­ciate Pub­lisher and Chief Edi­tor

On June 28, Chi­nese Pres­i­dent Xi Jing­ping landed in Hong Kong to spend three days mark­ing the 20th an­niver­sary of the han­dover of Hong Kong to China. The fo­cus of the visit, judg­ing by the itin­er­ary, was the pace of con­struc­tion of in­fra­struc­ture projects whose aim is to phys­i­cally link Hong Kong ev­er­more tightly to China.

The re­la­tion­ship be­tween China and Hong Kong has changed more dra­mat­i­cally than most ob­servers would have guessed in 1997. China was once Hong Kong’s hin­ter­land, the place for cheap labour, man­u­fac­tur­ing and prod­ucts. To­day, Hong Kong looks north and no longer sees a hin­ter­land, but the world’s new eco­nomic su­per­power. The tow­ers of Shen­zhen and Guangzhou now ri­val Hong Kong’s, and the so-called work­shop of the world has be­come a hot bed of in­no­va­tion, dig­i­tal know-how and top-tier pro­duc­tion ca­pac­ity.

In 1997, Hong Kong’s GDP ac­counted for roughly 20 per cent of China’s to­tal GDP. To­day, Hong Kong ac­counts for less than three per cent of China’s GDP. In 1997, a list­ing of the world’s bil­lion­aires in­cluded plenty of Hong Kong names, but not one Chi­nese name. To­day there are over 300 Chi­nese bil­lion­aires, and China’s home­grown wealth man­age­ment in­dus­try is start­ing to take off as a re­sult.

Since 1997, Hong Kong’s stock mar­ket has un­der­gone an enor­mous rise, but also an enor­mous shift. Chi­nese-based stocks now dom­i­nate the mar­ket, while the stock con­nects have turned the ex­change into a con­duit into Chi­nese mar­kets.

For Hong Kong’s Fi­nan­cial Gate­keep­ers, all four of whom grace our spe­cial cover this is­sue, the growth of busi­ness is a ma­jor op­por­tu­nity, but also some­thing that re­quires care­ful mon­i­tor­ing. The world knows about the per­ils of as­set bub­bles, ram­pant spec­u­la­tion and ul­ti­mately, fi­nan­cial col­lapse, but the forces that drive such cy­cles seem to be ever-present.

Will Hong Kong’s model of reg­u­la­tion hold up? Enoch Yiu, who has cov­ered bank­ing and fi­nan­cial mar­kets in Hong Kong for the South China Morn­ing Post for 20 years, asks each of our cover per­son­al­i­ties about their view on how Hong Kong has de­vel­oped, and what lies ahead. Re­cently, Ravi Menon, man­ag­ing di­rec­tor of the Mon­e­tary Author­ity of Sin­ga­pore re­flected on the 1MDB scan­dal, say­ing that he hoped the MAS’ ac­tions would re­store Sin­ga­pore’s rep­u­ta­tion as a trusted fi­nan­cial cen­tre. That is a per­ti­nent ques­tion for our own reg­u­la­tors to con­sider.

One ma­jor de­bate cur­rently un­der way is the ques­tion of adopt­ing dual-class share struc­tures in Hong Kong’s stock mar­ket. It was be­cause Hong Kong doesn’t of­fer such struc­tures that Alibaba said it chose to list in the more per­mis­sive NYSE. Now, of­fi­cials ea­ger to get tech stocks list­ing in Hong Kong want to change the rules.

Ni­cola Chur­chouse ex­am­ines the re­search on this ques­tion to see whether tech stocks re­ally do per­form bet­ter when own­ers re­tain con­trol over their com­pa­nies through re­stric­tive share­holder rights, as they say they must do. What she finds is a rather mixed pic­ture, and while a third board may bring some tech stock list­ings, it is not clear this does any­thing for long term per­for­mance. As the HKEX chases big global list­ings (such as Saudi Aramco), as well as tech stocks, this de­bate will only get more rel­e­vant, both to the ex­change and to in­vestors.

Mean­while, new busi­ness for the fi­nan­cial ser­vices in­dus­try is one of the pre­sumed ben­e­fits to Hong Kong of the Belt and Road Ini­tia­tive, the grand in­fra­struc­ture plan ar­tic­u­lated by Pres­i­dent Xi Jing­ping in 2013. Among the aims: ex­tend­ing the use of the yuan, in­creas­ing Chi­nese in­flu­ence in Cen­tral Asia, se­cur­ing port fa­cil­i­ties on mar­itime routes, and find­ing out­lets for state-owned con­struc­tion ca­pac­ity.

Hong Kong busi­ness jour­nal­ist Liana Cafolla digs into the is­sue and finds that while there are in­deed op­por­tu­ni­ties for Hong Kong busi­nesses in the Belt and Road, there are sig­nif­i­cant risks that stem from the po­lit­i­cal aims of the ini­tia­tive.

In 1997, com­men­ta­tors asked what ef­fect Hong Kong might have on China’s de­vel­op­ment. The ques­tion now seems to be: what is Hong Kong’s real place in China’s grand plan?

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