THE NEXT 20 YEARS
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?