Can Hong Kong Survive as an International Financial Centre?

There is constant market and media speculation about Hong Kong’s future as an international financial centre. Some may also argue that
China’s entry into WTO and its open-economy reforms prepared big cities like Shanghai and Guangzhou for taking over the role of Hong Kong. With his new book – “Reluctant Regulators: How the West Created and China Survived the Global Financial Crisis” published recently, Leo Goodstadt challenges the sceptics and explained why the nation’s leaders repeatedly described Hong Kong as “irreplaceable” in a professional seminar organised by HKU SPACE on 7 June 2011.

Continue to be China’s Gateway

In the lecture, Leo Goodstadt reviewed Hong Kong’s past success in adjusting its role to meet the changing demands of the Chinese economy and offer a frank assessment of its potential Mainland rivals, thus confirming Hong Kong’s ability to maintain its competitive edge internationally.

Mr. Goodstadt is an honorary fellow of the University of Hong Kong and an adjunct professor in the School of Business Studies, Trinity College, the University of Dublin. His first book was a pioneering investigation of China’s development strategies in the Maoist era. As the former Head of the Hong Kong Government’s Central Policy Unit, he has published extensively on Hong Kong’s economic takeoff and its social and political challenges.

Mainland-Endorsed Position

The seminar was indeed insightful as well as thought-provoking, as Mr. Goodstadt presented his ideas with an extensive research backing up his argument that Hong Kong is still playing a unique role in China’s modernization drive. Quoting Prime Minister Wen Jiabao, "Hong Kong’s advantaged position as an international financial center has not changed… The central government will support Hong Kong in developing into an offshore RMB settlement center and international assets management center…" Mr. Goodstadt reiterated that Hong Kong’s long-established financial systems are "crisis-proven."

While the general expectation is for RMB to become more attractive than the US Dollar, Mr. Goodstadt believes that US Dollar will still be the most important and major reserve currency for many years to come. He further pointed out that China cannot avoid participating in the largest financial markets, including New York and London, in order to foster global integration by becoming a close partner of the US and European Economic entities.

Quality as Well as Quantity

Comparing the banking system of Mainland China and Hong Kong, Mr. Goodstadt also illustrated to us that Chinese banks are still incapable of building a correlation between efficiency and profitability, thus making Hong Kong’s superior management standards and better corporate governance level in the banking and finance sector beyond the reach of their counterparts. The fact that 595 mainland IPOs were listed in the Stock Exchange of Hong Kong during 1993 and 2010 serves as an evidence.

As a final note, Mr. Goodstadt said, "Even though Hong Kong was seen under attack when she mounted the world’s largest market intervention in 1998, a huge profit was recorded a year later. Hong Kong has in fact performed better than many other regions under a series of FOREX, FDI, economic crisis as well as political uncertainties all through these years."

Facts illustrated and points elaborated, Mr. Goodstadt brought to his academic research a wealth of personal experience at the highest levels of government and a successful consultant economist. It is really amazing that much of our negative sentiments is cleared and a bright and promising future of Hong Kong is projected with his one-hour speech.