Hong Kong’s economy has spread the wings and soared up into the sky by tapping on the favorable mainland policies since the national policy of opening reform in late 1970’s. “One Belt and One Road” is another grandiose historic opportunity. Never in history have we seen such an opportune timing for development in terms of depth and breadth.
Changing the Global Economic Landscape
In view of fierce global competitions and economic downturns of international economic environment, China has progressively unfolded her “One Belt and One Road” strategic blueprint. Top mega infrastructures projects are picked and underway vigorously but long-term details of the mega Initiative are yet to be announced and defined. But one thing is certain. The “One Belt and One Road” initiative will spur up connectivity and intercommunication between more than 60 countries which are located along the new “Silk Road Economic Belt”, benefiting 4.4 billion populations. The new initiative will feature a new economic impetus for European and Asian countries by fostering closer and more intensive business collaboration and economic cooperation. A global economic engine is in the making.
Setting the Stage for New Opportunities
“One Belt and One Road” is nothing but a chance of a lifetime that Hong Kong’s business community must seize with no hesitation. It is a path for Hong Kong to scale further heights as an international financial hub and seek new economic opportunities. The SAR Government should do its utmost to help the business sector and professionals to capture investment and service opportunities and gain upper hand.
The Chief Executive has pledged and committed to stepping up efforts for setting up an alternative headquarters of the Asian Infrastructure Investment Bank (AIIB) in Hong Kong apart from its Beijing headquarters. He also unveiled the plan to scramble for taking part in more AIIB activities, particularly in auditing and accounting fields which Hong Kong excels and edges. The Chief Executive has repeatedly defined the city’s unique and important role of “super-connector” by facilitating financial and business sector forging better communication at G to G level, i.e. Government to Government level and providing the latest and updated information and extensive know-how about the development, progress and opportunities of the infrastructure projects under the “One Belt and One Road” initiative to the financial and business sectors in Hong Kong.
Good tools are prerequisite to do a good job. By seizing the great chance of OBOR, Hong Kong as the international financial hub should spare no efforts to upgrade its software and hardware of the financing platform to attract more mainland enterprises and overseas investors. We must maintain and maximize the city’s edges, namely, the well-developed financial system, international trade network, high-caliber professional services, free market, free information and financial expertise.
As anticipated, the “One Belt and One Road” development strategy will kick off with value of hundred-billions infrastructure and development projects which demand gravely for financing service and breed a host of financial intermediary services. Although AIIB and the Silk Road Fund will fund these projects, Hong Kong’s financial sector wants to be in on the action. Hong Kong can offer a financial platform for mainland enterprises and overseas companies which invest the “One Belt and One Road” infrastructure projects. Syndicate loans or infrastructure bond issues are possible offers which are especially suitable for more developed infrastructure projects. On the other hand, IPOs and other capital deals will create new growth prospects for Hong Kong’s capital market.
“One Belt and One Road” Initiative will generate lots of new investment opportunities. Regarding the long-term growth portfolio of the HKSAR Government Foreign Currency Reserve, the investment vehicles of the currently overweighed in the private equity and property markets are somewhat limited. On the contrary, the over $200 billion new Future Fund established by the Hong Kong Government has more stable infrastructure cash flows. By satisfying the requirement of the Working Group on Long-Term Fiscal Planning for the Fund to generate higher return through long-term investments, it can also optimize the portfolio. The Government should think out of the box and consider investing in suitable “One Belt and One Road” infrastructure and asset projects with the Future Fund.
Accelerating RMB Globalization
Given that “One Belt and One Road” Initiative promotes connectivity, investments, loans and financing of many such infrastructure projects will be settled in RMB currency. The huge volume of cross-border and international financial transactions will speed up RMB globalization. As long as the majority of these financing and fund-raising activities of these infrastructure projects will be launched in Hong Kong, the city’s being the offshore RMB market will embark on a new path.
RMB globalization is building up rapid momentum and making remarkable progress. The offshore RMB Settlement System is gradually expanding across the world after gaining entry to Europe and the US. With thanks to favourable cross-border financial policies, successive designation of several Free Trade Zones, opening up of RMB capital account accelerated by Shanghai-Hong Kong Stock Connect and QDII, and Mainland-Hong Kong Mutual Recognition of Funds, are making the full convertibility of RMB come around the corner. Indeed, some economists are more optimistic that by 2018 China will likely open its currency fully after building up connectivity with the world internally and externally.
Strengthening Our Offshore RMB Market Position
As a matter of fact, the Hong Kong RMB offshore market enjoys a leading position in terms of total size and service standard. The RMB capital pool is now over 1 trillion Yuan. Since founding for more than a decade, the Hong Kong RMB offshore market has showed early signs of stagnation by reaching a bottleneck. Data shows that cross-border RMB trade settlement volume of the Hong Kong RMB offshore market is lagging behind Singapore and other peers. In a nutshell, Hong Kong’s RMB product portfolio is too small. A wider choice is more desirable.
With greater magnitude of the national reform and opening up policy, more new Free Trade Zones are built to accelerate financial reforms while RMB globalization and opening up of capital account are likely to loom sooner or later. The Central Government has unveiled blueprints of building Shanghai an international financial hub by 2020. By the end of September this year, 43 banking and financial institutions will have established offices at the Shanghai Free Trade Zone. Although Hong Kong’s financial sector has many edges including being a bridgehead for mainland companies “going global”, no one is indispensable.
“One Belt and One Road” is a driving force for spurring up RMB globalization so that overseas investors might have fewer incentives to use Hong Kong’s offshore RMB market. The SAR will lose many unique advantageous impacts by implementing various pilot schemes and the city’s role as the national financial intermediary will also be threatened. In a bid to maintain the city’s status as a leading offshore RMB hub, Hong Kong must seize the golden chance of “One Belt and One Road” Initiative and strengthen and upgrade our financial fabrics on a continual basis.
Defend the Financial Sector with Talent and Technology
Over the years, our local economy has been criticized for failing to diversify and heavily relying on financial sector as the core pillar of paramount importance. It is pressing for the government to pay heeds to face the challenges ahead and strength the financial sector with supportive and comprehensive policies.
Shortage of talents is a top headache of the financial sector. A report titled Developing Hong Kong’s Human Capital in Financial Services published by the Financial Development Council in May this year pointed out that front and middle office staff shortage is common in local private banks. In face of a global talent war, Hong Kong should improve planning for human resources, strengthen training and enhance quality migrant admission schemes to attract more worldwide talents.
It is encouraging to see the innovative technological advances made by the SAR Government to enhance the city’s international financial hub status. But efforts do not bring fruition to the city as the collaboration of technological development into financial sector has hitherto been disappointing that Hong Kong has been lagged far behind our global rivals. By contrast, online financial services are developing in full swing over the border. Now with B2C (Business to Customer) and C2C (Customer to Customer) are in place, commercial banking activities are very diversified and thriving. In addition to traditional ones like online banking and electronic third party payment, the newly emerging services such as Zhongchou (crowdfunding) and micro enterprise loan are on the upfront.
With the active launching of another mega Initiative of “Internet Plus”, the Central Government is determined to collaborate the technological development with various industrial sectors, in particular the financial sector. Online financial service is a shining example in this regard. Amidst numerous new and fast evolving models of financial and commercial activities, Hong Kong financial regulators choose to follow the beaten track. Existing rules and regulatory system are out of touch with the times. For instance, with no clear legal regulatory framework for the “Zhongchou Platform”, investors and business starters get no guidelines for compliance and do not know where to begin. “Internet Plus” Initiative is another strong headwind for financial technology development. The SAR Government must break away from convention and take bold steps to collaborate innovation and technologies with various industries. Actions should be taken to boost confidence in using new technology to drive the financial sector forward. To recover the lost grounds and fly high again in financial development, much more work is yet to be done.
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