Will it be Shanghai? Sydney? Seoul? Or will Hong Kong maintain its preeminence as Asia's financial capital?
There was little consensus on an answer at the recent Harvard Business School Asia Business Conference, but it was clear that a number of Asian cities are working hard to raise their profile and give Hong Kong a run for its money.
During discussion at the panel "The Next Asian Financial Capital," Weiwen He, the economic and commercial consul at the Chinese Consulate General in New York, said "The goal of Shanghai is to become a premier financial center by 2005." He acknowledged, however, that the city has some distance to travel to catch up with Hong Kong. Unlike Hong Kong dollars, the renminbi is not convertible. Hong Kong is a free port while Shanghai is not, and Shanghai's legal framework for commerce is not as developed. Furthermore, he said, Mainland China has only 2,000 lawyers qualified to deal with international trade issues.
| All of these regional capitals may be less important because of the [widespread] connectivity. |
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— Sarah P.C. Wu, Hong Kong Economic and Trade Office |
Davy Lau, managing partner in East Asia for Egon Zehnder International, said some cities that don't qualify as financial capitals are still cashing in on the financial services business as hosts for companies' back-office operations. Cities that boast the necessary infrastructure, knowledge base, technology, language skills, and lower-cost labor forces are already attracting such business.
Some companies are locating back-office operations in India for its low-cost labor, but he said the subcontinent has its limits in that English is the only major international language spoken there. He said Singapore, with a labor force that speaks English, Chinese, Malay, and other languages, has attracted back-office operations as well. Sydney is attractive for its language diversity, and Morgan Stanley has located some of its back-office operations there. Tokyo and Hong Kong are both a bit too expensive for such operations, Lau said.
On the other hand, "[the] front office really depends on how robust the market is," he said. "Clearly at the moment, north Asia is ahead of Southeast Asia." He said employees in front-office jobs are looking for high compensation packages and a good quality of life.
"I think the front office is where the market is and Hong Kong has a little bit of an advantage over Singapore," Lau said.
Does a center matter?
Allen Merrill, managing director and head of Asia Financial Institutions Practice for Bain & Company, said, "I do think the financial centers in Asia are competing with each other." He noted that Hong Kong offers tax incentives and Singapore is studying the establishment of an Asia risk exchange. But Merrill also said that with the increasing sophistication of electronic networks, the preeminence of one location over another is less of an issue than it once was.
"The market forces are [such] that the financial centers are becoming more connected, so there won't be an Asian financial capital, there will be an Asian financial network," he said. He noted that it is becoming increasingly common for Chinese companies to raise money not just on the Hong Kong market, but also in other markets such as Sydney or Singapore.
"There's a momentum that is breaking down the importance of a center," he said. "Increasingly, where the funds are managed is not important. It's where they're being raised and where they're being invested…and as the regulatory barriers come down, the funds are moving."
Sarah P. C. Wu, director of the Hong Kong Economic and Trade Office in New York, agreed with Merrill, in part.
"All of these regional capitals may be less important because of the [widespread] connectivity," she said. However, she noted that Hong Kong is still rated the freest economy in the world, and that location still matters: Seventy of the world's top 100 banks have offices in Hong Kong. Also, she said, China continues to look to Hong Kong for access to capital and to learn best practices in business.
"We have been able to set a high standard compared to other financial centers," she said.
Shahid Yusuf of the World Bank does not expect the number of financial centers to multiply in the future.
"The world economy as it is currently structured can probably do well with just three or four financial centers," he said. And he doubted that Hong Kong would soon be unseated as Asia's financial center.
"It's quite difficult to create a big new financial hub, and Hong Kong has definitely acquired many advantages," he observed. However, he added, Hong Kong faces some challenges because of its dependence on financial services. Manufacturing has been significantly reduced in Hong Kong and it needs to develop service sectors beyond the financial as well, he said.
"Hong Kong will need to go beyond what it is doing right now," he concluded.