Project Citizens Foundation
Project Citizens Forum - What Makes Hong Kong An International Financial Centre?
Opening remark (15.04.2016)
Tsim Tak Lung
Ladies & Gentlemen, Welcome!
We have a full house today, thanks to the drawing power of our panel of distinguished speakers: Mr Tsang, Mr Gulliver, Mr Neoh, Mr Tucker and Dato Cheah. Mr Jamil Anderlini of The Financial Times will be moderating the Q & A session, and Mr George Leung will be taking questions for Mr Gulliver. Thank you for taking part, Gentlemen, and sharing your views with us.
Well, actually, not only do we have a distinguished panel here; we also have a mixed and very high-powered audience of top diplomats, businessmen, bankers, fund managers, stockbrokers, insurance executives, lawyers and Legislative Councillors.
In Tom Stoppard’s play Travesties, the great Irish writer James Joyce was summoned for questioning by the British Consul in Zurich after The Great War, who asked him, “And what did you do during the war, Mr Joyce?” Whereupon James Joyce’s eyes lit up, he lifted his head and replied, “I wrote Ulysses. What did you do?”
Project Citizens Foundation was founded a year and a half ago by like-minded people to do something – to uphold and safeguard Hong Kong’s core values, institutions and our people’s way of life. There is enough wealth and talent in this room to help us do that successfully. If we do not do anything now, I’m afraid in a few years’ time, you will be looking at this scene from the film The Sound of Music when Christopher Plummer said to Julie Andrews, “I live in a world that is fast disappearing.”
Project Citizens Foundation believe in an open society, diversity and tolerance. We decided to organize a Forum on “Hong Kong As An International Financial Centre” because we think our status as an IFC is vitally important to Hong Kong’s continued prosperity, and we want decision makers, both here and in the Mainland, to understand what makes an international financial centre and what breaks an international financial centre, and in so doing, highlight Hong Kong’s unique, but also somewhat fragile, position at this point in time.
Hong Kong’s financial industry employs some 250,000 people, excluding lawyers and accountants. That’s just 6% of the labour force, but these are high paying jobs. In a good year the financial industry accounts for between 17% to 20% of Hong Kong’s GDP. After the Lehman Brothers debacle in 2008, the only major cities that have not suffered a dramatic slide in property values are London, New York, Hong Kong and Singapore, and they are all international financial centres. The fact is, financial centres command a property premium. If we lose one, we also lose the other.
Hong Kong is facing many challenges ahead, at a time when the government is not very popular. (I learned the art of British under-statement at the corridors of the BBC.) It occurred to me to ask, if we had the current government in place in 1998, whether Hong Kong would have won the battle of the Hang Seng Index and Hong Kong Dollar against George Soros and The Tiger Fund.
Singapore has just taken the third place ahead of Hong Kong in the league of international financial centres. And I note the Lion City has done so without the help of PRC companies’ IPOs or massive RMB business. Hong Kong’s over dependence on China is not necessarily a strength as far as IFCs go. Both Moody’s and Standard & Poor’s have downgraded Hong Kong’s credit outlook to “negative” from “stable”, along with China’s rating, suggesting that China risks will impact Hong Kong the way they have done Shanghai and other Chinese cities.
Our Financial Secretary who will address us shortly has argued, in his defence of Hong Kong, that he saw China as a provider of opportunities for our city rather than risks. Opportunities and risks are, of course, two sides of the same coin and we cannot take the one without the other; that goes without saying. What is deeply worrying is the hint, in one of the downgrades, that Hong Kong’s political instability might take its rating further down, to a level lower than China’s. If that happens, and it may, this would be diabolical.
Political strife has been the order of the day since 1997 and it is spreading, not subsiding. And this is because Hong Kong is a city of broken promises, and the Hong Kong people is a people mis-ruled. If good government is about intelligent people making wise choices for the good of the community, we haven’t seen much of that. We have seen instead plenty of examples of mediocre people making dumb decisions for I don’t know whose benefit. Policies and issues which might have been eased in gently after 2047 have been pushed forward to the present day. What is the urgency for patriotic education, Putonghua over Cantonese, and simplified characters, I ask? Why do you want to foreclose our freedoms? Why can’t you wait until 2047? How can you govern an open, modern, free, sophisticated and cosmopolitan city like Hong Kong by using Qing Dynasty methods?
A subtle change has come about with the transition of sovereignty in 1997. Unless you speak Cantonese and mix well with the local population, you would not have noticed this. Before 1997, the then sovereign, Her Majesty the Queen of England & the United Kingdom, was affectionately referred to as The Proprietress. After 1997, the new sovereign in Beijing is referred to, also affectionately, as The Grandfather. And the difference is this – the Proprietress left you alone to go about your business provided you made money for her, whereas the Grandfather loves to give orders and broaches no arguments.
The root of the problem is that Grandfather said no to democracy in Hong Kong. If Grandfather had said yes, very few people in Hong Kong would have raised any objection. The few that might have done certainly would not have occupied Central for 79 days out of political conviction and in defiance of Grandfather’s orders. Filial piety is a well known Chinese virtue, especially if the inheritance is large. But if you ask, “What is the difference between filial piety and true love?” the answer is, “True love is forever, but filial piety means never having to say you’re sorry when Grandfather’s will is read out”.
But Grandfather does not always know best, especially not high finance. He understands manufacturing but has had no experience of running international financial centres. He thinks he can do whatever he likes. Little would he have guessed how much damage would be done to Hong Kong’s position as a fund management centre when the PRC’s empowered agencies abducted British passport holder Lee Bo across the border, kept him there for weeks, and turned a deaf ear to the pleas for information by the Hong Kong Police. This has so rattled depositors who have money in Hong Kong that many of them simply want out. Hong Kong is not safe enough anymore. And Hong Kong is now just a conduit for their money transfers instead of being a destination where they park their money and give business to Hong Kong’s money managers.
Not all major cities are also international financial centres. Paris is not, and Rome is not. IFCs are unique constructs. China did not have an international financial centre before 1997. But it has one now – in Hong Kong. This IFC was not of China’s making. It was gifted to China in 1997 with the transfer of sovereignty. Perhaps out of disdain for having to inherit an international financial centre in Hong Kong, China has been trying to create IFCs of its own in Shanghai, Shenzhen and Qianhai, but without success. Some may argue that Shanghai is a “black swan” in the making and that foreigners will flock there like flies if they can turn a fast buck. After all, money is amoral and money is fungible. But this has not happened. Even the first hurdle is proving hard to climb. This is the hurdle of a fully convertible currency.
You may recall Beijing is vehemently opposed to any form of referendum in Hong Kong and Taiwan, probably because Beijing is afraid of ending up on the losing side. But of course freeing up the exchange rate and going after full convertibility is really a referendum on the Chinese government, on the country’s political stability and economic performance. With the Chinese economy losing momentum, massive capital outflow and the political uncertainty which comes from the expectation of power struggles at the top, this is really not the time for China to experiment with full convertibility of the RMB, and it is not going to happen. If it does happen, it may be another case of full convertibility followed by full retreat, just like the circuit breaker debacle.
If it is China’s goal to create its own international financial centre, then China’s policy-makers need to understand and also heed the answer to this important question: What are the requisites, the essential elements, of an international financial centre? And why is it that Hong Kong has them, in common with London and New York, whereas Shanghai does not? In trying to answer the question “What do the top four IFCs have in common?” I have identified the following:
- The first is the free flow of money, information and people. That means the full convertibility of the currency in both the current & capital accounts, the absence of any exchange control, freeing up the internet, and no restriction on entry and departure using bona fide travel documents. (Provided you take all your bags with you of course!)
- The second is the rule of law, with an independent judiciary in a common law jurisdiction which upholds due process and where the burden of proof is on the prosecution.
- The third is the use of English in government, in the law courts and in the market place, whether it be currencies, stocks and shares, gold or other commodities.
- Finally, and most importantly, international financial centres can only exist and thrive where there is political stability. All international financial centres need that; political stability is a sine qua non for IFCs. In the 1960’s, Beirut was the financial centre of the Middle East until the Arab-Israeli war put an end to that.
As we survey the current political landscape in Hong Kong, it is obvious that the politicization, polarization and radicalization of Hong Kong politics – and their relentless escalation – is the number one cause for concern. I may be wrong, but I think it is actually about 2047. It is about the future of our young people beyond the fifty year period covered by the Sino British Joint Declaration.
Our generation was given a 63 year transition; the first thirteen was from the signing of the Joint Declaration in 1984 to 1997, followed by another fifty years thereafter, to 2047. For Joshua Wong and his generation, however, they only have 31 years ahead of them now. By the year 2047, Joshua Wong will only be 50 years of age, younger than some of us here today. The same goes for the other student leaders and their supporters. This generation of youngsters in Hong Kong has had plenty of opportunities to see and experience what life is like in China, through their travels, home visits, family gatherings, academic exchanges and work attachments. They have been, they have seen, and they don’t like what they have seen. This generation of young men and women is defined by their mobile phones and live by them. In China, they discover, to their horror, they cannot access YouTube, Google, Twitter, What’s App and I don’t know what else and they’re saying, “No, this is not for us!” The real issue is freedom. Our young people are not about to give up what they regard as inalienable rights.
The Bible says, “Your young men will see visions; your old men will dream dreams.” Herein lies the difference. While we, men and women of the older generation, have been dreaming away in the comfort of our homes, “accepted and accepting”, a new generation has grown up. And their vision of their tomorrow is not the same as ours. They blame us for only taking care of ourselves, and not having provided sufficiently for their needs. And can we blame them for thinking as they do?
Here we are, speaking in April 2016, and something of an epiphany – the conversation of St. Paul on the road to Damascus – seems to have taken place in Beijing at about the time of the National People’s Congress. Instead of lambasting the young students and their leaders for overstepping the line in their numerous demonstrations and fracas with the police, Beijing’s leaders have adopted a softly, softly approach. Perhaps they have finally seen the light and understood that the path to stability and prosperity in Hong Kong is to honour “Two Systems” in both letter and spirit and just let Hong Kong be. As Zhang Dejiang, Chairman of NPC said, the intelligent Hong Kong people will be able to find their own solution. If this is true, Hong Kong’s political risk goes down several notches, and our Financial Secretary Mr John Tsang’s bullish scenario may come to pass. But if the reverse is true, and Beijing chooses outright confrontation – the sledgehammer approach – then we are only one riot away from Hong Kong’s own June 4th moment.
I hope wise counsel will prevail and we won’t ever have to come to that.