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Business and Politics in Asia's Key Financial Centres. Hong Kong, Singapore and Shanghai. Authors; (view IFC Studies and the Politics of Finance. J. J. Woo .
Table of contents

About this book Introduction This book provides unique insights into the politics of finance and the socio-political relations which drive financial policymaking in Hong kong, Singapore, and Shanghai. While the existing literature in the field focuses mainly on economic explanations for financial centre development, this book fills a gap by focusing on the socio-political relations which underpin the financial policy-making process.

Drawing on extensive interviews with senior policy-makers and financial sector professionals, the book describes how state-industry relations drive financial policy-making in three major financial hubs. Insights and policy recommendations drawn from these interviews will be particularly useful for policy-makers and financial sector professionals hoping to draw lessons from the successful development of the three leading Asian financial centres.

The three chapters focusing on the historical development of Hong Kong, Singapore, and Shanghai also provide a consolidated narrative with regard to the development of these three cities as leading financial centres, while also serving as independent case studies.

Singapore and Hong Kong remain among top global financial centres

It is one of the oldest rivalries in Asia, dating back more than a century. View all New York Times newsletters. While Shanghai overshadowed Hong Kong in many ways before World War II, Hong Kong took the lead following the Communist takeover on the mainland, and benefited from the emigration of thousands of Shanghai business people. The rise of the so-called Shanghai Faction of politicians in China, including former President Jiang Zemin, resulted in many policies that favored Shanghai through the s and up until President Hu Jintao gained power in late and early But with Hu trying to limit Shanghai's influence, and with Shanghai struggling with corruption scandals, Hong Kong is trying to seize the initiative again.

Business and Politics in Asia's Key Financial Centres

As Hong Kong's leaders repeated again and again on Monday, Hong Kong has advantages now from the rule of law, extensive financial expertise, a tradition of strong corporate governance, widespread knowledge of English and close ties to global markets. But while Hong Kong aspires to be an international financial center, it is sometimes derided in Asia as a one-legged stool — a juggernaut in equities trading, including a doubling of trading in stocks and derivative warrants last year, but without another leg to stand on. Close to bond issues are listed here, but local banks and insurance companies tend to buy them when issued and then sit on them for years, with minimal trading.

The local government runs a budget surplus, and while it has issued a small volume of bonds to help create a market, these also trade in very low volumes. While corporate bond trading is still in its infancy in Shanghai as well, the trading of government debt securities there has picked up. The People's Bank of China has been forced to issue tens of billions of dollars worth of notes to sop up the enormous sums in yuan that it is pushing into the market to prevent China's currency from appreciating in value against other currencies.

Hong Kong business leaders are dismissive of Shanghai's stock market. Paul Chow, the chief executive of Hong Kong's stock exchange, said during an interview Friday that it "is predominantly a retail market; Hong Kong is not. But although Shanghai's stock market is still considerably smaller than Hong Kong's, it is also rising faster and was the world's top performer last year, soaring percent.

Shanghai also is becoming an important center of commodities trading, whereas Hong Kong has little. Experts said Shanghai was likely to be an increasingly formidable competitor in the years to come and voiced doubt that Beijing would give Hong Kong precedence over its rival to the north.

Officials in Beijing are still more likely to think of Shanghai than Hong Kong as a domestic financial market entitled to regulatory favors. This gives Hong Kong the first-mover advantage before China opens up its financial market as stipulated by the WTO agreement. The waiting foreign institutions are upset, since they feel unfairly treated under the CEPA. The question for Hong Kong is how to take advantage of fast-growing mainland demand for services by quickly making full use of the CEPA.

Second, Hong Kong should promote closer cooperation with outside business people and governments to develop its modern industries. In the recent years, Hong Kong has succeeded in its telecommunications industry through technological innovations.

Articles from journals

That implies that Hong Kong can do whatever it really wants to do if the government gives a strong hand; so, its problem of industrial modernization is a matter of determination Sheng et al, Third, Hong Kong needs to give efforts to transform itself to be an RMB offshore centre, which is crucial for reinforcing its status as a world class finance center.

Singapore used to be considered as a financial competitor of Hong Kong, but real challenges were later found to come from Shanghai whose financial market had engaged in fast expanding RMB business. Shanghai finance, once well developed, will become a real rival to Hong Kong whose banks had no privilege to enter RMB markets. Beijing has now allowed Hong Kong financial institutions under the CEPA framework to conduct some kinds RMB businesses, laying the foundation for the possible establishment of Hong Kong as an offshore trading centre for the RMB whose inconvertibility will remain in years to come.

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But, Shanghai wants to do this too. Therefore, the Hong Kong government and businessmen should strengthen its lobbying activity in Beijing to expand the scope of offshore RMB business for Hong Kong financial institutions. To become an offshore RMB trading hub may be very important for Hong Kong finance future and economic growth.

Lastly, the Hong Kong government system needs to be reformed in order to play a large role in promoting long-term economic development. The easiest cooperation with the mainland has been exploited by Hong Kong private sector, and further integration requires the Hong Kong government to take critical actions. This would create immense opportunities for Hong Kong, but the government may need to rethink whether its laissez-faire system continues to be economically sensible.

As high factor costs weaken competitiveness, local businessmen have lobbied for a more liberal issuance of work permit to the mainland talent. This inviting government intervention shakes up the laissez-faire system. People come to realize that the government is supposed to play a central role in promoting long-term growth, but that the current governance system is not suitable for this task. In the colonial era, key decisions were directed by London to Hong Kong officials, and now by the Basic Law, Beijing cannot send in instructions. Thus, the government has to make decisions on its own, but this is surely a hard job for the young, inexperienced government.

Private sectors usually seek short-run market returns and will shift their investment to any other places with higher returns. For example, with infrastructure in many parts of Hong Kong dilapidated and backward, urban transformation requires the government to plan and spend. This is a new opportunity for Hong Kong and also a big challenge to its governance system.

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Much talk was heard in the territory about whether Hong Kong could be marginalized out of national development if the government sticks to its light-handed tradition and remains weak in strategic planning or administrative coordination. One snag with the governance reform is the psychological state of some local elite along with the influence of vested interests.

Although Hong Kong is now weakened by its physical separation from the mainland, some in the territory still insist that separation should be maintained. They are pursuing two conflicting matters — social independence and economic interdependence without considering their trade-off. It is inconceivable that a free society deliberately restrains free flows of people and information via the cursed border separation.

Hong Kong, Singapore and Shanghai

Also, certain arrangements under the current system make it difficult to sacrifice short-run interests of some people for the long-run development of the whole society. Shanghai cannot surpass Hong Kong in terms of per capita income in the near future nor will it replace Hong Kong as an only Chinese international finance hub.

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It is likely, however, that Hong Kong will be overtaken by Shanghai if it continues to ignore the education of its population or to be reluctant to cooperate with the mainland. Due to non-overlapping hinterlands and economic structure differences, the two cities are not a substitute for each other in regional development; their relationship is largely complementary, having no direct competition since, unlike Hong Kong, Shanghai does not rely on services alone for growth. To extract complementarity requires the two cities to cooperate with strong inter-government coordination. We have reasons to conjecture that it will stick more closely to services without major breakthrough in its industrialization, unless its government has firm determination and great vision.

The paper also has provided certain policy recommendations, the most important of which is Hong Kong government system reform with a change to its minimalist policy approach. We believe that, if all goes well, Shanghai could become a city like New York in the U. For certain, no government is omnipotent. They cannot make their economies immune from recessions or crises, no matter how much they want. Journal of Business Research , 67 2 : Contemporary Economic Policy , 31 2 : Asia Pacific Viewpoint , 53 1 : Habitat International , 44 4 : China Economic Review , 23 4 : Journal of Imperial and Commonwealth History , 35 2 : International Review of Financial Analysis , 36 4 : Financial Research Letters , 21 International Review of Financial Analysis , 40 1 : Asian-Pacific Economic Literature , 29 1 : Asian-Pacific Economic Literature , 27 1 : Economic Modelling , China Economic Review , 38 2 : LAI, Lawrence W.

Habitat International , 44 1 : LAI, Tat-kei et al. Journal of Comparative Economics , 44 2 : LAM, Newman M. Public Administration and Development , 20 5 : Journal of Comparative Economics , 45 4 : LI, Gang et al. Tourism Management , 36 3 : Focus on Geography , 53 2 : The Journal of Imperial and Commonwealth History , 11 3 : The Journal of Imperial and Commonwealth History , 36 2 : Explorations in Economic History , 35 2 : Annals of Regional Science , 49 1 : Global Policy , 5 3 :