Death of Hong Kong? Asia’s top financial hub can’t be ‘killed off’ by Macau, Hainan or even Shanghai

Whatever the international angst over the new security law, Beijing will not let anyone hinder Hong Kong’s growth, or dilute its contribution to China’s re-engagement with the global economy

David Dodwell

Published: 6:30am, 13 Jun 2020

Why you can trust SCMP

Surrounded as we are by the grimmest array of global challenges assembled in our lifetimes – note the Organisation for Economic Cooperation and Development this week reported that we are facing the most severe economic recession in nearly a century with enormous damage expected to health, jobs and well-being – there is surely a case for an occasional escape into a little levity.

That is where I put the recent reports about Macau and Hainan being nurtured to diversify into financial services, responding to the threat to Hong Kong’s future as a financial services hub arising from as-yet unspecified US sanctions against an as-yet unspecified national security law.

If there really are mainland officials who are nursing this thought, then I pray they are kept well away from policymaking on the economic future of Hong Kong, the Greater Bay Area or, for that matter, any other economically significant part of the Chinese economy.

I know there are any number of such crackpot ideas that have been globally ventilated over the past 25 years, when Fortune magazine’s Louis Kraar first predicted the “Death of Hong Kong”: “the naked truth about Hong Kong’s future can be summed up in two words: it’s over,” he wrote almost 25 years ago to the day.

Kraar continued – just as eloquent as he was mistaken: “As Hong Kong becomes a captive colony of Beijing and increasingly begins to resemble just another mainland city, governed by corruption and political connections rather than the even-handed rule of law, it seems destined to become a global backwater.”

02:18

White House says Beijing’s proposed national security law for Hong Kong could lead to US sanctions

Innumerable permutations on the “death of Hong Kong” theme have done the rounds since that famous Fortune cover story – not least those being peddled today by Chris Patten in Britain and Mike Pompeo in Washington. Some have raised credible questions. But most have been plainly preposterous. And all have been wrong.

And despite being so persistently wrong, fresh permutations continue to arise. The “Macau as financial services surrogate for Hong Kong” permutation sits among the preposterous, even though it joins a long queue of existing or aspiring financial hubs that have, over the past 25 years, been forecast to usurp Hong Kong’s pivotal role as the Asia-Pacific’s leading international financial services centre – from Tokyo, to Singapore, to Shanghai, to Shenzhen and its fledgling Qianhai, and in recent weeks to Hainan.

The “Macau as a financial services hub” thesis barely deserves a serious response. Its tiny economy – about one-tenth of Hong Kong’s – has a population of just 650,000, and a total workforce of barely 400,000 with half of these employed in the gambling and related sectors.

By comparison, out of Hong Kong’s 3.9 million workforce, around 850,000 are employed in finance, insurance and professional services – yes, more than twice Macau’s total workforce.

03:24

Macau marks 20 years since former the Portuguese colony’s return to China

Quite where or how Macau might be able to assemble the critical expertise to seed a credible financial services sector defies comprehension.

Yes, its links with the Portuguese-speaking world are distinctive, but can anyone tell me with a straight face that financial services built on Portugal, Brazil, Angola, Mozambique, Guinea Bissau and Cabo Verde (formerly Cape Verde) are going to set the Macau economy alight, and on a new course away from gambling?

Even more fundamentally, proponents of the “Macau as a new financial hub” thesis ignore a critical question: if Hong Kong’s massive community of financial, legal and accounting professionals underpinning what is today the world’s fourth-largest financial centre are about to take flight because of the imminent introduction of a security law, why should they move 65km (40 miles) to a city that has had a Beijing-approved security law in place since 2009?

The reality is that China’s (and the world’s) reliance on Hong Kong as the indispensable conduit for financial services linking the mainland with global markets remains as significant today as it was back in 1995 when Kraar so erroneously predicted that “it’s over” for Hong Kong.

02:16

Why other Chinese cities are not yet ready to ‘surpass’ Hong Kong

Yet, for every international sceptic predicting Hong Kong’s imminent demise, there also seems to be a mainland planner, anxious about China’s continuing reliance on Hong Kong, assiduously exploring how to diversify – starting with massive investment in the 1990s in Pudong, Shanghai’s financial services hub, continuing to the development of the Shenzhen Stock Exchange and Qianhai, and now to Macau and Hainan.

An economy of China’s size and importance undoubtedly needs a number of large and dynamic financial hubs, but it is improbable that these will ever grow at Hong Kong’s expense.

It is fascinating to read Zhang Yugui, dean of the School of Economics and Finance at the Shanghai International Studies University, writing just a few months ago of “the intention to make Shanghai more open and innovative … an international financial centre that matches China’s economic strength and the international status of the renminbi.”

Even after 25 years of intensive investment, he notes, “Shanghai is at best a regional financial centre with some international influence” that still lags behind Hong Kong, Singapore and Tokyo.

With this sobering reminder of the monumental decades-long challenge of internationalising its economy, it was bemusing to read the fiercely patriotic Global Times gushing last week about newly revealed plans for development of Hainan as a free trade and international financial services hub, with Hainan developing “alongside Hong Kong in a coordinated manner”, as Edinburgh has developed alongside London.

“Hainan […] will be a better choice for foreign investors who intend to further expand in the Chinese mainland market in the long run [with investors] buying fixed income products in Hong Kong and launching hi-tech venture investments in Hainan,” it said.

“It’s expected that in the future, the ships and airplanes that leave Hainan will not only be loaded with cargo, but will also be full of ideas and wisdom, and more importantly, full of Hainan experience and characteristics.”

Apart from quietly wondering what weed the author was smoking, he clearly had no inkling of real-world business. And this remains one of the reasons Hong Kong even today continues to defy Fortune magazine and the world’s numerous other naysayers.

China’s planners may have some naive and unhelpful ideas, but at no point so far have they allowed those to hinder Hong Kong’s growth, or dilute its contribution to China’s re-engagement with the global economy. Whatever the international angst today about a national security law, that probably remains true. Forecast Hong Kong’s death at your peril.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view

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