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OpinionComment

Hong Kong’s days as a thriving financial hub may be numbered

Cheah Cheng Hye warns that the city will lose its competitive edge as soon as mainland Chinese businesses begin to shift elsewhere

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<p>Cheah Cheng Hye warns that the city will lose its competitive edge as soon as mainland Chinese businesses begin to shift elsewhere </p>
Cheah Cheng Hye
What’s needed today – and what’s not happening – is for Hong Kong to have a long-term plan and make consistent efforts to ensure it remains competitive.
What’s needed today – and what’s not happening – is for Hong Kong to have a long-term plan and make consistent efforts to ensure it remains competitive.
Hong Kong’s domestic economy is mature, meaning that almost every company eligible for listing is already listed. Thus, Hong Kong depends very much on the Chinese mainland to support its role as a financial centre.
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Currently, mainland Chinese companies – the “red chips” with their “H shares” – make up 42 per cent of the total market capitalisation of the Hong Kong stock market; actually, the true percentage of mainland Chinese involvement is much higher because many Hong Kong-registered companies are in fact controlled by mainland interests.

Mainland China needs to use Hong Kong because its own domestic capital market is inefficient and has structural defects. But time may not be on Hong Kong’s side

In 2015, about 80 per cent of funds raised through initial public offerings in Hong Kong were by companies from the mainland. Thanks to this fundraising by mainland companies, Hong Kong ranked as the world’s No 1 IPO market last year.

Mainland China needs to use Hong Kong because its own domestic capital market is inefficient and has structural defects. But time may not be on Hong Kong’s side. Over the next five to 10 years, China’s reform programme, including deregulation, market-opening and enhancing the rule of law, may reduce its need to rely on Hong Kong.

Already, we see some warning signs: for example, the volume of trading on the domestic Chinese exchanges – in Shanghai and Shenzhen – easily exceeds the trading activity on the Hong Kong exchange.

READ MORE: Chinese firms raise most funds in Hong Kong since 2010

The top of some of Shanghai’s landmark skyscrapers poke through heavy fog. The more exciting “new economy” companies, like those in the IT and health care sectors, are listed not in Hong Kong but in Shanghai and Shenzhen. Photo: Xinhua
The top of some of Shanghai’s landmark skyscrapers poke through heavy fog. The more exciting “new economy” companies, like those in the IT and health care sectors, are listed not in Hong Kong but in Shanghai and Shenzhen. Photo: Xinhua
We also see that the more exciting “new economy” companies, like those in the IT and health care sectors, are not listed in Hong Kong but in Shanghai and Shenzhen (where they fetch higher valuations) and, in the case of Alibaba, the United States. Hong Kong listings are very much in the old economy sectors like finance, manufacturing and energy.
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