How Hong Kong can take its place as the Asian century’s financial linchpin

To fulfil its destiny as the top Asian financial clearing house, Hong Kong must broaden its horizons and have a truly regional vision
The city needs to build regional connectivity, including with Asean, offer all the required financial products and services, and be nimble in digital finance

Luanne Lim

Published: 4:15pm, 2 Aug 2023

Why you can trust SCMP

The recent visits by Chief Executive John Lee Ka-chiu to key markets in the Association of Southeast Asian Nations is an opportunity to re-engage with the Asean region so vital to Hong Kong’s future success. As a member of the Hong Kong business community, I was pleased to join him on this trip to strengthen our ties with this fast-growing region.

Southeast Asia’s output has nearly doubled since 2010 to reach almost US$4 trillion. In its latest forecast, the International Monetary Fund upgraded its growth projections for the Asean-5 – Singapore, Malaysia, Vietnam, Indonesia and the Philippines – from 4.3 per cent to 4.6 per cent this year, which is 53 per cent faster than the global average.

For years, the economy of Southeast Asia was defined primarily by the resources industry and high-volume, low-margin manufacturing, but more than three decades of growth have bought prosperity to the region’s 690 million people, making Asean a powerful force in global consumption. Investors who once came to the region to make goods for export now also manufacture for Southeast Asian consumers.

Supply chains will continue to shift within Asia as China moves up the value chain, making “South-South” connectivity increasingly important, especially as consumers elsewhere in Asia save and spend more.

The Asean region is Hong Kong’s second-largest trading partner after mainland China. Total merchandise trade between Hong Kong and Asean amounted to HK$1.3 trillion (US$167 billion) last year, representing 13.7 per cent of Hong Kong’s global total.

If Hong Kong is to make the most of the opportunities inherent in this shift, it needs to raise its profile.

Chief Executive John Lee (left) with Asean Secretary General Kao Kim Hourn in Jakarta, Indonesia, on July 25. Photo: ISD handout

Just as London evolved into a global financial capital to support the Industrial Revolution in the 19th century and New York gained supremacy as the United States became the dominant industrial power in the 20th century, Asia needs a focal point to be the clearing house for regional financial services.

Asia is the undisputed engine of the global economy. If the IMF forecasts for global and regional growth are correct, emerging and developing Asia will generate 45 per cent of global growth this year. China will remain the single most important element – even at a maturing growth rate of 5.2 per cent, the mainland will contribute almost a third of global growth this year.

But if the region is to fulfil its potential, it will need local access to global capital, a place to recycle growing Asian savings into Asian investments, and deep and liquid financial markets to hedge risk and facilitate settlements.

Hong Kong is the natural front-runner to become the region’s financial clearing house. It has deep, open and transparent capital markets. It is Asia’s largest wealth management centre, and second only to Switzerland globally. It has the largest offshore yuan liquidity pool, and has unrivalled access to the mainland’s vast economy and domestic markets.

19:23

New growth engines proposed in Hong Kong budget but geopolitics could derail plan, analysts say

But there is nothing inevitable about winning the crown. Part of the answer is in building up regional connectivity at all levels, but it is also about making sure we can offer the suite of financial products and services that Asean economies will need as they grow.

And we need to remain nimble as technology extends the digital frontiers of financial services.

02:34

Pay with your palm: Tencent launches new payment method in China

The impact of digital finance is too big to go into in any depth here, but let me touch on two important areas where Hong Kong holds first-mover advantages: tokenisation, and the internationalisation of central bank digital currencies (CBDCs), including the digital yuan.

Tokenisation has the potential to open a new chapter in financial services – faster, cheaper and more accessible to more people – and it was great to see the Hong Kong Monetary Authority taking a global lead earlier this year with its tokenised green bonds.

Cryptocurrencies have been making headlines recently but we believe, in the long run, it will be CBDCs that will revolutionise financial services.

A central bank digital currency such as e-HKD is the future

China has thought longer and harder than almost any other country about how CBDCs are going to work, and that is likely to translate into a formidable first-mover advantage when it goes international. Thanks to the Monetary Authority’s hard work, Hong Kong is a world leader in working out how CBDCs might be used across borders.

And for those who think the world would benefit from greater choices when it comes to settlement and reserve currencies, the internationalisation of the yuan is happening, and has started here in Hong Kong.

The other big opportunity we see is in green finance. Hong Kong is emerging as a nursery for the innovative solutions we will need if we are to raise the trillions of dollars the world requires to head off the threat of climate change.

But the most socially and financially valuable service we can provide is to establish a global centre with the expertise and infrastructure to package and trade sustainable financial products.

If Hong Kong is to fulfil its destiny to become the financial clearing house of the Asian century, we need to broaden our horizons to make sure we have a truly regional vision.

Luanne Lim is chief executive, Hong Kong, at HSBC

Post