02-10-2014, 07:32 AM
HK is an important Chinese outpost as Chinese need it for outflows for local connected individuals and enterprises while it also need HK for the ongoing recap of Chinese companies inefficiently managed for decades due to "outflows and wastages"
Hong Kong’s status as financial testing ground may constrain Beijing
SHEN HONG AND DANIEL INMAN THE AUSTRALIAN OCTOBER 02, 2014 12:00AM
IN dealing with pro-democracy rallies in Hong Kong, Beijing may be constrained by the city’s crucial role in China’s plans to modernise its financial system.
China in recent years has used Hong Kong as a testing ground for financial liberalisation. In particular it has allowed the city to experiment with broader use of the tightly managed yuan currency in international trade and investment. Hong Kong’s exposure to China, coupled with a strong reputation for rule of law, has led to the burgeoning of a major global financial centre.
But recent moves by China have raised concerns about Hong Kong’s status. Beijing issued a report in June asserting China’s jurisdiction over Hong Kong and stating the city’s administrators, including judges, must show patriotism to China. The report helped spur protesters who have taken to the city’s streets in recent days.
HONG KONG PROTESTS: Key players
Beijing’s response to the protests will be seen in the context of such moves, which critics view as creeping efforts to assert greater control over Hong Kong, contravening promises made, when Britain returned the territory to China in 1997, to allow it a high degree of autonomy for 50 years.
A heavy crackdown on the protesters who have taken to the city’s streets, particularly by mainland forces, could deepen the view that Beijing is interfering in Hong Kong’s legal system, undermining the territory’s position as a financial hub, some economists and investors say.
“If the Hong Kong police and judiciary are seen as not fully independent, it will erode confidence in Hong Kong’s role as a financial centre,” said Julian Evans-Pritchard, an economist with Capital Economics, a London-based research firm.
That could discourage banks and financial firms that have viewed the city favourably as offering a Western-style business environment on China’s doorstep, in turn affecting China’s interactions with the global financial system.
Some in Hong Kong fear its role could diminish in the years ahead regardless, as China allows further market overhauls at home, including plans to build Shanghai into a rival international financial hub by 2020.
For now, Shanghai lags behind. This is due partly to the relative ease of doing business in Hong Kong, which has a trusted legal system and a deep pool of financial experience. China’s capital controls also hold back Shanghai, as Beijing’s strict management of the flow of yuan makes it hard to move cash in and out of the country.
“China’s capital-account controls remain one of the key determinants in maintaining Hong Kong’s lead,” said Tai Hui, chief market strategist for Asia at JPMorgan Asset Management in Hong Kong.
That leaves China’s leaders with a conundrum. They want to douse the protests, but signs of interference in the city’s legal system could push foreign financial firms to leave for other centres such as Singapore, Mr. Evans-Pritchard said.
That is an outcome Beijing can’t afford as it seeks to build up Shanghai. A year ago, China launched a free-trade zone in Shanghai as another venue to test liberalising measures. Investors, though, have been disappointed.
Hoped-for policies — such as letting foreign firms issue yuan-denominated bonds in the zone or granting them more access to China’s domestic capital markets — haven’t materialised.
Beijing will conduct financial experiments in Hong Kong that it dares not risk on the mainland out of fears of unleashing destabilising capital flows, said Steve Wang, research director at Reorient Financial Markets, a Hong Kong-based research firm.
The city has been a laboratory for nearly all of the landmark financial innovations that Chinese authorities have tried during the past three decades.
Even before Britain’s handover, China’s state-owned firms had begun to list on the territory’s stock exchange as a way to raise much-needed capital. Most of China’s biggest state-run banks, energy giants and telecommunications operators are listed in Hong Kong.
Hong Kong not only helped Chinese companies grow. It also allowed Beijing to tap its market during tough times. China Cinda Asset Management, one of four “bad banks” set up by Beijing to take non-performing loans from major Chinese lenders, raised $US2.5 billion ($2.8bn) in an initial public offering in Hong Kong in December, amid concerns over the health of the Chinese financial system.
Hong Kong also played a central role in efforts to promote the yuan as an international currency.
Hong Kong’s status as financial testing ground may constrain Beijing
SHEN HONG AND DANIEL INMAN THE AUSTRALIAN OCTOBER 02, 2014 12:00AM
IN dealing with pro-democracy rallies in Hong Kong, Beijing may be constrained by the city’s crucial role in China’s plans to modernise its financial system.
China in recent years has used Hong Kong as a testing ground for financial liberalisation. In particular it has allowed the city to experiment with broader use of the tightly managed yuan currency in international trade and investment. Hong Kong’s exposure to China, coupled with a strong reputation for rule of law, has led to the burgeoning of a major global financial centre.
But recent moves by China have raised concerns about Hong Kong’s status. Beijing issued a report in June asserting China’s jurisdiction over Hong Kong and stating the city’s administrators, including judges, must show patriotism to China. The report helped spur protesters who have taken to the city’s streets in recent days.
HONG KONG PROTESTS: Key players
Beijing’s response to the protests will be seen in the context of such moves, which critics view as creeping efforts to assert greater control over Hong Kong, contravening promises made, when Britain returned the territory to China in 1997, to allow it a high degree of autonomy for 50 years.
A heavy crackdown on the protesters who have taken to the city’s streets, particularly by mainland forces, could deepen the view that Beijing is interfering in Hong Kong’s legal system, undermining the territory’s position as a financial hub, some economists and investors say.
“If the Hong Kong police and judiciary are seen as not fully independent, it will erode confidence in Hong Kong’s role as a financial centre,” said Julian Evans-Pritchard, an economist with Capital Economics, a London-based research firm.
That could discourage banks and financial firms that have viewed the city favourably as offering a Western-style business environment on China’s doorstep, in turn affecting China’s interactions with the global financial system.
Some in Hong Kong fear its role could diminish in the years ahead regardless, as China allows further market overhauls at home, including plans to build Shanghai into a rival international financial hub by 2020.
For now, Shanghai lags behind. This is due partly to the relative ease of doing business in Hong Kong, which has a trusted legal system and a deep pool of financial experience. China’s capital controls also hold back Shanghai, as Beijing’s strict management of the flow of yuan makes it hard to move cash in and out of the country.
“China’s capital-account controls remain one of the key determinants in maintaining Hong Kong’s lead,” said Tai Hui, chief market strategist for Asia at JPMorgan Asset Management in Hong Kong.
That leaves China’s leaders with a conundrum. They want to douse the protests, but signs of interference in the city’s legal system could push foreign financial firms to leave for other centres such as Singapore, Mr. Evans-Pritchard said.
That is an outcome Beijing can’t afford as it seeks to build up Shanghai. A year ago, China launched a free-trade zone in Shanghai as another venue to test liberalising measures. Investors, though, have been disappointed.
Hoped-for policies — such as letting foreign firms issue yuan-denominated bonds in the zone or granting them more access to China’s domestic capital markets — haven’t materialised.
Beijing will conduct financial experiments in Hong Kong that it dares not risk on the mainland out of fears of unleashing destabilising capital flows, said Steve Wang, research director at Reorient Financial Markets, a Hong Kong-based research firm.
The city has been a laboratory for nearly all of the landmark financial innovations that Chinese authorities have tried during the past three decades.
Even before Britain’s handover, China’s state-owned firms had begun to list on the territory’s stock exchange as a way to raise much-needed capital. Most of China’s biggest state-run banks, energy giants and telecommunications operators are listed in Hong Kong.
Hong Kong not only helped Chinese companies grow. It also allowed Beijing to tap its market during tough times. China Cinda Asset Management, one of four “bad banks” set up by Beijing to take non-performing loans from major Chinese lenders, raised $US2.5 billion ($2.8bn) in an initial public offering in Hong Kong in December, amid concerns over the health of the Chinese financial system.
Hong Kong also played a central role in efforts to promote the yuan as an international currency.