From “made in China” to “owned by China”
Asia reshaping the global agenda” is the theme chosen by the organisers of the 4th Asian Financial Forum in Hong Kong. Now in its 4th edition, the AFF is keen to establish itself as the most influential financial conference in Asia.
Hong Kong’s Chief Executive Donald Tsang reminded the 1600 attendees at the Asian Financial Forum that the recent economic crisis has been the catalyst for a profound change in the financial world. The international political focus has widened from G7 to G20 and emerging markets generally, and particularly Asian nations, now have their say in shaping the new world economic order.
The importance of Hong Kong as a financial centre is ever increasing and its principal role is to act as a bridge linking China to the rest of the world. Anthony Bolton, President of Investments at Fidelity International has put it this way: Hong Kong is like an epicenter between two tectonic plates, the plate of the slow moving western hemisphere and the plate of the fast moving emerging world. And it’s precisely in Hong Kong where these 2 tectonic plates rub against each other.
Capital flows move from the west to the east but also more and more within the Asian continent. In 2010 Chinese capital markets were able, for the first time ever, to levy more funding than the US markets. These huge investment flows have resulted in overcapacity, notably in China. It is important that China push its domestic demand to reduce overcapacity and become less reliant on foreign demand. Expanding domestic consumption will be a major theme when the National People’s Congress of China meets in March 2011 to fix China’s next 5 year plan.
Other challenges lie ahead in China. 2 850 bn USD in foreign exchange reserves have been accumulated over the last decade, 50% of which is invested in USD, mainly in treasuries and Government bonds. China has a clear interest in pushing the RMB to become a major international and reserve currency in the years to come, to reduce its foreign currency exposure. This is where Hong Kong comes in. As from 2004, some Hong Kong based banks were used as a laboratory and allowed to conduct banking operations in RMB. The scope of the transactions has been widened over time: deposit taking, currency exchange, remittances, debit/credit card business or trade settlement services. RMB deposits have more than doubled in the years 2009 – 2010 to over 140 bn RMB. In 2010, a bond market in RMB developed in Hong Kong with 18 different issues. The next steps should include stock listings in RMB on the Hong Kong stock exchange.
In the recently published Heritage Foundation 2011 Index of Economic Freedom, Hong Kong was once again ranked 1st out of 179 countries. The survey establishes Hong Kong as the world’s freest economy, with “a high degree of resilience during the global financial crisis, effective legal and regulatory frameworks, openness to global commerce and strongly supporting entrepreneurial dynamism”.
The centre of economic and political gravity is shifting. In this process, Hong Kong might emerge as the world’s largest and most competitive financial centre during the next decade. Exploring areas of common interest with Hong Kong will become ever more important for European financial centres offering an interesting range of products and services. FG