(W.E. Talk) Joseph Yam Chi-kwong: How can Hong Kong maintain its competitiveness as an international financial center in the context of global changes?
2023-05-28 Ecns.cn Editor：Jing Yuxin
File photo shows the Exchange Square complex, Hong Kong. (Photo: China News Service/Zhang Wei)
By Zeng Ping, Wei Huadu, China News Service
(CNS) -- The Hong Kong Special Administrative Region (HKSAR) under the Framework of “One Country, Two Systems” is closely connected to the Chinese mainland and also extensively connected to the world. The city, known as the world's freest economy, has long played an important role as a bridge between the mainland and the world, and has developed to a leading international financial center, relying on its unique advantages of sound financial system and sound legal system.
Nowadays, the world's economic center is shifting from west to east at an accelerated pace in the context of global changes. Challenged by the complex and volatile external environment and uncertainties, how should Hong Kong plough the waves to maintain its competitiveness as an international financial center? The first president of the Hong Kong Monetary Authority and an unofficial member of the Executive Council of the HKSAR, Mr. Joseph Yam Chi-kwong, accepted anexclusive interview “W.E. Talk” with the China News Service to give an in-depth explanation of this issue.
Here are excerpts from the interview:
CNS: Under the impact of the changing international environment and the Covid-19 pandemic, what are the possible financial risks faced by Hong Kong?
Mr. Yam: Hong Kong's financial system has been sophisticated and strengthened over a long period of time, and has good genes to manage risks well. Although I have been in retirement for many years, I am still confident about this. This tradition of being prepared for danger has been passed down to today, and Hong Kong is well prepared for financial risks.
I’m not worried about the uncertainty in the global economynow and the impact of Covid-19 pandemic, as it is normal for the financial market to fluctuate with the ups and downs of the economy. Hong Kong's financial regulators conduct regular stress tests on the financial system at a very high coefficient. Although Hong Kong has taken more conservative anti-pandemic measures than other places, it is justified to do so, and I think the impact is temporary.
The world today is undergoing major changes unseen in a century. In the international financial arena, the U.S. has a strong influence, and a complex situation may arise if it tries to control China's development from the financial aspect. I believe that the financial regulators in both the Chinese mainland and Hong Kong will keep alert and analyze possible events and thus get prepared.
I think there is less chance of an extreme situation. First, China and the United States are the world's two largest economies and they will not be completely "decoupled" in economy, especially in the financial area. Wall Street investment banks have developed a lot of business in the Chinese mainland and also hold a lot of votes, so they are highly influential on relevant decision makers in the United States. Second, the United States is the world's largest debtor, while the Chinese mainland together with Hong Kong is the largest creditor.Therefore, it is not reasonable for the former to “sanction” the latter by financial means; if so, it will make other creditors wary and lead to a significant reduction in U.S. influence in the international financial area.
CNS: What are the lessons from “The Battle to Defend Hong Kong’s Financial Stability” in 1998?
Mr. Yam: Before the return of HK to China, the Monetary Authority had already made a lot of preparations for safeguarding financial security and monetary stability, including the introduction of the "New Accounting Arrangement" in 1988 and the "Real Time Gross Settlement " in 1996, so that the Monetary Authority was able to control the monetary base. The years 1997 and 1998 were a test for us. The financial crisis at that time was not caused by anything wrong with Hong Kong itself, but by the failure of Southeast Asian countries to manage the risks of debt in the context of financial globalization.
Speculators took advantage of Hong Kong's belief in the free market philosophy to manipulate the market which was thus reduced to a market that could be freely manipulated. In the face of this disappointment, it was necessary to bring order out of chaos, so we decided to intervene in the stock market in a high profile to prevent them from making money by manipulation. When they attempted to push the stocks down, we bought them. This was actually a very brutal approach, but we had no alternative except to fightback.
At the time, despite the veiled criticism of some Western financiers, this approach later was still recognized by these people. Although Hong Kong is a free economy relying on the market, it should not be ignored that there are times when the market fails. Preventing market failure requires regulation and even intervention and involvement in the market. When the regulator sees the need for this, for example, when the failure is against the public interest or affects monetary and financial stability, the actions mentioned above should be taken. I have learnt therefrom that the market isnot absolutely infallible.
CNS: The latest Global Financial Centers Index shows that Singapore is ranked third in terms of the global financial centersindex, while Hong Kong has fallen to the fourth. It is argued that Hong Kong has been overtaken by Singapore. What would you say to that?
Mr. Yam: These rankings are certainly important to a certain extent as they demonstrate the importanceof a city at the financial level. But I think it is more important to understand the connotation of the words "international financial center", that is, the place where capitals from all over the world converge. As a matter of fact, the operation of Hong Kong international financial center is to integrate capital fromthe Chinese mainland and foreign countries, whichHong Kong has done very successfully.
If China is to become the world's largest economy in the future, Hong Kong will become more important in financial integration. In this respect, no other place can match Hong Kong as an international financial center. In addition, it is understandable that many people measure a city's status as an international financial center by the volume of market trading and the number of financial institutions.Nevertheless, I think the key taskforan international financial center is to do well in financial integration. The status of Hong Kong's IPOs is indisputable. Moreover, most investors and capital raisers in Hong Kong are not from the local community, so Hong Kong's status as aninternational financial center is second to none.
International financial centers should work pragmatically in financial integration. Practices such as attracting financial institutions throughsubsidies are not needed. We can learn from New York and London which are advanced in financial innovation with many derivative products and precise risk management, and these innovative products have improvedthe efficiency of financial integration. However, we should keep in mind that finance always serves the economy and should not hold the mindset of serving itselfor playing a zero-sum game in the market.
I think the Law on Safeguarding National Security in the Hong Kong SAR will consolidate Hong Kong's position as an international financial center in the long run. International financial institutions will not like to operate in a place where security is compromised. A stable and reassuring social environment is certainly beneficialfor Hong Kong's status as an international financial center. In fact, compared with the national security laws in Europe and the United States, the national security law implemented in Hong Kong is not that harsh. If there is still criticism about this, which may be just an excuse used to suppress China because ofa different political stance.
CNS: Will Hong Kong be replaced in its role in the financial integration between the Chinese mainland and the rest of the world? How does this relate to Hong Kong's characteristic of bringing together the East and the West?
Mr. Yam: It is a very clear policy and trend for China to keep on the reform and opening up, while the mainland capital programs will not be fully open to the outside world in short to medium term. Therefore, supported by the Chinese mainland policies, Hong Kong has always served as a channel for investors and capital raisers from the Chinese mainland to “go global”. This has been the case in the past, as many financial arrangements have been made between Hong Kong and the Chinese mainland, including the Shanghai-Hong Kong Stock Connect program, Shenzhen-Hong Kong Stock Connect program, Wealth Management Connect and Bond Connect. Hong Kong's position as an international financial center will be quite secure, as supported by sustained and clearnational policies.
Shanghai and Hong Kong play different financial roles. In my opinion, the financial integration within the Chinese mainland, i.e. the meeting and cooperation among the Chinese mainland investors and financiers, often takes place in Shanghai instead of Hong Kong, which is quite normal. Nevertheless, aboutthe international finance, i.e. the external circulation of the national economy, Hong Kong, as part of China, can serve the country under the framework of "One Country, Two Systems”.
Hong Kong's positionof bringing together the East and the West allows it to play the role of integratingfinance between the Chinese mainland and foreign countries. As an international city with a long history, Hong Kong has a capitalist society governed by the Common Law. The foreign economies, especially the capitalist ones, are familiar with it. They may not be able to deeply understand the socialist market economy of the Chinese mainland, but they are familiar with the rules of Hong Kong. As the place outside the Chinese mainland that knows the best about the practices and rules in the Chinese mainland, Hong Kong is an optimal place for investors and capital raisers from the Chinese mainland and overseas to meet.
CNS:How do you evaluate Hong Kong's contribution to RMB’s internationalization in recent years? What are the directions and room for future efforts?
Mr. Yam: It has been about 20 years since the internationalization of RMB was proposed.The progress is considerable, but there is room for acceleration. The way forward should be promoting the meaningful application of RMB in the capital market at multiple points to ensure sufficient and widespread use in the bond market, the stock market and the banking system. For example, in the bond market, the Ministry of Finance and China Development Bank have issued RMB bonds, but they are still at a very basic stage of development, leaving room for more efforts; stocks listed in Hong Kong can be quoted, traded and cleared in RMB; and in the banking system, there can be more development of RMB-related derivatives.
As the internationalization of RMB advances, it is a must to speed up the construction of related financial infrastructure, including quotation system, payment system, and asset custody system, so that global investors can find ways to invest if they have extra RMB and raise capital effortlessly if they have no sufficient RMB. This is a meaningful internationalization.
From thenational perspective, the best way to gradually reduce dependence on the U.S. dollar is to internationalize the RMB. Now there are offshore RMB markets in many places around the world, such as Singapore and the UK. But I don't think it is necessary to copy the development model of RMB internationalization in Hong Kong elsewhere. Investors and capital raisers in Southeast Asia and Europe, if planning to trade in RMB, can trade through Hong Kong. The advantage of this practice is that the offshore RMB market in Hong Kong will maintain its depth, breadth and high liquidity. (End)
The interview record was first published on October 26, 2022 by China News Service.
