Holding on to our International Edge

December 2015 - Is Hong Kong International, Transparent and Efficient? — By on December 14, 2015 12:31 PM
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Does Hong Kong’s economic integration with the Mainland help or hurt its status as an international financial centre?

By Mavis Wong & Zoe Tam

Throughout its evolution from a sleepy fishing village into a bustling entrepôt for trade between China and the rest of the world, and from an export-led manufacturing centre into an international financial centre, Hong Kong has thrived on its international connections. It attempted to underline the fact in 2001 with an official campaign to “brand” the city “Asia’s World City.”

Behind the title was the idea of Hong Kong as an international financial centre with a free and stable economy, free flow of information and the rule of law, all qualities that appeal to international investors.

On paper, the city is doing well. According to the United Nations Conference on Trade and Development World Investment Report 2015, Hong Kong, for the first time, beat the US, the UK and Singapore and came second only to mainland China in terms of global foreign direct investment in both inflows and outflows. It also ranked first in the Heritage Foundation’s 2015 Index of Economic Freedom.

However, it faces stiff competition from Singapore, which has been named the “Easiest place to do business” for nine consecutive years by the World Bank, while Hong Kong ranked third last year.

Although Hong Kong has a well-established investment system, its status as a financial market faces a number of potential threats. According to the World Economic Forum’s Global Competitiveness Report of 2015 to 2016, Hong Kong ranked third in the finance sector, losing its top ranking to New Zealand and Singapore.

However, Simon Galpin, the director-general of InvestHK, the government department responsible for attracting and retaining foreign direct investment, thinks Hong Kong still has a leading role in Asia due to its global reach.

“The best way to describe Hong Kong is as a connector for investment in and out,” says Galpin.

Galpin adds Hong Kong has a geographical advantage. Business people can travel to north-east Asian cities such as Beijing, Tokyo and Seoul, or south to Manila or Singapore within three to four hours; Singapore cannot provide such convenience.

There are other reasons why foreign and Mainland investors find Hong Kong attractive. Galpin explains Hong Kong provides high-quality professional services in its law, accounting and consulting firms.

InvestHK helped 355 overseas and Mainland companies to start and develop their businesses in Hong Kong last year. Galpin says businesses continue to choose Hong Kong because of its enduring advantages, which include the rule of law, an independent judiciary, free flow of information, and a simple low tax regime.

“They do it because they feel that Hong Kong is a secure and trustworthy base to do business,” he says.

Senior investment banker Vincent Chan Cheong-wa agrees that Hong Kong’s independent judiciary helps attract foreign investors. “The reason why Hong Kong can become a vibrant financial hub is because of the law courts,” he says, “and this is sacred and inviolable.”

Yet, this is one of the areas where Hong Kong’s closer integration with the Mainland has raised concerns. In a speech at the University of Hong Kong last year, the former Secretary for Justice Wong Yan-lung said heightened vigilance was needed to protect the rule of law because of “the rapid integration between Hong Kong and the Mainland in the social and economic realms. Temptations abound with big moneys flowing in.”

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