Hong Kong's International Financial Centre: Retrospect and Prospect

Hong Kong took a different stance. More conservative and less intrusive, its government
nonetheless nurtured sense of personal and professional freedom. Having successfully ridden
waves generated by instability in China and by global monetary turmoil associated with the end
of the Bretton Woods exchange rate system and the oil price shocks of the early 1970s, Hong
Kong emerged as a centre for offshore credit operations for the region’s governments and
expanding industrial corporations. Within a decade, its banks had risen to third place in this
sector, just behind London and New York. Cassis was hardly alone in attributing this success to
the non-interventionist stance of Hong Kong’s government, but this deserves deeper reflection.
In London, relevant regulatory policies were then coming to be labeled ‘light-touch.’ But this
did not mean ‘no touch.’
In fact, the government of Hong Kong created important tax advantages by dropping its
previous 15% withholding tax on interest paid on foreign deposits. Through its land policies and
associated incentives, moreover, it helped rapidly to develop the property and communications
infrastructures required for efficient clearing and settlement systems. In addition, it moved
aggressively to abolish all exchange controls and establish personal tax advantages for highly
skilled managers. Indeed, as long as their firms covered high accommodation expenses, such
advantages were hard to beat anywhere else in the region. Unlike Singapore, Hong Kong had the
crucial advantage of an indigenous industrial base that grew up after the war. Trade remained
key, but local entrepreneurs certainly did seek aggressively to utilize a large and growing labour
force and, especially after China moved toward liberalization in the late 1970s, the less
expensive labour force in a burgeoning hinterland. Eventually, even conservative local banks
could not ignore the possibilities for new business servicing operations. Foreign corporations
and their main banks, in turn, were attracted by a legal system akin to London’s and, after 1983,
by a nominally fixed exchange rate system.
In a region still more turbulent than North America or Europe, the policies needed to
maintain a dollar peg promised to foster a vital sense of stability. Equity markets, in particular,
benefited, from the rapidly growing requirements of Chinese corporations for working capital
and, in turn, from the rising interest of Chinese entrepreneurs in diversifying their own personal
investment portfolios. By the late 1990s, Hong Kong had surpassed Singapore in key financial
market segments, with the notable exception of bonds. Aside from London, London, it had also
surpassed all other financial centres in the world in the number of foreign banks represented on
its territory. By the opening of the 21 st century, a prominent financial geographer could declare,
“Its intermediaries of capital, who include traders, financiers, and corporate managers, have
made Hong Kong the pivot of decision-making about the exchange of capital within Asia and
between that region and the rest of the world.” 10
This view is compelling, indeed it rests on a
plausible image concerning the way information, trust, and competitive impulses interact in
contemporary capital markets. It sensitizes us to the intimate relationship between history and
geography. More specifically, it highlights Hong Kong’s enduring place at the intersection of
10
David Meyer, Hong Kong as a Global Metropolis, Cambridge: Cambridge University Press, 2000, p. 1. Also see
Michael Enright, Edith Scott, David Dodwell, The Hong Kong Advantage, Oxford: Oxford University Press, 1997.
Dodwell has followed up in papers for Strategic Access.
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