Hong Kong's International Financial Centre: Retrospect and Prospect

the bolstering of supervision by agencies directly or indirectly tied to governments. That such a
logic undercuts traditional attractions to Hong Kong’s financial markets is, quite simply, true.
The critical reaction is clear and compelling from those who believe that freer markets prevailed
during the British ascendancy. 59
Perhaps someday, some state or group of states will make the
dramatically novel move to break up the banks they regulate and supervise. Perhaps such a
move would create small enough, numerous enough, and competitive enough firms in
specialized market segments, firms that may routinely be allowed to fail when they get into
trouble. For better or for worse, the probability of such developments appears today to be
approaching zero. Since 1997, Hong Kong has adjusted accordingly.
Even before the handover, Hong Kong had joined the global movement. I introduced the
context at the outset of this study. Between the two oil price shocks of 1973 and 1978, a
perceptible shift began in Hong Kong’s financial markets. Haddon-Cave’s famous addition of
the adjective “positive” to a traditional non-interventionist stance came just after the March 1973
stock market crash and just before the HK dollar exchange rate was permitted to float. After a
decade of economic turmoil, not coincidentally associated with a tremendous increase in
international capital flows, in 1981 the Financial Secretary announced the adoption of a new
system of bank regulation. Henceforth, his office would explicitly be responsible for setting
overall financial policies and reconciling them with their ultimate base, that is, with fiscal and
monetary policy. Officials reporting to him, today organized as the Financial Services and
Treasury Bureau, would be responsible for overall policy implementation, most importantly with
regard to the three tiers of banks: licensed banks, licensed deposit-taking companies, and
registered deposit-taking companies. They would eventually be joined by commissioners for
insurance and for securities and commodities trading. Two years after the stock market crash of
1987, the latter would be replaced by the Securities and Futures Commission. As in the Anglo-
American governing tradition, it would remain an agent of the government but one with
‘independent’ statutory authority.
In April 1993, albeit without the same kind of statutory base, the HKMA became the
regulator and supervisor of banks and banking. After 1998, the HKMA, the SFC, and the
Insurance Commissioner were joined by the Mandatory Provident Fund Schemes Authority
(MPFA), a new monitor for the pensions industry. Finally, industry associations in each segment
of the financial markets held onto varying prerogatives aimed to enhance self-discipline in line
with overarching expectations of official accountability. Other bodies, reflecting various official
agencies or public-private partnerships, also played roles designed to stabilize the system as a
whole. These included the Hong Kong Deposit Protection Board, the Companies Registry, the
Financial Reporting Council, the Independent Commission Against Corruption (first established
in 1974), the Consumer Council, and the Joint Financial Intelligence Unit of the Hong Kong
59 For an articulate, passionate, and important local expression of this critique, see David Webb’s well-known blog:
www.webb-site.com. I have considerable sympathy for his admiration of markets but remain skeptical about the
practical political possibilities of breaking up globe-spanning firms capable of exposing distinct polities to systemic
risks. Together with the fact that all factors of production are not always mobile, this seems necessarily to imply that
governments are sometimes acting entirely responsibly when they intervene in markets to defend broader social
interests.
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