Hong Kong's International Financial Centre: Retrospect and Prospect

about it, and they are playing a constructive role at the global and regional levels in trying to
address it. They are also aware of the implications of the logical response to the dilemma
currently driving much strategic thinking inside large, complex financial institutions, including
banks that play a key contemporary role in Hong Kong itself. After each cross-border crisis since
the early 1970s, most have become even bigger and even more complex. After all, as the events
of 2008 surely suggested, this is the most reliable way for them to surmount the next crisis.
Indeed, to paraphrase the response of one senior executive to my own probing along this line, ‘In
the event political authorities decide that they cannot or will not assist us, we need to be so big
and so global that we ourselves could cut off a diseased limbs without concern that the rest of the
body would be compromised.’ For Hong Kong, of course, the issue is to ensure that it is not the
location where such surgery actually takes place, which bring us back inevitably to the problem
of monetary and, ultimately, fiscal burden sharing.
Once again, I have only a question and not a definitive answer. 76
That question, though,
begs for more thorough and open-minded debate within Hong Kong. It points back to the need
for a robust strategic capability inside the central fiscal and monetary agencies of government.
The task cannot be left to the private sector.
Autonomy and the capacity to maneuver within Greater China
The global crisis of 2008 is now in the past. In the United States and Europe, prominent
financial institutions disappeared. The survivors are now larger, but they still compete in
markets that remain quite open. Vis-à-vis one another, the United States, the European Union,
Japan, still the home bases for most large banks and investment vehicles, have returned to the
same basic macro-policy choices that they preferred before 2008. They remain open to inward
and outward capital flows; they assign a high priority to the autonomy of their internal monetary
policies, that is, to their ability to increase or decrease interest rates mainly in light of domestic
circumstances; and they maintain flexible exchange rate regimes. In other words, this is how
76 Barring an economic catastrophe, my personal view is that we must acknowledge that we are likely to continue
living in a world of LCFIs. Breaking them up, re-segmenting them, and rendering their possible failure in ‘free’
markets easy to contemplate might be wise, but it is not likely to happen in the near future. Thus the logic of burden
sharing must be extended now to the global level. There is no practical means of escape from the necessity of
deeper monetary and fiscal cooperation during emergencies. We must, then, learn to live with the uncomfortable
reality of moral hazard at the global level. We can try to limit it. But no matter how hard we try, we cannot
eliminate it entirely. Perhaps history can give us some hope. That same logic led us after 1945 to try and adapt the
International Monetary Fund as a burden-sharing instrument in a trade and eventually investment-centered systemic
economic order. Some say, a better and more feasible objective now is to adapt earlier experiments that centered on
networks of central banks. That would be fine if we had ultimately only to contemplate temporary liquidity facilities
to stabilize an increasingly complex system. But it would be to deny the truth that we witnessed with our own eyes
in 2008. In a global financial system, we must sometimes confront solvency problems that can only be addressed
by cooperative monetary and fiscal responses. In the end, integrating markets mean integrating politics. For further
analysis along this line, see my “Managing Financial Emergencies in an Integrating World,” Globalizations, vol. 6,
no. 3, September 2009, pp. 353–364.
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