Hong Kong's International Financial Centre: Retrospect and Prospect

location that remains attractive for international firms; a confidence-inspiring and
institutionalized commitment to the rule of law that, among other vital things, should sustain a
robust regime for the protection of intellectual property rights; the HKMA and the foreign
currency reserves it manages, efficient and liquid systems for clearing and settling local and
cross-border payments, an expanding network of bank branches and related businesses that have
already followed key clients to the Mainland, openness to inward and outward-bound capital
flows, well-developed links to external financial markets, a pool of skilled financial managers
and professional service providers, modern transportation networks capable of moving people
very efficiently locally and into and out of China, increasingly strong universities, the tactical
flexibility that comes from deep knowledge of business culture and practices on the Mainland,
the capacity to remain useful to Chinese authorities as a test-bed for economic and political
innovation, a transparent financial regulatory and supervisory system, a prominent position in
global media networks, and the foundations for a democratic political culture capable of
rendering long-term policies legitimate and enduring.
Taken together, all of these assets can translate into a collective capacity both to profit
from a perhaps lengthy transition period in Chinese economic history and constructively to assist
Chinese authorities facing difficult internal trade-offs during that transition period.
Recommendations for reform touching on all of these assets need to be assessed in light of their
potential to enhance or undercut that collective capacity.
Whether explicitly articulated this way or not, these assets underpin the current version of
Hong Kong’s traditional role as an investing and trading gateway to and from the Mainland. But
that role has lately become more complex and sensitive. Hong Kong’s contemporary IFC allows
Chinese authorities to release internal social pressures; for example, via Hong Kong channels,
individuals and companies wanting to hedge their bets can ever more easily exercise an exit
option and move capital out. Likewise, Hong Kong’s IFC remains an open structure for
facilitating capital imports into the Mainland and for hosting Chinese policy experiments.
Maintaining room for maneuver and remaining flexible enough to take opportunities as
they come along appear to suit Hong Kong’ society as it currently exists. Strong private
interests, especially those based in the property sector or represented at the pinnacle of its
financial markets, seem content with accommodating policies. At the same time, by design or by
virtue of the inheritance of history, Hong Kong’s government often seems capable of delivering
little else. Its executive remains constrained by the Basic Law and the realities of power in
Beijing and in neighboring provinces. Its legislature remains dominated by functional
constituencies, and citizens kept distant from decision-making, understandably, have come to
understand only what government should do for them and not what they must do to make that
possible. Its administration remains cautious and caught up in a generalist civil service culture
that may have served British interests well but is not always suited to the demands on
contemporary government. Its officials are not often able to make and implement decisions
quickly, which now often contrasts notably with the ability of their counterparts on the Mainland.
All of this reinforces a traditional focus on immediate problem-solving in Hong Kong. In just
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