Hong Kong's International Financial Centre: Retrospect and Prospect

2. Analytical Background
Foundations for prosperity
During my first visit to Hong Kong, the ‘in-between-ness’ of the place fascinated me. The
sun had already set on the British Empire, but in that great Asian city I met officials steeped in its
traditions. Richard Nixon’s historic visit to China had occurred five years earlier, and everyone
was trying to discern the implications of Deng Xiaoping’s reforms. In 1977, change was in the
air. Only later did I learn that the famous phrase attributed to an American baseball player, had
long applied to Hong Kong. “It’s déjà vu all over again.”
Adaptability, it seems, is the essence of Hong Kong’s unique history. A commonplace
refrain in business and government circles credits the British with leaving a rich legacy in ‘the
rule of law.’ But law is a process of social and political accommodation. The deepest legacy of
the British was a political structure resilient in the face of systemic change. That structure
permitted a people mainly of Chinese descent to construct and reconstruct a distinct identity in a
turbulent region. Time and again, it helped them as a society to find a middle path between hard
choices. Like a well-functioning backbone in a healthy human body, it embodied spirit of
pragmatic resiliency. Ultimately, that society surpassed its imperial teacher in learning also how
to pass such a spirit on to succeeding generations. At its core, that structure of political decisionmaking
revolved around a simple practice—refraining from clarity whenever difficult
adjustments were required to maintain stability. Such a practice was most useful in the building
of modern financial markets.
By most standard measures, Hong Kong’s financial sector provides the base for one of the
world’s three great financial centres. With the significant exception of its bond market, only
London and New York currently surpass it. It is already Asia’s international banking centre, a
centre tested severely during the so-called Asian crises of the late 1990s and affirmed by its
outstanding performance during the worst global crisis since the 1930s, which began in the
United States in 2007. It is evidently also now Asia’s major centre for equities, a status that
continues to be bolstered by the dynamism of China’s emerging corporations. Underpinning
both is a unique approach to governance. Any analysis of the challenges Hong Kong now faces
as it seeks to address remaining weaknesses in its financial industries must begin with a careful
consideration of that approach.
Standard histories begin, quite appropriately, with the famous phrase associated with
Financial Secretary Philip Haddon-Cave and the actual policy line crafted by his predecessor,
John Cowperthwaite. “Positive non-intervention,” often misinterpreted as articulating an
ideology of ‘laissez-faire,’ did shape governmental practice during the seminal twenty-year
period beginning in 1961. Instead of simply letting private markets work their capitalist magic,
however, the policy line provided cover for a quite activist set of steering mechanisms. As the
historian Steven Tsang put it, behind the scenes “government remained the largest employer, the
biggest developer of real estate, the leading constructor, the largest landlord, and the biggest
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