Transcript Slide 1

Who will become a global
financial center,
Shanghai or Hong Kong?
Cheung Yan-leung
Dean & Professor (Chair) of Finance
School of Business
Hong Kong Baptist University
Agenda
1.
2.
3.
4.
5.
6.
The definition of Global financial centre
Global Financial Centre Index
Background & advantage of Shanghai
Background & advantage of Hong Kong
Threat of Shanghai
How to face to the Competition
Global Financial Center
“have sufficient critical mass of
financial services institutions to
dispense with intermediaries
and to connect international,
national and regional financial
services participants directly”
(City of London)
Global Financial Centres Index
(GFCI)



Published by the Z/Yen Group of the City of
London
A ranking of the competitiveness of financial
centre based 57 instrumental factors and an
online questionnaire on 26,629 financial
centre assessments
Ratings for 62 financial centres calculated
by a ‘factor assessment model’.
Instrumental factors

Provided by a number of reputable
organizations; Executive MBA Global
Rakings (financial Times), Human
Development Index (UNDP), Business
Environment (Economist Intelligence Unit),
Corruption Perception Index (transparency
International), Ease of Doing Business Index
(world Bank), Global Competitiveness Index
(World Economic Forum) etc…
Online Questionnaire


A simple questionnaire of not more than 20
questions
About the market perception on the ranking
of Global Financial Centres
Five Key Aspects

People
•

Availability of good personnel, the flexibility
of the labor market, business education and
the development of ‘human capital’
Business Environment
•
Regulation, tax rates, levels of corruption,
economic freedom and the ease of doing business.
Regulation, a major component of the business
environment
Five Key Aspects

Market Access
•

The levels of securitization, volume and value of
trading in equities and bonds, as well as the
clustering effect of having many firms involved
in the financial services sector together in one
centre.
General Competitiveness
•
Overall competitiveness of centres in terms of
more general economic factors
Five Key Aspects

Infrastructure
•
Focus on the cost and availability of buildings
and office space, it also includes other
infrastructure factors such as transport
Ranking of GFCI between HK and Shanghai
Hong Kong Shanghai
(Ranking)
(Ranking)
GFCI 1
3
24
GFCI 2
3
30
GFCI 3
3
31
GFCI 4
4
34
GFCI 5
4
35
From the GFCI
report, Hong
Kong’s ranking is
stable. The ranking
exhibits an
downward trend in
shanghai.
GFCI 5 in major Asia city
Financial
Centre
GFCI 5
Rank
Change in
Rank
since GFCI 4
GFCI 5
Rating
Change in
Rating
since GFCI 4
Singapore
3
No Change
687
↓ 14
Hong Kong
4
No Change
684
↓ 16
Tokyo
15
↓ 8
611
↓ 31
Shanghai
35
↓1
538
↓ 30
Beijing
51
↓4
478
↓ 31
Shanghai: market background







Financial centre in 1930’s
Security market closed down in 1949
Slow development between 1949 to 1978
Shanghai’s re-emergence as a financial centre
in 1990
Stock exchange re-opened in 1990
Largest capital raising market in Asia, 2007
Bond and commodity markets have been
established in recent year
(1) : Source :Shanghai Stock Exchange Fact Book 2007
(1)
Securities Markets (Stock Market)
Year
2004
2005
2006
2007
2008
Listed securities (as at year end)
No. of listed companies (1)
881
878
886
904
864
No. of listed securities (2)
996
1069
1126
1125
1184
61
3
13
25
6
Total market
capitalization (RMB mil)
2,601,434
2,309,613
7,161,238
26,983,887
9,725,190
Total market value of
tradable stock
capitalization (RMB mil)
735,088
675,461
1,642,833
6,453,217
3,230,591
Equity funds raised –
A-share (RMB mil)
45,690.10
2,997.00
211,562.00
670,133.00
223,816.00
Equity funds raised –
B-share (RMB mil)
0
0
0
0
0
No. of new listed
companies
(1) All the A & B Share listed on the Exchange are included.
(2) listed securities : include A, B share, Fund, ETF, Warrant T-Bond, Debenture CB & Bond Repo
Source: Shanghai Stock Exchange, Wind
13
The key competitiveness areas in
shanghai

Location



Historical factor


Shanghai has been a major China’s financial centre
in 1930
Lower labor cost


Shanghai is located at the Changjiang Delta, that is
the central part of China.
Large hinterland , such as Jiangsu, Anhui, provide
larger labor support and potential market
Compare with Hong Kong
Language – Putonghua
The key competitiveness areas in
shanghai
 Strong government support
Shanghai announced in April 1990 its plan to
develop the Pudong New Area, and its ambition
to re-emerge as a major international financial
centre by 2010,
Recently, State Council of China government
declared to support for Shanghai’s plan to
become an international financial center by
2020
Hong Kong market background

Grown rapidly in 1990’s


Because of “red-chip” and “H-share”
Hong Kong Exchange and Clearing Co. Ltd.
was established in 2000, merged by



The Stock Exchange of Hong Kong,
The Hong Kong Futures Exchange and
The Hong Kong Clearing Ltd.
Hong Kong market background

Focus on product development in recent
year





Warrant
Callable Bull/Bear Contracts (CBBC)
Exchange-Traded Funds (ETFs)
Real Estate Investment Trusts (REITs)
The largest derivative warrant market in the
world , 2007
Securities Markets (Stock Market)
Year
2004
2005
2006
2007
2008
Listed securities—Main board (as at year end)
No. of listed companies
756
934
975
1048
1087
Domestic (1)
882
925
967
1039
1077
10
9
8
9
10
1,971
2,448
3,184
5896
5654
49
57
56
82
47
431,926.99
704,903.12
892,349.40
953,098.38
972,135.97
6,629,176.75
8,113,333.48
13,248,820.50
20,536,462.82
10,253,588.78
276,202.61
298,237.42
516,011.88
571,078.35
418,187.43
Foreign (2)
No. of listed securities
No. of new listed
companies
Total issued capital
(HK$mil)
Total market
capitalization (HK$mil)
Equity funds raised
(HK$mil)
(1) All the China incorporated enterprises with H shares listed on the Exchange are included.
(2) A listed company would be counted as a foreign company if it is incorporated overseas AND has a majority of its business
outside Hong Kong
18
Source: Hong Kong Exchange Fact Book 2004 to 2008.
The key competitiveness areas in
Hong Kong
From the GFCI 5 report, Hong Kong has
performed well in all of the sub-Indices by
Area of competitiveness. Include:





People
Business Environment
Market Access
Infrastructure General
Environment Competitiveness
Sub-Indices by Areas of
Competitiveness
Ran
k
People
Business
Environment
Market
Access
Infrastruct
ure
General
Competitiven
ess
1
London (-)
London (-)
London (-)
London (-)
London (-)
2
New York
(-)
New York (-)
New York (-)
New York (-) New York (-)
3
Singapore
(+1)
Singapore (-)
Hong Kong (-) Hong Kong
(-)
4
Hong
Kong (-1)
Hong Kong (-) Singapore (-)
Singapore (-) Singapore (-)
5
Zurich (-)
Zurich (+1)
Frankfurt
(+3)
Source: GFCI 5
Chicago (+1)
Hong Kong (-)
Zurich (-)
The key competitiveness areas in
Hong Kong

People




Well educated labor
Our universities have top rankings in the world
flexible immigration policy
Business Environment
•
•
•
•
Simple and straightforward tax regime in both of
corporate and personal tax
Laissez fare economy
Stable country currency system-Linked to the U.S. dollar
free flow of information
The key competitiveness areas in
Hong Kong

Business Environment (Cont’)
•
•
Low corruption rate
The World Bank publishes a measure of regulation and
corruption under the title Governance Matters. Hong Kong
stands in top ranking
The key competitiveness areas in
Hong Kong

Market Access
•
•
•

High access to international market
No barrier for the foreign exchange
Concentration of international banks and
financial institutions
Infrastructure
•
•
Sufficient A-Grade office
has been continuously improving and
upgrading the infrastructure
Threat From Shanghai

Rapid improvement in business
environment
•
•
•


Infrastructure
Living quality
Human resource
Replay Hong Kong to become a “gateway” to
China market
The report of GFCI 5 shows that the
investors concentrate on shanghai rather
than Hong Kong
Threat From Shanghai
The Centres Where New
Offices will be Opened
Financial Centre
Number of
times mentioned
Singapore
14
Dubai
13
Shanghai
10
Hong Kong
8
Beijing
5
The GFCI 5 report
shows that the
investors prefer
Shanghai for their
future investment
rather than Hong
Kong
Source: GFCI 5
Threat From Shanghai
Centers Likely to Become
More Significant
The report reflects that the
investor recognizes the
role of Shanghai will be
more significant in the
foreseeable future.
Source: GFCI 5
Financial Centre
Number of
times mentioned
Dubai
26
Shanghai
23
Singapore
13
Mumbai
12
Beijing
8
Abu Dhabi 8
8
What should we do?
Bond Market Development
 The bond market develops slowly. Up to July
2007, the total amount of corporate bond was
up to USD 82 billion, while in 2002 that is
USD 53.3 billion.
 Hong Kong market can facilitate more China
Enterprises to issue corporate bond.
What should we do?
Insurance Industry Development
“Hong Kong remains a strong financial centre
and is in 3rd or 4th place in all industry sector
sub-indices, except Insurance, and in all areas of
competitiveness.”
Source: Comment from GFCI 5 report
What should we do?
Improve the quality of the listing company
Hong Kong should focus on the improvement
of transparency for listing companies.
Frequency of financial reports remains limited
to annual and interims, whole reporting
deadlines is well below international best
practice.
What should we do?
Diversify our industrial structure
Hong Kong should diversify the industry, for
example: Biological technology, education,
tourism, logistics, as well as IT and other
high-tech industries
Now, Hong Kong focuses mainly on the
tertiary industries, esp. financial industry
What should we do?
Regulation of the financial institutions
 “Lehman brother” event leads the public to
lose confidence to the financial institutions.
 Financial crisis shows that Hong Kong needs
to strengthen the regulation framework for the
financial institutions
 It is wishful thinking that financial institutions
can be self-regulated.
What should we do?
Strengthen the co-operation to Guangdong
Region
 Hong Kong needs to focus not only on the
“hardware” co- operation with Guangdong
Region only.
 Hong Kong lacks of co-operations in education,
training, tourism, financial server etc with
Guangdong Region
Can we co-operation?
Before full convertibility of the RMB




Hong Kong can be a “bridge” for the
Chinese and foreign companies
the wealth management centre
Offshore RMB settlement centre
Can be a “instructor” to the Shanghai for
develop the financial centre.
Can we co-operation?
After full convertibility of the RMB
 To separate the role, similar to New York
and Chicago
 Shanghai can focus on the traditional
business related to local enterprise and
citizen, such as stock, bond and banking
service.
Can we co-operation?
After full convertibility of the RMB (cont’)
 Our international market experience can
help Chinese company to develop their
business into oversea market
 Hong Kong can focus on business related to
financial innovation, derivative product,
wealth management, foreign exchange
 The gateway for the South Asian investor to
China market
~END~