The “Financial System Stability Assessment” published by the International Monetary Fund in June reaffirmed Hong Kong’s position as an international financial center, with its robust financial system, effective macroeconomic and prudential policies, and a sound regulatory and supervisory framework. The IMF noted that rigorous stress tests show Hong Kong’s financial system can remain stable even in extreme circumstances.
The stock market’s performance is an important indicator of investor confidence. In recent years, initial public offerings issued in Hong Kong and the trading volume of the local stock market have performed strongly, especially after the reform of the listing system, attracting more and more companies from the new-economy and biotech sectors to list in Hong Kong. In the first half of 2021, the trading volume of the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect hit record highs.
Hong Kong has enjoyed strong support from Beijing since reunification in July 1997. The “one country, two systems” principle has provided sound institutions to the special administrative region, helping Hong Kong maintain stability and prosperity.
The support of the central authorities under the “one country, two systems” framework, moreover, has afforded Hong Kong a unique edge that has transformed the city from a regional stock market into an international financial center.
The free exchange of currencies, free flow of funds and information, sound legal and regulatory system and a strategic position of “leveraging the Chinese mainland while engaging the world” has made Hong Kong an irreplaceable bridge connecting China to the rest of the world. The trading volumes of the Stock Connect and Bond Connect have grown significantly. At present, about 70 percent of A-shares held by international investors are traded in Hong Kong.
According to the “World Investment Report 2021”, released by the United Nations Conference on Trade and Development, Hong Kong is the world’s third-largest destination of external direct investment. Being a gateway to the Chinese mainland, Hong Kong has the upper hand. Many global banks, funds and financial institutions such as HSBC, UBS, Goldman Sachs and Citibank have stated that they are recruiting more staff and expanding their teams in Hong Kong. At the same time, the number of licenses issued by the Hong Kong Securities and Futures Commission for asset management, securities and other financial activities has increased. Compared to nine months ago, the number of licenses issued at the end of March increased by 1.7 percent, which is only slightly lower than the historical peak in 2019.
The central government has also brought Hong Kong a series of preferential policies, which, including those set out in the 14th Five-Year Plan (2021-25), are designed to help Hong Kong consolidate and enhance its competitive advantages, develop Hong Kong into an international innovation and technology hub, build a high-quality Guangdong-Hong Kong-Macao Greater Bay Area, and foster Hong Kong as a Belt and Road functional platform. These initiatives will enhance Hong Kong’s status as an international financial center, and strengthen its functions as a global offshore renminbi business hub, an international asset management center and a risk management center. They also help deepen and expand mutual access between the financial markets of the mainland and Hong Kong.
The mainland’s economic development and the global competitiveness of its enterprises have offered Hong Kong a lot of opportunities for development and injected impetus to its economic development. Under the leadership of the Communist Party of China, China has become the world’s second-largest economy, largest industrial country, largest exporter, and the country with the largest foreign exchange reserves.
Backed by a massive and burgeoning economy, nearly $50 billion in funds flowed into Hong Kong in the last 12 months. The total amount of banking deposits rose by 5.4 percent in 2020 and it has been rising in the first half of 2021. Assets managed by Hong Kong’s private banks recorded a 25 percent increase year-on-year in 2020, and are expected to increase further.
The Hong Kong Stock Exchange recorded its best half-year performance this year, with key data reaching a record half-year high. The profit attributable to shareholders went up by 26 percent to HK$6.61 billion ($850 million); revenue achieved a 24 percent year-on-year growth to HK$10.9 billion, which is a 5 percent increase from the record high in the second half of 2020; and average daily turnover increased by 60 percent to HK$188.2 billion compared to the same period last year.
Last year, IPO funds raised in Hong Kong exceeded HK$500 billion, representing an increase of more than 50 percent compared to the previous 12 months, making Hong Kong the second-largest IPO market in the world. Seventy percent of the newly listed companies are from the mainland. In the first half of this year, Hong Kong’s IPO amount raised reached HK$211.7 billion, a 1.28 times increase over the same period last year. More and more companies are choosing to list in Hong Kong as the stock market remains attractive to investors.
All these reflect that the promulgation of the National Security Law for Hong Kong has strengthened investor confidence in Hong Kong rather than dampening it, as claimed by critics. In addition, the improved electoral system can help resolve the city’s deep-seated problems, restore its long-term peace and stability, and facilitate its integration into the overall development of the country.
Meanwhile, the global economy is experiencing immense changes while protectionism and unilateralism are on the rise. In response to the intricate international landscape, China proposes a “dual circulation” economic development strategy, whose “internal circulation” of production, supply and consumption will play a dominant role with the support of its “international circulation”. Hong Kong has always played a significant role in the nation’s “international circulation”. Now that the country is putting more emphasis on the “internal circulation”, Hong Kong must keep up with the times by aligning itself with the business opportunities arising; it must have a long-term plan, reposition itself to complement the mainland’s economic transformation and upgrading to strive for further growth.
Both the Greater Bay Area and the Belt and Road Initiative are offering a lot of opportunities to Hong Kong, which can be better exploited by integrating the city’s development into national development.
The author is a member of the Chinese People’s Political Consultative Conference National Committee and chairman of the Hong Kong Finance Association.
The views do not necessarily reflect those of China Daily.