Hong Kong's Financial Center in a Regional and Global Context

Geography continues to shape the character and promise of Hong Kong's financial sector. Its physical and human links to the heartland of China made it a natural center for trade in goods and services. And when trade between nations mediated by merchant companies was largely transformed by the practice of intra-firm transfers within multinational corporate networks, Hong Kong's adaptation required little detailed direction. Its basic advantages remained the same even as industrial capitalism on a national scale developed into financial capitalism on a global scale. Hong Kong's location, time-zone and territorial openness to the movement of people made it a clearing house for information. There was, nevertheless, nothing inevitable about the precise path Hong Kong has followed recently into the top tier of international financial centers. British rule set the policy and legal framework that still supports vibrant business networks with London, New York and other leading global cities. But two key advantages again manifested themselves in the years following the 1997 handover: financial linkages with the mainland remained robust, and Beijing continued to value highly Hong Kong's role as gateway to the global economy. Nevertheless, to retain its top-tier position, Hong Kong must deal wisely with a range of fundamental policy issues in the coming years. These will require a more active role for government than has been the norm; continued reliance on a laissezfaire attitude and a low-tax regime by themselves will not be adequate. This brief article frames important policy debates on strengthening those advantages, first in light of high-end competition from within the region and then in the context of the rapid development of greater China