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«Core International Financial Centre Module Foundation part: Hong Kong as an International Financial Centre  Is Hong Kong an international ...»

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Core International Financial Centre

Module Foundation part: Hong Kong as an

International Financial Centre

 Is Hong Kong an international financial centre? What are the

similarities and differences between Hong Kong and other

international financial centres like New York, London and

Tokyo?

 Why was the manufacturing industry in Hong Kong gradually

replaced by the financial services sector in the 1980s?

 Who benefits from Hong Kong being an international financial centre? Will the economy collapse if Hong Kong loses this position?

 Hong Kong is a mature international financial centre, should it fear challenges brought by Singapore and Shanghai?

 Are clean, honesty and integrity essential criteria for Hong Kong to remain an international financial centre?

Students can learn about the services covered by the financial sector through the following daily situations, by which teachers can explain what financial sector is.

Lead-in Activity (1): What is financial sector?

Referring to the following situations, what services does financial sector include? What are the institutions in Hong Kong that provide the related services?

A Hello! What can I I want to deposit $10,000 help you?

in my saving account.

Thank you!

My computer company is in need of capital.

Can you help?

Mr. Wong, our bank has a favourable loan plan, which can help you!

Mr. Chan, we Tai Shing Insurance provides diversified services, B which can give you comprehensive protection for your whole family. I can explain the details of each plan for you!

C I hope to expand the mainland business, and need to raise more capital. To list on Hong Kong stock exchange is the best choice to me.

Mainland merchant We want to change money D for 1,000,000 Yen for our honeymoon in Japan.

Please help me transfer USD 20,000 to the US for my son’s living expenses for studying abroad.

–  –  –

Yes! The gold price reaches new heights in a decade. It seems it is the time to sell the gold stored at home!

Complete the following list referring to the above situations.

–  –  –

Financial sector is one of the four economic pillar industries in Hong Kong. It includes financial activities, such as bank, insurance, securities, fund management, futures, gold trading and foreign exchange, which facilitate the capital flows in the market. There are many financial institutions in Hong Kong, like banks, private loan companies, securities brokerage companies, futures and bullion dealers, stocks, gold and futures trading firms, money changers and foreign exchange dealers. These companies provide various financial services for local and global investors in Hong Kong.

–  –  –

We often read in news reports that New York, London and Tokyo are world-renowned financial centres. Read the following sources and analyze what are the features of an international financial centre.

–  –  –

New York is one of the major international financial centres in the world. According to the Global Financial Centres Index 2011, New York beat London, Tokyo, Hong Kong and Shanghai etc. and became the most competitive city as a financial centre in the world.

There are many headquarters of major global financial companies and branches of many foreign banks in New York. It has a diversified financial market with financial services including stocks and bonds, gold, futures and foreign exchange market, which attracts many foreign investors. New York ranks first globally in terms of asset management scale and stock trading volume. For example, the initial public offerings in New York Stock Exchange reached US$25.4 billion in the first half of the year 2011 and it ranked first globally.

–  –  –

The fact that London becomes a well-known international financial centre in the world is because of its free and open market. Since Britain announced to fully lift foreign exchange controls in 1979, London’s foreign exchange market has become a completely free market basically. People can freely convert capital into other currencies to facilitate various transactions. Moreover, financial service is the major constituent of Britain’s economy, accounting for 5.5% of its GDP. About 1 million people engage in this industry in London, and most of the financial services institutions are found in London.

London is an international financial centre where most foreign banks have business operations there, and its volume of foreign exchange transactions ranks first in the world. It is the world's largest international insurance market, providing a wide range of investment markets and products to investors around the world.

In order to strengthen London’s status as an international financial centre, the Financial Services Authority (FSA) approved the white paper of Banking Act 2009 and Reforming Financial Markets in 2009, and made efforts to establish a more comprehensive system for risk control of the financial sector and stabilizing its development, so as to safeguard the interests of investors.

Source: Integrated report, 2010 Based on the above examples of New York and London, list the features of an international financial centre.





–  –  –

Numbers of the Top 500 multinational corporations have their headquarters in London, New York and Hong Kong Source: Hong Kong Trade Development Council, Hong Kong Yearbook 2010

–  –  –

The Financial Sector Assessment Programme (FSAP) is a joint programme of the International Monetary Fund and the World Bank. It provides an analysis of the development needs of its members and help to enhance the members’ ability to reduce the chance of financial crises.

The FSAP Mission visited Hong Kong in 2002. After the completion of the FSAP assessment on Hong Kong, the FSAP team has compiled a summary report called the Financial System Stability Assessment ("FSSA"). IMF concludes that the HKSAR's financial system is stable, fundamentally sound and overseen by a comprehensive supervisory framework. The IMF also noted that HKSAR's adherence to international financial sector standards and codes is strong, mostly reflecting the role of HKSAR as an important international financial centre.

Source : Office of the Commissioner of Insurance, 2009 Based on the above information, do you think Hong Kong is an international financial centre?

–  –  –

There are many famous international financial centres in the world. They provide various financial services such as financing and credit in different places of the world, facilitating capital circulation and economic development. New York, London and Hong Kong are some of the famous international financial centres in the world. In 2008, TIME magazine ranked these 3 cities in parallel positions and described them as the important cities for future financial development of the world. As an international financial centre, the country/region should be in an important position in the global financial market, with multinational financial institutions willing to set up branches there and participate in local financial activities, and even relocate the headquarters to the country/region.

As an international financial centre, there should be a number of financial institutions such as banks, insurance companies and other financial-related services industries. Besides, free capital circulation and no foreign exchange control also help to promote the development of the financial industry. With free circulation of information, investors can obtain updated information, which facilitates their decision-making on investment. An international financial centre should also be overseen by effective judiciary system and supervisory organizations in order to protect the interests of market participants and the smooth operation of the financial market, so that investors and service users can be trouble-free when using the services.

–  –  –

Please read the following details and answer the questions.

: The development of light industry in Hong Kong during 1960s and 1970s Back to the old days...

Since 1940s, toy products had been manufactured in labour-intensive mode. The toy industry was once famous in Hong Kong, especially during 1960s and 1970s. With low production cost, diversified toy product designs, high quality, promptness in filling an order, punctuality in delivery, respect for the copyright of customers’ products and flexible marketing strategies, Hong Kong had gradually become one of the important toy production places in the world. At that time, Hong Kong surpassed Japan in the export of toys and became the largest toy export region in the world.

–  –  –

1. According to source 1, what are the advantages of Hong Kong in developing light industry in the 60s and 70s?

Low cost of production, diversified toy production designs, excellent quality, promptness in filling an order, punctual delivery, respect for the copyright of clients’ products and flexible market strategies etc. all of these made Hong Kong competitive in the international market.

According to source 2, what are the factors contributed to the decline of Hong Kong’s light 2.

industry?

The cost of production in the mainland such as wages and rent are lower than Hong Kong.

China’s reform and opening-up is a favourable condition for expanding production scale.

Therefore, factories moved to the mainland and Hong Kong’s light industry declined.

According to source 3, try to describe the differences of Hong Kong’s manufacturing and 3.

financial industries in1981 and 2011.

From the percentage of the employment in Hong Kong, manufacturing industry has declined and been replaced by financial and other service industries.

–  –  –

Due to the insufficient supply of labour and land in Hong Kong, the cost of production including wages and rent kept rising from 1970s to 1980s. In addition to the reform and opening-up in the mainland, many businessmen moved their factories to the mainland for investment. It led to a decrease in the job opportunities in the light industry and other related jobs in Hong Kong. To support the production line in the mainland, those Hong Kong companies need to provide different types of business and financial services including import and export transportation, raw materials purchasing and sales of products, product design, insurance and financing services etc. Hong Kong gradually developed into a services and financial centre, providing financial services to the world and regions of Asia. The employed population also gradually changed from mainly engaging in light industry to service industries.

–  –  –

Please form a group of 4-5 and each student read one piece of information from sources 1 to 5. Find out the factors that are favourable to Hong Kong in developing into an international financial centre and complete the worksheet.

–  –  –

The headquarter of my investment company is located in Tokyo, however, many friends encouraged me to move them to Hong Kong in recent years. They said that the opening time of the US and European stock market is immediately after the closing time in Hong Kong. If the headquarter of the company was located in Hong Kong, we can keep an eye on the development of the stock markets of both places and obtain Mr. Rich comprehensive information. Do you think I should relocate Founder of a transnational the headquarters to Hong Kong? investment company

–  –  –

Hong Kong economic freedom ranks first thanks to low taxation The Heritage Foundation in the United States has announced the “2012 Index of Economic Freedom” in early January 2012. Since the “Index of Economic Freedom” report first published in 1995, Hong Kong has ranked first for 18 consecutive years. The report evaluates the economic freedom of 179 economic systems of the world, and includes ten components of ecnonomic freedom.

Today, the spokesperson said the Hong Kong government was gratified to receive this honour again.

“The Government of the Hong Kong Special Administrative Region will continue its dedication in making Hong Kong a place with the highest level of economic freedom in the world. This is also the cornerstone of Hong Kong’s sustained economic stability, growth and prosperity,” he said. Among the ten components of the economic freedom, Hong Kong ranked first in both financial freedom and trade freedom. Moreover, Hong Kong ranked second in investment freedom and property rights protection, and ranked third in business freedom and monetary freedom.

The Heritage Foundation commended Hong Kong for its effective judiciary and regulatory systems.

In addition, Hong Kong’s openness up to outside world and trading with the world boosts the prosperous development of enterprises in Hong Kong. Moreover, Hong Kong ranked second again in Asia in respect of attracting foreign direct investment, second only to the mainland. The Heritage Foundation stated that through strengthened financial linkage, the interactive economic relationship between Hong Kong and the mainland becomes better and more mature.

Chairman of the foundation said in a local event yesterday that as long as Hong Kong maintains the transparency of its policies, low taxation and limited government in the economy, it is believed that Hong Kong can still top the list in the future economic freedom ranking.

Source: Local integrated news report, 2012

–  –  –

“The Mainland and Hong Kong Closer Economic Partnership Arrangement” (CEPA) CEPA is a win-win agreement, bringing new business opportunities to the mainland, Hong Kong and foreign investors. For Hong Kong, CEPA provides a window of opportunity for Hong Kong businesses to gain greater access to the mainland market. CEPA also benefits the mainland as Hong Kong serves as a perfect “springboard” for mainland enterprises to reach out to the global market and accelerating the mainland’s full integration with the world economy.



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