The flags of the Hong Kong Stock Exchange, China and Hong Kong. Photo: Anthony Wallace/AFP

Hong Kong has recently moved up a place to fourth in the Global Financial Centres Index (GFCI), following New York, London and Shanghai, after it was expelled from an annual ranking of the world’s freest economies earlier this month.

The 29th edition of the GFCI report was jointly launched by the London-based think tank Z/Yen Group and the Shenzhen-based China Development Institute. Hong Kong Financial Services Development Council (FSDC) told Ming Pao that it sponsored the GFCI report for the first time but it was only responsible for the webinar.

According to the report, Hong Kong’s rating fell by two points to 743 from six months ago, compared with New York’s 770, London’s 766 and Shanghai’s 748. The top three global financial hubs also saw a decline in their ratings. Hong Kong moved up from No.5 to No.4 in its ranking as Tokyo slipped from fourth to seventh with a 11-point decline in its rating to 747.

Singapore and Beijing also moved up a place to fifth and sixth, respectively. Singapore has a rating of 740 while Beijing has 737.

By area of competitiveness, Hong Kong improved in infrastructure but became less competitive in business environment and human capital. By industry sector, the city saw its ranking down in finance, trading and government & regulatory but up in banking, investment management, insurance and fintech sectors.

The GFCI report researched 126 financial centers this time. The number of financial centers in the main index has increased from 111 to 114 with the addition of Berlin, Trinidad & Tobago, and Bogota.

“We are encouraged by the fact that Hong Kong has consistently been ranked among the top financial centers in the world since GFCI’s debut in 2007,” FSDC chairman Laurence Li Lu-jen said in the foreword in the report.

“In this latest GFCI 29, Hong Kong is again recognized for its strong connectivity with mainland China and other Asia markets, its business-friendly environment and its efficient financial infrastructures, among others,” Li said. “On areas where we are yet to be seen as the top, we are humbled and will continue to learn from our peers with the goal to improve further.”

FSDC executive director Au King-lun, who also co-hosted a webinar with the authors of the GFCI report, said, “We are thrilled that two of the top four and three out of the top 10 financial centers in GFCI 29 are Chinese cities.

“We will examine the movements of Hong Kong in various parameters of the index and seek to address the perception gap going forward.”

Christopher Hui Ching-yu, Secretary for Financial Services and the Treasury, said in an opening speech in the webinar that Hong Kong’s markets demonstrated resilience and robust performance in terms of IPO funds raised and trading volume despite the pandemic.

He said Hong Kong is the world’s second-largest fundraising hub for biotech companies.

Michael Mainelli, Z/Yen Group’s executive chairman and one of the authors of the report, said, “GFCI 29 ratings have not returned to the levels of 2019, reflecting a welter of instability in international trade, politics, and economics, not least large-scale interventions by central banks and questions about the future treatment of commercial banks, insurers, and payment providers.

“GFCI is most active on the Pacific Rim. Only 44 points on a thousand-point scale separate the top 10 centers. A four-point rise would place Singapore second only to New York. It’s tight at the top, and no time for complacency,” said Mainelli.

A spokesperson for the Hong Kong government said the territory’s financial system has been operating smoothly and the Linked Exchange Rate System and various facets of the markets have been functioning in an orderly manner.

It said Hong Kong has the institutional strengths of an international financial centre and the city’s markets are highly open and internationalized, with robust infrastructure support, internationally aligned regulatory regimes, rule of law, a large pool of financial talents and a full range of financial products as well as free flow of information and capital.

The GFCI report came after the Heritage Foundation on March 4 expelled Hong Kong from the Index of Economic Freedom that the city had traditionally dominated since 1995. Hong Kong and Macau are now included in China’s ranking, way down the league table in 107th place.

Hong Kong’s markets are highly open and internationalized, with robust infrastructure support, internationally aligned regulatory regimes and the rule of law. Photo: iStock

Last year, the Washington-based foundation replaced Hong Kong with Singapore as the world’s freest economy, citing the social unrest and Hong Kong’s exposure to the mainland for the drop.

“No doubt both Hong Kong and Macau, as special administrative regions, enjoy economic policies that in many respects offer their citizens more economic freedom than is available to the average citizen of China,” the foundation said. “But developments in recent years have demonstrated unambiguously that those policies are ultimately controlled from Beijing.”

Hong Kong’s Financial Secretary Paul Chan criticized the Heritage Foundation for being “clouded by their ideological inclination and political bias” when they compiled the economic freedom report.

On February 16, the United Kingdom’s Foreign Office updated its guidance: “Overseas Business Risk: Hong Kong” and for the first time described Hong Kong as a “highly competitive global business hub,” instead of an international financial center.

Residential property buildings in Hong Kong. There are fears of a flight of people and capital. Photo: Vicky Tsui / EYEPRESS/AFP

Citing a previous foreign secretary statement, it said implementation of the National Security Law in Hong Kong constituted a clear and serious breach of the Sino-British Joint Declaration. It said the law carried a maximum penalty of life imprisonment while the offences could be applied to activities conducted outside Hong Kong. 

“Hong Kong is no longer an international financial center as many people and companies have withdrawn or planned to take away their money from the city,” said Law Ka-chung, an adjunct professor in the Department of Economics and Finance, City University of Hong Kong.

Mainland China had recently pumped cash into Hong Kong’s stock markets but such a move would not be sustainable, Law said. The exodus of Hong Kong’s British National (Overseas) status holders would result in capital flight from the territory after the UK’s epidemic situation was stabilized later this year, he said.

Last month, Hong Kong Monetary Authority’s chief executive Eddie Yue said facts and figures showed that there was neither capital flight nor withdrawal of financial institutions in Hong Kong. Yue said the free flow of capital is a defining feature of Hong Kong as a global financial center and is guaranteed under the Basic Law.

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