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Tuesday, March 31, 2020, 00:37
New ranking a stern warning for us to work together
By Ho Lok-sang
Tuesday, March 31, 2020, 00:37 By Ho Lok-sang

The latest Global Financial Centres Index was released on Thursday. This is the 27th report, and the survey was jointly conducted by Z/Yen, a think tank in the United Kingdom, and the Shenzhen-based China Development Institute. Hong Kong people should be jolted by the results. For the first time, Hong Kong dropped out of the top five. For the first time, Tokyo took third place, followed by Shanghai, and Singapore was ahead of Hong Kong at the fifth slot.

These results came as a surprise to me, not because I thought Hong Kong’s competitor for the third place is just Singapore, and that Hong Kong should comfortably be in the top four in the foreseeable future. I knew all along that Hong Kong is facing stiff competition. I would not be surprised if Shanghai were to surpass Hong Kong sometime in the future. But I never thought this would come so fast.  I was also surprised that Tokyo jumped from the sixth place to third place.

The GFC Index is compiled based on five areas of performance: business environment, human capital, infrastructure, financial sector development, and reputational and general. Hong Kong took third place in business environment, coming after New York and London. We rank fifth in infrastructure, sixth in financial sector development, and fourth in reputational and general. With these subindex rankings, it does not make much sense to me that Tokyo can make third place. Tokyo is not in the top 10 in business environment or in human capital. Tokyo ranked 10th in financial sector development, and sixth in reputational and general. Its best ranking is in infrastructure, for which it ranked fourth and behind Singapore. It is not clear how it can reach an overall ranking of third.

In order to revive our economy after the COVID-19 epidemic, we need to foster an attractive business environment and rebuild our economic prospects through working together despite our differences. Given the highly competitive business environment today, infighting or wishful thinking is the recipe for economic suicide

Shanghai is not among the top 10 in terms of business environment, and is also behind Hong Kong in human capital, infrastructure, financial sector development, and reputational and general. Why would Shanghai take fourth place, ahead of Singapore and Hong Kong?

I could not find any clue to this mystery from the methodology section. I suspect, however, that this may have something to do with our low ranking in which financial center would gain significance in the future. In this regard, Singapore and Hong Kong are both behind Shanghai, but Tokyo is also behind Shanghai. Tokyo’s third place is even a bigger mystery to me than Shanghai.

These puzzles aside, the message to Hongkongers is useful and sobering: Hong Kong must not be complacent. Global competition for top-ranked financial centers is extremely keen. Although the SAR enjoys the privileges of being among the common law jurisdictions of the world, a high reputation in adhering to the rule of law, being among the world’s freest economies (we fell to second place this year, after 25 years of being at the top of the list), we can be overtaken by others. Many commentators have urged Hong Kong to diversify its economy, away from finance and real estate. But this is more easily said than done. Hong Kong had formed an advisory committee on diversification during the time of then-governor Murray MacLehose in the 1970s, which met 32 times between 1977 and 1979 before releasing a formal report. But market forces and our comparative advantages drove us to become an international financial center, a top tourist destination, and an international city famous for its professional services. Why should Hong Kong move away from an industry in which we excel, and try to compete with others in areas in which we do not have an edge?

Hong Kong has a population of over 7.5 million. It is wishful thinking that we can easily diversify from our four pillar industries; namely, financial services, tourism, trading and logistics, and professional and producer services. Diversifying from what we have done well is more easily said than done. It is even more wishful thinking believing that Hong Kong could somehow reduce its dependence on the mainland, as some localists or pro-Hong Kong independence dreamers believe. The United States is discovering the hard way how dependent it is on China. The world is discovering that whether we like it or not, the world has to work together.

Statistically, our tourism industry contributes to only 5 to 6 percent of the GDP and our financial services industry about 16 percent of the GDP, but their contributions in terms of sustaining our livelihood are most important. Over half a million people work in retail, restaurants, and accommodation, and close to a quarter of a million people work in financial and insurance industries. The spinoff from these industries in terms of support to other industries cannot be overstated. International visitors do not just come as tourists but may be our business partners. Our financial industries lend support to many of our startups and our innovation effort, and they are also important clients in many professional services. 

In order to revive our economy after the COVID-19 epidemic, we need to foster an attractive business environment and rebuild our economic prospects through working together despite our differences. Given the highly competitive business environment today, infighting or wishful thinking is the recipe for economic suicide. The drop in our GFC Index ranking is a warning to all of us.  Let us take the warning seriously.

The author is senior research fellow, Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily.


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