City still has upper hand in region, think tank says

Hong Kong’s position as an international financial centre is unlikely to be shaken despite Shanghai’s rapid development, a think tank says.

A research report by British think tank Chatham House said Hong Kong had an advantage in its “China dimension”, and the city’s well-developed regulatory system and reputation as the most liberalised financial centre in Asia would continue to make it the dominantcentre in the region.

A leading banker said, however, that Hong Kong had work to do to keep attracting foreign investment.

The Chatham House report called on Beijing to steadily reduce its intervention in financial services and accelerate reform of the banking sector. Hong Kong’s exposure to the financial systems of emerging economies should also be increased, it said.

Despite concerns that the central government might want it to make way eventually for Shanghai, which is expected to become the largest onshore financial centre for the yuan trade3 by 2020, “Hong Kong is likely to maintain its competitive edge for a long time to come, irrespective of policy shifts or decisions made in Beijing,” the report’s summary said.

Even if the gap between Hong Kong and Shanghai narrowed, the report said, China would have ample capacity to accommodate two major international financial centres in the longer term.

Undersecretary for Financial Services and the Treasury Julia Leung Fung-yee said Hong Kong should continue to help Beijing globalisethe yuan and its financial markets.

Margaret Leung Ko May-yee, former vice-chairwoman and chief executive of Hang Seng Bank (SEHK: 0011, announcements, news) , said Hong Kong had to address issues such as the shortage of international school places, air quality and young people’s English skills to continue to attract foreign investment.

ada.lee@scmp.com