Shanghai FTZ threatens to destroy Hong Kong’s financial dominance

HKMA warning follows revelation of FTZ plans by China.

The Hong Kong Monetary Authority warned that the city must not sit on its laurels if it wants to remain a global financial center after plans for China made public the plans for its first free-trade zone (FTZ).

Draft proposals for the Shanghai FTZ showed that the zone goes beyond greater liberalization of trade and includes investment and financial services, including free currency convertibility in which Hong Kong is a world leader.

The draft FTZ plan for Shanghai said the new zone will support the establishment of foreign and joint venture banks and welcome privately funded financial institutions.

Analysts said Hong Kong must now rise to the challenge or else lose its position as the gateway to China to the Shanghai FTZ. They warned that in one to three years time, if Hong Kong cannot revamp itself, it will lose its competitiveness to Shanghai.

They noted that some of the businesses in Hong Kong could be shifted to the free-trade zone if people don’t need to use Hong Kong banks. Hong Kong’s renminbi assets could also flow to the trade zone. The Shanghai FTZ will serve as a wake-up call for Hong Kong, which has to contend with another international global competitor in Shanghai.

“There is no room for complacency,” said HKMA chief executive Norman Chan.

Brushing aside fears Shanghai could surpass Hong Kong as a financial hub, Chan said Hong Kong is already a world-class financial center and has a leading edge in the offshore renminbi business.

“It is important that we continue to upgrade our platform in facilitating renminbi businesses and we will be able to maintain a competitive edge over time.”