Hong Kong as Global Financial Centre: Where We Are? Where We Will Go? Seminar on “Hong Kong in the Region” -Financial Services: Risks, Challenges and Opportunities Hong Kong as Global Financial Centre: Where We Are? Where We Will Go? Prof. Stephen Y. L. Cheung City University of Hong Kong

Hong Kong: International Financial Centre Hong Kong is the leading international financial centre in Asia. It has a strong regulatory environment and performs well in all of the key competitiveness areas. In the ranking created by City of London, Hong Kong is in the 3rd place in the Global Financial Centre Index (GFCI). 2/28/2019

Hong Kong: International Financial Centre (Cont’) The key competitiveness areas in Hong Kong Hong Kong constructs a “fair and just” business environment and is easy for businesses to operate. The World Bank publishes a measure of regulation and corruption under the title Governance Matters. Hong Kong stands in the 1st place. The GFCI report shows that Hong Kong held 1st place in the Capital Access Index. 2/28/2019

Hong Kong: International Financial Centre (Cont’) The Corporate Governance Quality Index (CGQI) reported by IMF exhibits an upward trend in Hong Kong. Hong Kong stands in the 1st place in all Asian countries. Table 2: CGQ Index in Asia Source: Corporate Governance Quality: Trends and Real Effects, IMF report. 2/28/2019

Hong Kong: International Financial Centre (Cont’) In the report of Asian Corporate Governance Association, Hong Kong’s rank is the 1st place in 2005. Table 3: Market rankings: CG quality in 2005 Rank Market Rules& practices(%) Enforce (%) Political& regulatory (%) IGAAP Culture(%) Total Score(%) 1 HK 60 56 73 83 61 67 2 Singapore 70 50 65 88 53 3 India 59 38 58 75 4 Taiwan 49 47 46 54 5 Japan 43 52 72 9 China 33 25 45 Source: Asian Corporate Governance Association, CLSA Asia-Pacific Markets. 2/28/2019

Hong Kong: Where We will Go? International finance diversity International financial services are classified in four major sections: external bank loans and deposits, international debt securities, cross listed stocks and foreign exchange trading (including OTC foreign exchange trading and interest rate derivatives). 2/28/2019

Hong Kong: Where We will Go? (Cont’) The International Finance Diversity Index (IFDI) identifies how diverse a country’s financial sector is – if a country’s entire international financial sector is based on only one of the four segments of the financial sector, the IFDI takes the value of zero, if it is spread equally across all four segments, the IFDI takes the value of 1. The scores of Hong Kong reported in GFCI is 0.77, which stands in 21st place among the 50 financial centres. 2/28/2019

Hong Kong: Where We will Go? (Cont’) Bond Market Development The bond market develops slowly. Up to July 2007, the total amount of corporate bond sums up to USD 82 billion, while in 2002 that is USD 53.3 billion. Hong Kong market can absorb more China Enterprises to issue corporate bond. 2/28/2019

Hong Kong: Where We will Go? (Cont’) Insurance Industry Development As to the insurance sector, Hong Kong fall quite sharply to 12th places respectively in GFCI report, as it is not recognized as important centres for the insurance industry. 2/28/2019

Hong Kong: Where We will Go? (Cont’) Technology IQ and Innovation created by PwC that included the percentage of internet users with broadband connections, employment in high-technology industries, the number of patents registered per one million populations etc. Shanghai and Singapore stand in top 11 while Hong Kong is out of the ranking list. We need to be more innovative. 2/28/2019

Hong Kong: Where We will Go? (Cont’) Recommendations: Frequency of financial reports remains limited to annual and interims, whole reporting deadlines is well below international best practice. Many, probably most, institutional investors are still not voting their shares or taking an active interest in corporate governance issues. Almost none attend AGMs. Hong Kong still has no organized retail shareholder association. 2/28/2019

Hong Kong: Where We will Go? (Cont’) Futures market and RMB derivative instrument. The relation between Hong Kong and Shanghai: global financial centre and national financial center. 2/28/2019

Thank You