Hong Kong's integral role is in China's interest, not just its own.
In the field of international finance, there seems to be a consensus that China has an increasingly important role to play. This view is supported by China being the largest holder of foreign reserves and one of the largest participants in international financial markets. With China now the third largest economy in the world and growing at a much more rapid pace than the other major economies, it is also one of the largest players in commodity markets. But there is still a lack of specifics concerning China's increasingly important role, for example in the areas of setting international regulatory standards and market development.
I am sure efforts are being made on the Mainland to develop a well-articulated strategy to move the country in this direction to serve the best interests of its people and to be a responsible member of the increasingly integrated international financial system. From Hong Kong’s perspective, and from the angle of market development, there is a clear case for strategically promoting the migration of liquidity, particularly of those markets in which China is the largest player in the world, into this time zone, if not into the country itself. I obviously would prefer Hong Kong to host such markets. Hong Kong has the distinct advantage of having no exchange-control policies and a very efficient financial infrastructure, making it easy and convenient for overseas market participants to do business with China. Obviously we need policy support from the Mainland for the development of these markets in Hong Kong and using Hong Kong as the market place to satisfy its demands.
Hosting these markets here means more than just not having to wake up in the middle of the night to place orders. It means the price-discovery process can take fuller account of domestic conditions, rather than being dictated by the rules of the game of a market half way around the globe. I am not suggesting that international markets should have rules designed to suit their domestic needs alone: this would not be attractive to market players from overseas. But the advantages of being the host, such as being able to obtain important market information quickly and take prompt regulatory action to promote market stability and ensure market integrity can make a big difference.
Given Hong Kong's unique position as an open market within China, it can play a key role in the nation’s strategic policy for market development. China can make greater use of Hong Kong to bring liquidity from global financial markets into the country. In recent months we have also heard a view that these markets should be developed on the Mainland while making temporary administrative exceptions (in exchange-control measures for example) for foreign market participants in anticipation of the relaxation of these controls later. We support initiatives promoting greater links between the national and international markets. I do hope, however, that more effort will be devoted to laying out how best to make Hong Kong an integral part of the strategy.
In terms of setting regulatory standards, the international standard-setting bodies in finance are embracing China enthusiastically, although I think it may take more time for China to be fully integrated into the international finance community. But I am sure this will come, as reality sets in and China plays its cards right. In fact, changes have been or are about to be made to the governance arrangements of the well-known international financial institutions. As an international financial centre in the country, Hong Kong also has its role to play. In central-banking forums, Hong Kong's clear and professional voice is internationally recognised and will continue to be heard. For example, we have recently been invited to join the Basel Committee on Banking Supervision, the authoritative body that sets banking-supervisory standards. The HKMA will continue to do its best to promote the interest of Hong Kong, and the interest of the country, through participating in international organisations.
Joseph Yam
18 June 2009
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