Hong Kong as an International Financial Centre – Facts over Myths


08 Feb 2021

Hong Kong as an International Financial Centre – Facts over Myths

Since I took up my current role at the HKMA in October 2019, it has been a most eventful 16 months, to state the least. Amidst the many challenges posed to Hong Kong – social unrest, fallout from geopolitical tensions, the devastating pandemic – the HKMA has been steadfastly doing everything we can to maintain Hong Kong’s financial stability, support businesses and households, and press ahead with developmental initiatives that will help our financial sector remain relevant and highly competitive.

One challenge that stands out is communication with market participants to address their concerns about Hong Kong’s current situation and more broadly our future as an international financial centre (IFC). There is a perception issue to tackle here, and very often because of misinformation or disinformation. We don’t have a silver bullet or a silver tongue, but we believe facts and figures are the common language in the finance world. Openness and transparency are the corner stones of a sophisticated financial market. This is why the HKMA team has been using every opportunity to engage with domestic and international market participants, mostly through virtual events. In the past year or so we have spoken at around 60 events to more than 15,000 participants, many of them are what we call “C-suite” executives, as well as international and local media, accounting, legal or other professionals. There are a number of FAQs we frequently come across at such events and I thought I should perhaps share these and our response, for the benefit of interested readers.



Is capital fleeing Hong Kong?


On the contrary, we have been recording net inflow.  Had money been flowing out, we would have seen a weakening Hong Kong Dollar (HKD) exchange rate and shrinking banking deposits.  Let’s look at these two key indicators:


Throughout 2020, the HKD exchange rate remained in the strong half of the convertibility zone.  Indeed, strong inflow momentum led to the triggering of the strong side Convertibility Undertaking for 85 times since last April, taking in US$50 billion in aggregate, the largest amount in a year since 2010.


Total amount of banking deposits rose in both 2019 and 2020, with 2.9% year-on-year growth in 2019 and a further 5.4% in 2020.

Free flow of capital is a defining feature of Hong Kong as an IFC and is guaranteed under the Basic Law.  While there could be outflows occasionally for different reasons, more money has been coming in, resulting in the net inflows into HKD.  And the HKD market has been very stable and functioning orderly in accordance with the design of the Currency Board.



Many Hong Kong people are opening offshore accounts to move money elsewhere? Private wealth is leaving Hong Kong?


In fact, Hong Kong’s private wealth management industry keeps growing. Asset under management (AUM) by Hong Kong’s private banks went up by 19% in 2019 and Hong Kong remained the number one private wealth management centre in Asia, and number two globally (second only to Switzerland). While we do not have 2020 figures yet, indicative numbers from major private banks suggest that the growth trend has continued on the back of strong 2019 performance, registering double-digit growth.

From what we have gathered from retail and private banks, there were more enquiries about offshore accounts, particularly in 2019, but these have largely subsided in 2020. For those who have opened offshore accounts, actual money movements should be insignificant, otherwise they would have offset the inflows as highlighted in A1.



Financial institutions (e.g. hedge funds and Exchange Traded Funds) are packing and leaving Hong Kong in droves? 


Let’s not lose perspective here.  The fact is that the number of asset managers in Hong Kong increased by 3.9% from 1,808 as at end 2019 to 1,878 as at end 20201, against the backdrop of COVID-19. AUM in Hong Kong at end-2019 (latest available statistics), the year we were confronted by social unrest, actually went up strongly by 20% year-on-year to reach almost US$ 4 trillion and recorded a net inflow of over US$200 billion.

Hong Kong has always been the largest private equity (PE) hub in the Asia Pacific region after Mainland China.  As at end 2019, our total capital-under-management reached US$160 billion.2A total of 15 out of the world’s top 20 PE firms3 have established presence in Hong Kong, many of them being the regional headquarters.  We are also seeing increasing interest by privately offered investments to domicile in Hong Kong.  Following the enactment of the Limited Partnership Fund (LPF) regime last August, over 90 LPF have already registered in five months.

Let’s also take a look at the more mobile hedge fund industry.  As of June 2020, we are still the focal point with 445 hedge funds based in Hong Kong, the largest number in the Asia Pacific region4.

Hedge funds, asset managers or even banks come and go for various business reasons.  As an asset owner and a regulator, we know these institutions well.  Some of them departed for reason of shifting business focus while some were results of consolidation at group level.  New ones come in at the same time, bringing with them new strategies and expansion plans.  These are very common movements for any IFCs.



Has Hong Kong’s capital market been receding?


Our capital markets are thriving -

You are all too familiar with the IPO story: we’re number two after NASDAQ by small margin in 2020, and number one in 7 of the last 12 years.

One other fact also stands out — the impressive growth of the Stock and Bond Connect traffic, showing Hong Kong’s unshakeable role in serving as the gateway between the Mainland and the world. Average daily turnover of Stock Connect more than doubled in 2020, with northbound traffic going up by 119% and southbound going up by an impressive 128%. Currently around 70% of all A shares held by international investors are booked/traded through Hong Kong.

Bond Connect is equally impressive. Average daily turnover tripled in 2019 and then recorded a respectable 82% increase in 2020, as international investors raise their RMB allocation with the attractive yield pick-up and diversification benefit. Although foreign investors can directly participate in the onshore bond market as early as 2010, seven years before the launch of the Bond Connect, more than half of the international investors’ turnover and around a quarter of their holdings are done through Hong Kong, riding on our efficient and internationally-aligned infrastructure.

Stay tuned for more breakthroughs: Wealth Management Connect and South-bound Bond Connect, just to mention two near-term initiatives to create more policy headroom.



Has there been any exodus of talents occurring in Hong Kong? 


Last year, the number of jobs in Hong Kong’s finance and insurance industry actually achieved 0.7% and 1.4% increase year-on-year respectively, despite surging unemployment because of the pandemic.5 Financial talents, just like financial institutions, are attracted to opportunities.  Hong Kong’s unique access to Mainland opportunities and its vibrant fintech and sustainable finance scene provide an excellent launching pad for talents of all sorts.

All the intangible factors: connectivity, laissez faire environment, international flair, cosmopolitan society, cultural diversity, etc. that make Hong Kong an evolving, thriving and welcoming city for global citizens to invest, work and live in, remain intact.


That said, we fully recognise that, as always, there are challenges and competition coming our way.  We are mindful that we need to keep enhancing our financial platforms to consolidate our strengths and maintain our leading position.  The HKMA team has the determination, capability, and commitment to do our part in safeguarding Hong Kong’s financial stability and our IFC status.  We are confident because this would be in the best interest of not just Hong Kong but also the wider global financial community. 

Hong Kong has been through numerous crises.  Time and again we have proven the doomsayers wrong by the city’s resilience and “can-do” spirit.  This time will be no exception.


Eddie Yue
Chief Executive
Hong Kong Monetary Authority

8 February 2021


1Source: SFC on the number of licensed corporations licensed to carry out asset management (Type 9 regulated activity) ( https://www.sfc.hk/-/media/EN/files/SOM/MarketStatistics/c02.pdf )

2Source: Asian Venture Capital Journal

3Source: Private Equity International (PEI) - 2020 PEI 300 ranking 

4Source: Eurekahedge

5Source: Census and Statistics Department. (https://gia.info.gov.hk/general/202012/18/P2020121800332_356725_1_1608276676462.pdf)

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Last revision date : 08 February 2021