Hong Kong Is Put on Notice. Take the Back Seat to Shanghai.

Friday, July 31, 2009 8:23

When the RMB first moved from 8.28 to 8.11 per USD, it was rumored that Beijing would look to hold the RMB at the HKD/ USD peg for a while, then remove the HKD. It was one of those rumors that made some in my circle begin to wonder just how much longer Hong Kong would be able to hold out. Few took the possibility seriously, or would say it will take decades for that to happen.

That Hong Kong’s legal, tax, currency and administrative systems provided transparency, accountability, flexibility, and openness that Shanghai could not now (or in decades) provide.

In the minds of some, that simply does not matter, and the goal is (by 2020) for Hong Kong to gracefully step aside and turn over the keys to China’s financial systems to Shanghai… or as Xia Bin, head of the Financial Research Institute, puts it:

“Shanghai’s financial market must eventually surpass that of Hong Kong’s”

or more directly

“Hong Kong will play second fiddle – a pawn – in the overall national financial development,”

Of course, with 11 years still to go, anything is possible in China, but the question I have running through my head is what is Mr. Xia’s objective in stating this now in 2009?

Why, when Shanghai is so far from attaining the top spot (He has a history of such comments) , would he come out with such a strong statement that is surely going to cause unease within China’s largest and most stable financial market?

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4 Responses to “Hong Kong Is Put on Notice. Take the Back Seat to Shanghai.”

  1. Chris Devonshire-Ellis says:

    August 3rd, 2009 at 12:46 am

    Its an old chestnut Rich, but the future is quite plain. Hong Kong will remain China’s international financial center. Chinese companies wishing to secure international funding will list there. Shanghai (along with Shenzhen) will remain China’s domestic funding center, with companies wishing to raise domestic RMB funding listing on these bourses. They are completely different animals, Hong Kong and Shanghai, and they serve different – yet compatible – functions. That isn’t going to change any time soon, and certainly not in the next decade. – Chris

  2. admin says:

    August 3rd, 2009 at 12:55 am

    Hey Chris.

    I agree in your view that they serve what would seem to be compatible missions, and it is not in the best interest to necessarily change that relationship. IT is partly why I am a bit confused as to why he would come out with such strong statements against HK… maybe someone sees Shanghai as more than as a domestic market going forward?


  3. Craig says:

    August 3rd, 2009 at 10:47 am

    My money on with CDE on HK. Expect Shanghai withdrawl symptoms about now and into next year and beyond. Forget his Gov punchup this guy knows. Rich you get him to do a PRC stock pick with a panel on AllRoads you’ll make a mint. But HK aint going nowhere. (except up) and Shanghai Gvt always like wind up HK theres your answer.

  4. Peter says:

    January 17th, 2010 at 7:22 pm

    Either way, it is clear that Shanghai and Shenzhen are rapidly progressing financial markets. In fact, ChiNext, the new Shenzhen stock exchange for smaller-cap private companies, was just launched in October.