BEIJING (CHINA DAILY (ASIA)/ASIA NEWS NETWORK) - According to the Global Financial Centres Index report published on Friday (Sept 25), Hong Kong again is ranked below Shanghai, which rose one place to the third.
It appears that the "New York-London-Hong Kong" myth has been completely shattered. Hong Kong is behind Shanghai, and is struggling for fifth place with Singapore.
This must be unbelievable to those who take for granted that Hong Kong's advantages in its common law tradition, stronger international connectivity, absence of foreign exchange control, the Hong Kong dollar peg to the US dollar, etc, would guarantee that Shanghai stays behind Hong Kong for many more years.
Hong Kong needs to wake up to the reality that all these advantages do not guarantee Hong Kong would keep its place as a top financial centre of the world.
As pointed out in my last article on the subject (March 31), Hong Kong still ranks higher than Shanghai across many areas of competitiveness.
We are ahead of Shanghai in four out of five areas: business environment, human capital, infrastructure, and "reputation and general".
Hong Kong is behind Shanghai only in "financial sector development", at fifth place compared to Shanghai's third.
But Shanghai is well ahead of Hong Kong in terms of financial technology, insurance, banking, and finance.
In breadth and depth, Hong Kong is at fifth place, just above Singapore but behind London, New York, Shanghai, and Beijing.
This means that both in terms of trading volumes and the range of financial products and services offered, Hong Kong is behind both Shanghai and Beijing.
This obviously has everything to do with the Chinese mainland's huge and still fast-growing market and solid lead in fintech.
This is not to deny the fact that Hong Kong does have those advantages over Shanghai and other mainland financial centres as stated above.
But these advantages notwithstanding, Hong Kong has to work very hard just to keep its place. Complacency will only lead to Hong Kong's downfall.
Now the good news: Figures from PwC show that our IPO market raised funds totalling US$87.5 billion ($120 billion) in the first half of 2020, 22 per cent higher than last year.
For the year as a whole, Hong Kong will likely hit US$230 billion-US$260 billion.
This performance is a strong driver of Hong Kong Exchanges and Clearing's surge in share price this year.
Paradoxically, the souring of US-China relations not only led to a sharp decline in mainland companies seeking listings in New York, but also has led to many mainland companies to seek listing in Hong Kong.
US Secretary of State Mike Pompeo said that Hong Kong is no different from other mainland cities, given the National Security Law, and so Hong Kong's status as a global financial center will go down the drain.
But the latest Global Financial Centres Index Report also shows that the GFCI is positively correlated with the World Bank's Political Stability and Absence of Violence/Terrorism.
If Hong Kong were to continue to suffer from social and political unrest and terrorist attacks on businesses, it almost certainly will not thrive as a global financial centre.
The fact that Shanghai can rise above Hong Kong shows the emptiness of Pompeo's prediction that being "just another mainland city" means Hong Kong would lose its luster as a financial centre.
The recent strength of the Hong Kong dollar and Chinese yuan against the US dollar shows that despite the sanctions the US has imposed on mainland companies and on SAR and mainland officials, the market is still confident about the future of Hong Kong and that of the mainland.
As a matter of fact, despite the call for America-China decoupling, there is no sign that American businesses are leaving Hong Kong or the Chinese mainland.
Foreign direct investment into the mainland rose 2.6 percent year-on-year to 619.78 billion yuan ($124 billion) in the first eight months of 2020.
This compares with US$89.26 billion a year earlier. Considering August only, FDI jumped 18.7 percent to 84.13 billion yuan.
If anything, America's sanctions have only stalled the flow of Chinese FDI and talent into America, but have had little effect on US businesses interests investing in China.
Evidence also shows that they probably accelerated the return of talent to the mainland. Over 800,000 recently graduated haigui returned to China in 2020, an increase of 70 percent from 2019.
This surge no doubt is partly due to concern over the coronavirus pandemic, but the sense that Chinese are no longer welcome in the US certainly has played a role.
Interestingly, just as enrolment of mainland students in America falls significantly, that in Britain has risen. If the US is losing its allure for talent, its competitiveness will suffer.
Shanghai has offered a great example for Hong Kong. Shanghai's main advantage is nothing other than its positioning as China's premier financial centre servicing the mainland's vast market while at the same time opening up to the world.
We need to capitalise on the Wealth Management Connect, which was recently proposed by the People's Bank of China, the Hong Kong Monetary Authority and the Monetary Authority of Macao to serve the Guangdong-Hong Kong-Macao Greater Bay Area.
By tapping the mainland's vast market, Hong Kong will be able to expand the breadth and depth of its financial services.
The author is a senior research fellow at the Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University. China Daily is a member of The Straits Times media partner Asia News Network, an alliance of 24 news media organisations.