Singapore’s ascendancy was reflected in its selection by the Global Financial Centers index last year as No. 3 globally after New York and London – and top in Asia. Hong Kong was No. 4 globally and second in Asia.
There is no easy way for Hong Kong to mitigate the damage done to its reputation from the 2019 protests and the city’s overly zealous Covid-19 controls. The latter in particular prompted some investors and talent to sour on Hong Kong.
What Hong Kong can do is focus on opportunities in emerging areas of financial services such as green finance and cryptocurrency. While it inevitably will face competition from Singapore, Hong Kong brings to the table certain advantages that it should be able to leverage effectively.
Bloomberg Intelligence estimates that combined ESG assets could surge to US$53 trillion by 2025, with the Asia-Pacific region driving “the next leg of growth.”
There are many ways for Hong Kong to tap the burgeoning sustainable finance segment. One of the most promising is to support mainland China’s ambitious carbon goals. Indeed, China aims for its carbon emissions to peak before and 2030 and for the country to become carbon neutral by 2060. Hong Kong could help the mainland in these endeavors if the Hong Kong Stock Exchange teamed up with exchanges in Shanghai to include shares and ETFs featuring firms with sustainable business models, raising greater funds for green finance.
Meanwhile, Hong Kong has already had some success with green bonds. The Hong Kong government in January announced the successful offering of US$5.75 billion in green bonds denominated in dollars, euros and renminbi, which it says is the largest ESG bond issuance in Asia to date.
Unsurprisingly, Singapore is also an active player in green bonds. According to Bloomberg, there were 272 sustainability, green, social or transition bonds listed in the city state as of Sept. 28, more than double the 103 listed in Hong Kong. Singapore also had an edge in issuance: US$34 billion to Hong Kong’s US$24 billion. Additionally, Singaporean firms have issued US$39.5 billion in green loans compared to US$13.4 billion raised by companies in Hong Kong.
Nevertheless, Hong Kong has a leg up on Singapore in the nascent segment of tokenized green bonds. In February, it issued HK$800 million (US$102 million) in tokenized green bonds, the first such sale by a government globally. This should set the stage for regular digital bond offerings in the city.
If green finance is a relatively safe bet for Hong Kong, cryptocurrency is much more of a gamble. But precisely because crypto is mercurial, Singapore is rethinking its exposure to the industry. Singapore has been explicit that it does not want to serve as a hub for crypto exchanges catering to retail investors. Therein lies an opportunity for Hong Kong – if it has a large enough risk appetite.
That said, when we first heard that the city wanted to recapture its lost crypto crown, we were skeptical. After all, as goes the mainland, so goes Hong Kong. If digital assets are mostly banned there, why would Beijing allow Hong Kong to serve as a hub for them?
But it seems that the central government may be having a change of heart. Officials from China’s Liaison Office reportedly have been showing up regularly at crypto gatherings in Hong Kong. “The encounters have been friendly, with officials checking on developments, asking for reports and in some cases making follow-up calls,” according to Bloomberg.
The central government is aware that Hong Kong’s position as a global financial center suffered during the protests and pandemic and may see allowing the city to embrace crypto – as long as it does not threaten financial stability on the mainland – as useful to revive its fortunes.
With that in mind, in late February, Hong Kong's Securities and Futures Commission (SFC) published its proposed rules for virtual asset trading platforms and is seeking public comment until March 31. The regulator plans for a new licensing regime for crypto service providers to take effect on June 1, and is considering whether to allow licensed platforms to serve retail investors.
There is reason for cautious optimism about Hong Kong’s future prospects as a global financial center. Post-pandemic, it is aggressively moving to capture opportunities in industry segments that are likely to become ever more important in the years to come. Its status as China’s financial window to the world will endure, meanwhile, as Shanghai and Shenzhen must conform to the mainland’s more restrictive regulations.
Though Hong Kong faces competition from Singapore in green finance, the two cities ultimately may end up focusing on different market opportunities. The city-state is better poised to serve Southeast Asia while Hong Kong can focus on the enormous mainland market.
In crypto, Hong Kong could become a dominant global hub – but only if it were willing to roll the dice and embrace retail investing. Focusing only on institutional investors will not cut the mustard. Despite the crypto community’s unflappable optimism, whether the city will take the plunge remains uncertain, as CoinDesk recently noted.
Nevertheless, there is one major caveat to Hong Kong’s bid to revivify its status as a global financial center. Though Hong Kong officials insist on the integrity and independence of the legal system, concerns remain that it has not changed for the better. To that end, in the World Justice Project rule of law index, the city fell to No. 22 last year, its 2.8% decrease the largest in the Asia-Pacific region after Myanmar.
In contrast, Singapore’s reputation for upholding the rule of law remains as strong as ever. It ranked No. 17 in the index, the same as in 2021.
This is something that Hong Kong has to face squarely to ensure its future as a global financial center.