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Financial Centres in parallel peril
There is a curious parallel between Hong Kong and London as financial centres potentially declining due to their recent loss of a unique position.
Historically both were crucial nods in the global network of the British Empire. More recently both functioned at a critical junction between the booming Chinese Economy, and the EU respectively on one side and the rest of the world on the other. Both are losing this bridge function due to a nationalist takeover. Hong Kong into mainland China, London into Brexit Britain.
As observers predicted right after the conclusion of the Brexit treaty between the EU and the UK, the City of London will likely lose out:
The first signs came to pass early on already:
All services were left largely out of the Brexit treaty despite the fact that they constitute around 80% of the total of the British economy, with a respective high part of British exports to mainland Europe.
The City and all its dependents were painfully aware of this as the high London remain vote showed at the 2016 Brexit referendum.
Recent surveys show the extent of the exodus from Hong Kong in the wake of the extension of Chinese security law on the hitherto protected enclave under 'one country-two systems'.
The choice between political decisions in line with democratic traditions and economic interests was made painfully clear to Hong Kong's expat business as shown in the case of the hitherto universal bank HSBC. After pressure from Chinese officials the bank supported the controversial security law, indicating that they will furthermore function under Beijing's guidelines.
The overwhelming choice of the majority in Hong Kong, on occasion of the last local elections before Beijing's security hammer came down as well the high participation in the manyfold manifestations against the security law showed with all clarity the real will of the people.
Beijing knows that of course. So it encourages mainlanders to fill the exodus gap with opening businesses - one of Switzerland's leading financial journalists told me recently that Chinese IPOs in Hong Kong have shot up - and live there.
As to London, the EU will see to it that the notoriously unreliable British Prime Minister will not be tempted to cut legal corners - as he attempted already with regard to the intra-Irish border - be it through trying to turn London into a 'Singapore on the Thames' or choosing an overseas route through tiny British possessions from the Cayman, to the Channel Islands.
Centre and Hinterland
Any centre, including financial ones need the right environment to thrive and prosper. Both Hong Kong and London have been now deprived of such Hinterland. Why should a foreign banking interest wanting to settle in the Chinese financial market not chose Shanghai with a tried and tested environment rather than Hong Kong where things are still in flow and the future looks uncertain. And why should those who are looking for a financial foothold in Asia, but have strategic reasons to distance from China, not chose Singapore, Tokyo, Mumbai or indeed Sydney.
London in turn will remain a financial centre into the foreseeable future. The latter though looks cloudy. In the perspective of foreign business, other than alternatives with easier access into the huge single market including Amsterdam, Frankfurt and Paris, the cloud of potential secessions hangs over the United Kingdom. Edinburgh or indeed Dublin as European competition for London? Boris Johnson's idol, Sir Winston would turn in its grave.
Daniel Woker, former Swiss Ambassador to Kuwait, Singapore and Australia, is Co-Founder and Chairman of “Share-an-Ambassador / Geopolitical Coaching” and regularly publishes and lectures on geopolitical topics.
28 May 2021