Asian cities vie to take Hong Kong's place as financial center

Asian cities vie to take the place of Hong Kong as the region's financial center. Yojana Sharma of Inter Press Service reports.

HONG KONG (IPS): Singapore and Taipei are gearing up to take over from Hong Kong as a regional financial center and international gateway to China after Hong Kong reverts to China in 1997, but it is Shanghai that may finally steal the limelight.

Singapore's senior minister Lee Kuan Yew surprised some Asian financial analysts recently when he said Singapore was liberalizing some of its policies to attract more investment banks and international fund managers.

"Several financial centers in the region are emerging to compete in financial services. We have to change and liberalize to stay ahead," Lee said, sending alarm bells ringing loudly in Hong Kong.

Rising property prices, high inflation and a labor shortage, coupled with the realization that Hong Kong is unlikely to remain the free-wheeling financial center it is now has meant serious contenders are emerging to take on some of the international business that has preferred Hong Kong for decades.

Hong Kong has felt that in the constant rivalry with Singapore it has been winning out by offering a more investment-friendly environment, but the tide may well be turning.

Taipei has also made noises that it would like to inherit some of Hong Kong's international and China-related business, political tensions with the Mainland not withstanding.

But banking analysts in Hong Kong note that Taiwan is not considered a serious contender, with action falling far short of words. "Taipei has been left behind in the race to reform financial system to take on more international business," says one Hong Kong-based banker.

Not only Singapore, but Kuala Lumpur, Bangkok and even Tokyo are gearing up to be more attractive to foreign financial investors, not merely in the hope of attracting business from Hong Kong in the run-up to 1997 but because the immense growth of the region needs financial services to match, say analysts here.

As they upgrade to meet their own regional needs they pose more of a threat to Hong Kong. But what all of them lack is proximity to China, seen as the great engine of growth in Asia.

Hong Kong has always been smug in the knowledge that for proximity and infrastructure links with China and the rest of the world no one can beat it as a conduit for China trade.

So far. But even Hong Kong is now becoming more nervous about the emerging colossus that is the newly-modernizing Shanghai with its Pudong New Zone under construction.

Daimler-Benz, Germany's largest car maker caused a considerable stir recently when it announced it would list on the Shanghai stockmarket rather than Hong Kong.

"If you want to go for China you have two alternatives, Hong Kong or Shanghai. These are two centers of competition," said Daimler Benz's chief financial officer Gerhard Liener.

Despite restrictions, Shanghai is the fastest growing banking center in the region attracting myriads of banks in an officially sanctioned bid to turn city into a major financial center.

U.S. companies complain about infrastructure bottlenecks in Shanghai. Unlike Hong Kong which sets aside 20 percent of urban land for roads, Shanghai allocates only five percent. The city is also short of power, with only 85 percent of demand being met, although economic zones and foreign enterprises, residential and office complexes are given priority.

Yet Japanese companies are flocking to the city making up almost 12 percent of total foreign investment in Shanghai.

More telling, many Japanese companies that had originally set up retail and manufacturing outlets in Beijing are moving to Shanghai, which is considered to have a much larger consumer market and better education and managerial ability than Beijing.

Shanghai authorities with political backing from Beijing are developing a strategy to turn Shanghai into a regional, financial and trading powerhouse within 15 years -- reversing the decline of the last 40 years since the Communists took power.

State of the art office towers, superb infrastructure and communications and -- most important -- its own power generation plant characterize the Pudong New Zone, a satellite business city now being constructed across the river from Shanghai, with billions of dollars in state fund and foreign money.

By the turn of the century, Pudong will be able to tempt companies away from Hong Kong with an increasing about of top class commercial space, say analysts.

"Although it was only in the late 1980s that Shanghai started to embark upon major infrastructure and economic developments, she has since made remarkable achievements," noted Quo-Wei Lee, chairman of Hong Kong's Hang Seng Bank, in a recent speech.

"While Hong Kong has also made considerable progress during the period, its pace is lagging behind Shanghai," he added.

Some experts fear Hong Kong's competitive edge may be reduced after 1997 because China will pressure Hong Kong banks to favor China over international companies -- reducing transparency and laissez faire principles that are Hong Kong's hallmark.

Even now Hong Kong tends to be affected strongly by political events on the Mainland, making Hong Kong and Shanghai virtually equal contenders after 1997 for those who would have otherwise preferred Hong Kong for its political stability.

Singapore may gain from those seeking political stability in the region, but even Singaporean bankers point out that political stability may not be as important as it once was for investors given the ability of companies to domicile in offshore centers.

While Hong Kong has a head start, by the end of the first decade of the next century its position may well be seriously challenged.

"Shanghai is already the national center (for China business)," says Henry Tsang, a Hong Kong-based investment banker with Merrill Lynch. "The question is how quickly the national center can do more of the international work. That is what Hong Kong is doing."