TNAG-2119-FCO40-3025-Future-of-Hong-Kong-general-1990 — Page 20

Hong Kong's role as:

airlock,

financial center,

economy and politics are experiencing trauma. The lesson of Tiananmen Square was not that Hong Kong businesses in China are at risk, but rather that, even in a time of terrible strife in Beijing, not one Hong Kong factory in southern China (where most are located) suffered any loss of production at all. And these businesses are, with very few exceptions such as Luks Industrial, not dependent on Chinese demand. Most are processing centers for goods that will eventually satisfy Japanese or European or American demand. China can experience political strife on a vast scale, together with frightening economic downturns, as in 1958–'61 and 1966–'68, and Hong Kong still grows.

COMPETITION

Even if Hong Kong's problems are manageable in themselves, one could argue that they may sap Hong Kong's competitiveness, a potentially fatal problem in this hypercompetitive region. To test this idea, we must examine it for each of Hong Kong's major roles.

Hong Kong's first role is as an airlock for China, an entry point for technology, capital, management skills, and ideas. No other country can compete with Hong Kong in this respect. In theory, the special economic zones could become competitors. In practice, they have become colonies of Hong Kong because Hong Kong's investment totally dominates all these zones. In the future, Shanghai or even Taiwan could become competitors, but that possibility is several decades away.

Hong Kong's second major role is as a major financial center, the world's third largest if measured by the number of banks present, or fourth largest if measured by the number of offshore loans originated.11 Hong Kong is also a major center for funds management, with US$114 billion under management as compared with US$15 billion in Singapore.12 Most of the potential competitors are disqualified from the start: Bangkok because the phones and infrastructure are inadequate, Manila and Jakarta for that and many other reasons, Kuala Lumpur because it is so politicized, Taipei because the security environment is so restrictive. Tokyo is the region's capital for distribution of loans, but cannot take over Hong Kong's origination role because it is too expensive, the language is not yet widely understood by foreigners, the culture is both esoteric and xenophobic, and Japanese financial markets are so large and complex that they becoming all-absorbing preoccupations for any financial executives located in Tokyo.

That leaves Singapore, a serious competitor with none of the above deficiencies which has managed to surpass Hong Kong in the volume of foreign exchange transactions. But Singapore's tight controls on most markets and on the press limit its role until these things are changed — and