TNAG-2467-FCO40-3591-Economic-situation-in-Hong-Kong-1992 — Page 54

SECTION 1

23 September 1992

INTRODUCTION AND CONCLUSIONS

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1.1 This paper assesses how Hong Kong's role as an Asian Regional Financial Centre will develop over the next ten or so years. In particular it considers how much Singapore poses a threat to Hong Kong's position and the extent to which Hong Kong and Singapore should be considered as complements or substitutes in regional financial intermediation.

1.2 A convenient framework to analyse these issues is provided by the BEQB article of November 1989 in which Mr Latter and Mr Davis

review London's role as a financial centre. Section 2 reviews the

current mix of services which Hong Kong and Singapore supply, to the extent data allows, and considers how this may develop in the future. Section 3 analyses the reasons why Hong Kong has become a financial centre by comparison with Singapore, looking at supply side factors such as the availability of appropriate labour, relative costs and the regulatory climate. Because possible political developments in Hong Kong or China could dominate the effect of changes in the supply-side factors, a separate sub- section looks at the political outlook. Section 3 also assesses possible future developments and draws on ideas developed by Mr Davis in his Discussion Paper (Number 51).

1.3 The importance of financial services to the Hong Kong economy can be judged from GDP and employment data. Between 1980 and 1989,

while the share of GDP of the financial sector remained static at

around 7%, the share of manufacturing has fallen from 24% to 17%. [The main activities which have grown in share are "wholesale/retail, export/import trade, restaurants, hotels" and "community and social services."] Moreover, as at Q3 91, the financial sector accounted for 8% of total employment in Hong Kong.