Rebooting Hong Kong as an International Financial Center

Champagne corks were popping all over Hong Kong following the September 23 announcement by the government that it was scrapping compulsory quarantine for inbound travelers. The restrictions, in effect for 915 days, had exacted a heavy toll on the economy and morale in the Chinese special administrative region (SAR), whose second largest industry before Covid-19 had been tourism. As the city’s retailers and restauranteurs, as well as its flagship airline Cathay Pacific, can start to look forward to a return to normality, however, questions over the future of Hong Kong’s largest industry – financial services – linger.

More than just a key pillar of its own economy, Hong Kong’s capital markets play a critical role in facilitating trade and investment between China and the rest of the world. But the SAR’s standing as an international financial center has in recent years suffered numerous blows, both self-inflicted and outside its control.

In some ways, it is remarkable how resilient Hong Kong’s financial markets have been. In the wake of widespread social unrest in 2019 and in the midst of a global pandemic, Hong Kong Exchanges and Clearing (HKEX), the city’s sole exchange operator, reported a record year for derivatives trading volumes and its second best-ever annual turnover in stocks in 2021. This is testament to Hong Kong’s unique advantages under the “one country, two systems” model governing the SAR since its return to Chinese sovereignty in 1997. Structural shifts in its internal and external environments, however, have created both significant challenges and huge new opportunities. If Hong Kong is to retain its status as a leading international financial center, then it must adapt to these changes and take proactive steps to prepare for the future.