Hong Kong and Shanghai as Financial Center in China
The role of financial centers in every nation is important, for they are where most business firms are established for a successful trade, domestically or internationally. In the Asian region, especially in China, two cities are competing to be regarded as the country’s financial center, namely Hong Kong and Shanghai. It has been reported that Shanghai and Hong Kong are both well known internationally as leading business and economic centers in Asia ( 2002). Shanghai’s reputation was established primarily before the Second World War when it was one of the most open and secure cities in a land of unending turmoil and became known to some as an “adventurer’s paradise, while Hong Kong emerged onto the international scene after the Second World War as one of Asia’s greatest economic miracles and the world’s freest economy ( 2002). Nevertheless, in some ways, Hong Kong’s rise was partly a consequence of Shanghai’s decline after China embarked on a course of socialist experimentation (2002). This paper discusses the financial situation of both Hong Kong and Shanghai, in relation to its competition as being regarded China’s financial center. It gives emphasis on the factors affecting the two cities, such as economy, location, politics, FDI or foreign direct investments, technology, communication and social position.
Factors Affecting the Situation of Hong Kong and Shanghai
Both cities are active in the business industry of China, but through the course of history, the financial status and development of both cities lead to the competition of the two. (2002) reports that when the growth rate of Hong Kong’s economy is compared to Shanghai’s, it is clear that the latter has enjoyed far greater success in recent years, retaining a distinct superiority over human resources, the legal system, languages, currency and general infrastructure. Hong Kong boasts an impressive array of human resources that includes not only mainland Chinese who have been educated and trained in the West, but also a standing force of lawyers, accountants and other professionals hailing from every corner of the world (2002). Furthermore, (2002) reports that today, Hong Kong is well ahead of Shanghai in terms of total and per capita Gross Domestic Product (GDP), which is nearly 3 times that of Shanghai, and per capita GDP is more than 6 times. In addition, according to (2002), post-reversion Hong Kong has inherited the British legal system, with its international financial transactions upholding the laws and regulatory standards that apply to the financial markets in London or New York. Foreign direct investment (FDI) flow into Hong Kong in 2001 was 5 times that of Shanghai ( 2002).
In addition, as a former British colony, the English language has long been integrated into its socioeconomic fabric, and the Hong Kong dollar, being convertible, is being used in capital transactions, in contrast to the Chinese renminbi being used in Shanghai ( 2002).
Despite these are the arising problems such as the collapse of asset prices, slow economic growth, rising unemployment, and unending deflation in Hong Kong ( 2002). These problems gave way to the development of Shanghai to replace Hong Kong as China’s next financial center. Despite Shanghai’s delayed re-integration with the world economy, its impressive achievements have caught the world’s attention, and now being increasingly seen as Hong Kong’s competitor, wherein their competition will grow against the background of a more open mainland market as a result to China’s accession to the WTO or the World Trade Organization ( 2002). The economic growth of Shanghai is nothing short of spectacular (2002) from Hong Kong, for it has successfully participated in liberalization to demonstrate to the world once again its vibrancy and immense potential (2002). Shanghai is blessed with a rich surrounding of the Yangtze Delta and enormous economic resources, infrastructures are in the process of being upgraded and modernized, boasts an increasingly advanced science and technology base, and an abundant supply of well-trained professionals (2002). Shanghai’s clear superiority in these areas and other advantages suggest that its prospects of developing into an international financial center appear bright ( 2002). Its economy revolves around the Pudong development project, which yielded to an annual growth rate in excess of 10 percent in the past 10 years ( 2002), and a proud and bustling financial district with the Shanghai Stock Exchange at its center has begun to emerge ( 2002). Moreover, it has been reported that Hong Kong’s growth rate is the same period is only one-third that of Shanghai, but if these growth rates were sustainable into the future, Shanghai would overtake Hong Kong in less than 15 years, and catch up in terms of per capita GDP in 20 years ( 2002). Nevertheless, the possibility of Shanghai taking over Hong Kong would not be an impossible phenomenon.
Market Niche of Hong Kong and Shanghai
It has been reported that, the issue of whether Shanghai will be another Hong Kong depends in the presence of market institutions and their future prospects, involving political and institutional laws ( 2002). Shanghai’s role as an international financial center is growing but the gap between the two cities remains considerable, as Hong Kong continues to have an important role to play in managing China’s financial resources and risks ( 2002). With this, Hong Kong has been the most important source of international capital for the Mainland, providing a unique platform for business environments that is already familiar and supportive for many years in doing business in China, making the wealth of knowledge concentrated in Hong Kong unrivalled and unlikely to be rivaled into the future ( 2002). Moreover, the role of the financial markets of both cities does not overlap, as Hong Kong’s business is as a regional financial center for Asia, and as a conduit for foreign capital into the Mainland, while Shanghai’s main role is mobilizing domestic funds to fuel the Mainland’s economy development ( 2002). This is only possible if the Chinese currency will not be convertible in the future.
Despite the crises experienced in Hong Kong, such as high rent, mediocre managers and administrators earning high salaries, speculative fervor drawing energy away from enterprise, and government mismanagement (1998), it still serves as China’s financial center. It can still store on its reputation as a free, international city having a sound judicial system, and the city’s low business taxes attract foreign investors and entrepreneurs ( 2000). With the crises in Hong Kong, it gave a way for some companies to transfer their offices to Shanghai, but somehow Hong Kong managed to find itself a new economic niche, being China’s information hub. (2002) reports that Chinese businessmen have been coming to Hong Kong to explore opportunities outside China, and international businessmen come to Hong Kong to explore opportunities in China. This cycle of obtaining information enhances its role as an information hub, not only serving as a gateway to China but to the rest of Asia, and remains its advantage over Shanghai. This role also affects the strategies made by China in relation to its multinational companies.
In relation to these are the issues of culture and the concept of being “Chinese” of Hong Kong. The opposing status of Hong Kong as an international city began when Hong Kong was returned to be under Chinese sovereignty in 1997, and the local government abandoned the colonial bilingual education system in favor of teaching the mother tongue ( 2000). In contrast, Shanghai aims to become a bridge connecting China and the Western world ( 2000), by developing its infrastructures, such as expressways, bridges, and public transportation (2000).
Role of River Deltas
(2002) reports, that both the Pearl River Delta and the Yangtze River Delta economies are vibrant regional economies of China, which are both important bases of China and serve as important export platforms. Hong Kong is primarily serviced by and from the Pearl River Delta and companies own most of the factories, while the Yangtze River Delta services Shanghai and companies do not own the factories ( 2002). Because of the growth of the manufacturing base in the Pearl River Delta, it has transformed Hong Kong into a service economy, producing consumer products including consumer appliances, toys and games, textiles and garments, jewelries and accessories, are being made in Mainland China for the international markets ( 2002). Due to Hong Kong’s best location and its extensive development, it serves as the best asset of the Pearl River Delta.
(2002) also reports that Hong Kong is Shanghai’s largest foreign investor, contributing 42 percent of the total foreign direct investment in the city, with the efforts of Hong Kong entrepreneurs to share their management expertise and business experience by widespread investment. These investments include financial services, infrastructure, real estate, and wholesale and retail trade, which contribute to the growth in the Yangtze River Delta region and the rise of Shanghai ( 2002).
Given the fact that Shanghai’s economy is relatively less developed that Hong Kong’s, it can be deduced that the currency involved in the trade becomes crucial. Shanghai uses the renminbi as its currency, which is non-convertible, while Hong Kong uses the dollar, which is convertible to US dollars. This affects the financial dealings in Shanghai, focusing only in domestic trade and entirely affects its productivity. However, Hong Kong has this advantage of having all its financial dealings converted to US dollars, which contributes to its aim to become the financial center of China.
From all the facts mentioned and discussed in this paper, it can be concluded that despite the crises experienced in Hong Kong, it remains to be the center of financial activity in China. Given the fast development of Shanghai, it could be the future Hong Kong, but the process will take time. Shanghai must still have to undergo a more rigorous process of development and innovation to replace Hong Kong from its throne. In Hong Kong’s part, for it to remain as China’s financial center, it must continue to develop also, attract good investors, and focus on innovation. Although Hong Kong has this reputation, its must not take for granted all the problems arising now, but instead find solutions to these problems. It must strive to maintain its reputation as a financial center of China and the rest of Asia. This is only possible with the support of all the citizens and the government, helping each other in promoting global competitiveness for development and prosperity.
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