Hong Kong has grown so dramatically as a financial centre over the past 10 years that it seems odd for it to be worrying about its future. Especially so, one would have thought, after its triumph last year when it beat both New York and London to host the largest volume of initial public offerings in the world.
Yet there is a palpable nervousness in Hong Kong these days about the rise of Shanghai. Already the main domestic financial centre in the world's most dynamic economy, Shanghai has an unconcealed aspiration to regain its position on the international stage. So palpable is the concern that – or so it is rumoured – important people in Hong Kong lobbied Beijing to delay or cancel plans for the Shanghai stock exchange to establish an international board. Such a board might attract (among others) “red chip” companies currently listed in Hong Kong. Many people in the territory fear a fall-off in the flow of listings in Hong Kong by large state-owned enterprises (SOEs), precisely the companies that have propelled the impressive growth of the territory's equity market over the past decade.
In my view, such concerns are overdone. The increasing maturity of China's domestic securities market, combined with the huge scale of China's domestic savings, make it natural for Shanghai to become the “New York of China”. Hong Kong should accept this and use it to its advantage, for example by encouraging dual listings on its international board. The territory's strength in the past has been its flexibility and ability to adapt to changing circumstances.