[Viewpoint] Hub ambitions come with risks

Since the global economic crisis began, the financial world is showing signs of drastic changes. The hot topic in international finance today is the moving of HSBC, the largest bank in Europe.

HSBC’s CEO Michael Geoghegan announced that he would move his office and residence from London to Hong Kong by February 2010. He is contemplating moving the entire London headquarters to Asia as well.

If that happens, HSBC would be returning to Hong Kong after over 70 years in London, where the group moved during World War II.

Of course, the motive is money. HSBC saw 40 percent of its total profit come from China and Hong Kong in the first half of 2009. The bank hopes business in Asia will soon make up over 50 percent of all operations.

Another noteworthy event is the reform of the position of EU commissioner for internal market and services. This is a key role in the European Commission, overseeing trade, market policy, financial regulations and supervision of the European Union. Officials from the City of London have occupied the position for five decades.

The recent appointment of Frenchman Michel Barnier created quite a stir. He is aiming his sword at the city, declaring increased controls on reckless hedge fund operators and private funds.

All of a sudden, Zurich and Geneva are enjoying a boom. Many high-profile bankers from London are relocating to Switzerland, which is not part of the European Union.

Statistics indicate further changes in international finance.

The Shanghai Stock Exchange’s total turnover this year was $3 trillion, making it the third largest in the world after the New York Stock Exchange and the Nasdaq.

According to the latest Global Finance Centers Index, London and New York remain the top two financial hubs in the world, but their status is not as solid as before.

Hong Kong, Singapore and Shenzhen, China, follow close behind.

Seoul is ranked in 35th place, and Asia has made a spectacular rise. In Europe, Zurich and Geneva made the top 10 list. The GFCI has concluded that Hong Kong, Singapore, Shanghai and Shenzhen are emerging rapidly, and that the hub of global finance is moving to Asia.

These tectonic shifts could be a new opportunity for Korea, which has long been dreaming of becoming a financial hub.

The Northeast Asian Financial Hub project of the Roh Moo-hyun administration and the Financial Center policy of the Lee Myung-bak administration are garnering renewed attention. Local autonomous government agencies around the country are competing to host hub projects.

However, we should look before we leap into the competition to become a financial hub.

A financial hub could pose a fatal attraction. We need to keep in mind the failures of Dubai, Ireland and Iceland, which have fallen and had ambitious plans to become hubs.

Historically, all powerful empires rise as manufacturing giants and fall as financial dinosaurs. The British Empire and the Roman Empire shared the same fate.

When the impact of agriculture or the industrial revolution faded, the focus of the economy moved to finance and consumption, and these empires lost power.

Lately, slogans to build a “financial hub” are reappearing in Korean politics. However, it is highly dangerous to ease financial regulations artificially or excessively.

Korea is already ranked in sixth place in the world in financial openness. We have experienced disaster more than once when international funds flowed in and out of the financial market too freely.

We should study the case of Germany, which is quietly overcoming the global financial crisis. Unlike other countries, Germany is working steadily based on a solid manufacturing sector without any noisy emergency economic measures.

Once again, we are reminded of the lesson that finance does not rule the real economy but should instead support it.

Finance is the shadow of the real economy. Finance often amplifies market fluctuations, but it has never reversed the trend of the real economy.

Being too ambitious and plotting to become a financial hub could be poisonous to the nation. After all, a shadow is just a shadow.

*The writer is an editorial writer of the JoongAng Ilbo.

by Lee Cheol-ho