Finding our place

Oh Young-hwan
The author is a senior writer on regional affairs and JoongAng Ilbo Daegu bureau chief.

The 28th edition of the Global Financial Centres Index (GFCI) released in September had several meaningful features considering the backdrop of the pandemic and challenged status of Hong Kong as a financial hub.The index is revised twice a year — in March and September — by London-based Z/Yen Group in partnership with the China Development Institute. It factors in 138 measures to evaluate a city’s potential as an international financial host.

The trio at the top — New York, London and Hong Kong — was shook in March after Hong Kong fell to sixth place amid unrest due to widening influence from Beijing. In September, it gained a notch to exchange places with Singapore. The top 10 were New York, London, Shanghai, Tokyo, Hong Kong, Singapore, Beijing, San Francisco, Shenzhen and Zurich. Seoul came in at 25th.

Hong Kong’s rebound was unexpected. Many had predicted a flight in capital and human resources from the city, whose special status was challenged by increasing influence from Beijing and U.S. sanctions to punish Beijing for its infringement of democracy. Hong Kong is, however, backed by Chinese enterprises and capital. Mainland-based Chinese companies are half of the stocks trading on the Hong Kong Stock Exchange and 80 percent of the market cap. Initial public offering valuations were the world’s largest in 2018-2019. A boom on the Hong Kong exchange stops capital flight. But the exchange’s long-term outlook remains uncertain due to the lingering risk from the U.S.-China standoff.

The ascent by Chinese cities is also remarkable. Three names — Shanghai, Beijing and Shenzhen — joined the top 10. Shanghai has zoomed up to No. 3. It achieved international status after its Pudong region was developed and liberalized in 1990. Grooming Shanghai had been a part of China’s strategy as a test bed for liberalization and globalization of the Chinese capital.

China has allowed cross-border listings among the Shanghai, Hong Kong and London exchanges and opened the bond market. Earlier this year, it ordered construction of a financial hub in Shanghai to promote the city as an international financial center.

Together with Shanghai, Shenzhen had been central to the opening and liberalization that began under Deng Xiaoping in 1992. China also showed competitiveness in fintech rankings in the GFCI. Five cities were listed in the top 10, whereas Seoul was ranked 18th. China was moving beyond the base for global manufacturing and consumption to become a financial services hub.

Tokyo slipped a notch from third in March, with Osaka at 39th. Japanese policymakers have been trying to draw some of the capital away from Hong Kong. The prime minister, head of the ruling party and Tokyo governor led the marketing campaign. Prime Minister Yoshihide Suga has offered tax incentives, English administrative services and easing of foreign residential rules. The government is mulling a cut in income and inheritance taxes for foreign individuals as well as income taxes for foreign corporations.

The ruling Liberal Democratic Party of Japan launched a team in July to attract foreign financiers. Leading the panel was Kenji Nakanishi, an LDP upper house member who used to be vice chair of J.P. Morgan Securities Japan. Suga named him as vice finance minister to underscore how eager Tokyo is to rebuild its cosmopolitan status.

Tokyo has partnered with London to draw foreign enterprises and workers to its FinCity Tokyo project to promote the city as a global financial city. In a contribution to the Sankei Shimbun, Tokyo Governor Koike Yuriko claimed this was the city’s last chance to become a global financial city by riding on the momentum of Brexit and Hong Kong’s instability.

Seoul moved up eight notches from 33rd in March. Busan ascended 11 notches to 40th. Though they’ve made strides, the cities hardly pose challenges to Chinese and Japanese cities. From 2012 to 2015, Seoul ranked sixth twice and stayed within the top 10 for four straight years. The government’s project to promote the city as an East Asian financial hub in 2003 is long forgotten. Foreign financial institutions that totaled 168 in 2016 are reduced to 162.

The country’s appeal is weighed down by regulations, high income taxes, a rigid labor market and policy swings. Eight public financial organizations moved their headquarters out of Seoul. State-run financial institutions could follow suit under the government’s decentralization policy. Balanced national development is an important state policy, but finance needs to be centralized. Financial competitiveness should be taken into account to promote the finance industry.

The GFCI rankings suggest deconcentration in international financial centers due to the ascent of Chinese cities. South Korea can play a bigger role in the future if it integrates North Korea. The vision for a financial hub must not stop. Authorities should reexamine their strategy. The country’s future depends on national competitiveness as a financial center.