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  • After a long summer of protests in Hong Kong, credit rating agency Moody's changed its outlook for the city to negative.

  • Banks, hedge funds, and other financial specialists may now consider life outside Hong Kong, a place known for its liberal economy and direct access to China.

  • So where could they go?

  • Singapore, Tokyo, and Shanghai are possible options.

  • In March, the three financial hubs were just behind Hong Kong in a ranking of the competitiveness of more than 100 financial centers.

  • So could these cities get more of Hong Kong's business?

  • Singapore has a lot of the same qualities that make Hong Kong attractive.

  • The city state has rule of law and an attractive tax system, and just like Hong Kong, it has the ubiquitous use of English.

  • It's also a major center for wealth management.

  • But Hong Kong has one really big advantage.

  • It's a gateway to China.

  • Hong Kong is part of China, but it has its own special legal and regulatory system.

  • Singapore of course, has got a lot of cultural affinities with China, and there's a big Chinese diaspora there, but of course it's a separate country...

  • And I don't think for Chinese companies or for Chinese officials, it's quite the same thing to list a business in Singapore as it is to list it right next door in Hong Kong.

  • As a result, Singapore's stock market has always been smaller than Hong Kong's.

  • Very roughly, the Singapore market is about a quarter the size of the Hong Kong market in terms of the capitalization.

  • In September, when the Hong Kong Exchange made a surprise takeover proposal to the London Stock Exchange, the LSE's board rejected the order and said it actually preferred Shanghai as a direct channel to access China.

  • Shanghai already serves as mainland China's most advanced financial hub, including bond and stock markets capitalized at trillions of dollars.

  • Its exchange is already larger than Hong Kong's, and it is forecast to grow much further in the coming decades, but being in China can also be seen as a disadvantage.

  • China still operates capital control so you can't take money in and out of the country very easily, given that there's quite a complicated and opaque legal system, and so often companies feel they're operating in an unfair system.

  • For years, the government has been liberalizing the financial sector to attract foreign institutions and their money.

  • We will encourage and support bold and creative steps by Shanghai to advance investment and trade liberalization and facilitation.

  • But the bureaucracy so far has hindered Shanghai's ambition as a truly global financial center.

  • Tokyo is the capital of the world's third largest economy.

  • It is a place where companies enjoy the rule of law and which boasts deep markets.

  • The city has more Fortune 500 companies than anywhere else.

  • - And in late August... -Aramco might list in Tokyo.

  • The city made big news with a Saudi Arabian oil giant.

  • The Japanese authorities might be comfortable with a slightly lower level of disclosure about things like reserves for example, which might make it easier for Aramco, which is a very politically sensitive company to list in Tokyo.

  • If Tokyo won a listing of Aramco, that would be a really big feather in the cap of that stock market.

  • But there are factors holding Tokyo back.

  • Taxes are higher than in Hong Kong or Singapore.

  • Tokyo also has stricter VISA requirements.

  • It's also a less cosmopolitan place.

  • Language is a big barrier.

  • It can be difficult for companies to find employees who have a good command of English.

  • The country was rated 32nd in latest HSBC list of top expat destinations, way behind even mainland China.

  • Many financiers say that Hong Kong is still the only city in Asia to offer the combination of the rule of law, an open capital account, and a convenient base for jumping into the Chinese market.

  • Yet the long months of protests are already taking a toll.

  • Chinese E-commerce giant Alibaba recently put a blockbuster listing there on hold for instance.

  • Hong Kong is scheduled to keep its special status as a semi-autonomous region until 2047.

  • But as Beijing's grip on the territory increases, so does uncertainty about what might happen in the near future.

After a long summer of protests in Hong Kong, credit rating agency Moody's changed its outlook for the city to negative.

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Three Cities That Challenge Hong Kong's Financial-Hub Status | WSJ

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    Estelle posted on 2019/10/30
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