Hong Kong: Asia's Financial Hub

Young Professionals Committee 31 October 2011

Highlights ESBC meeting

15th December 2011

Topic

The role of Hong Kong as a hub for Finance in Asia has been evolvingfaster than ever.

Main Factors: RegulationsGeographical locationSkills available

Questions: 1) Will Hong Kong prevail in an increasingly competitive Asian Financial

market? 2) How this would impact the local job market?

John LevackManaging DirectorElectra Partners Asia Limited, Hong Kong

Veronique Lafon-Vinais Adjunct Associate Professor, HKUST;Director, Tai Tam Corporation

Our Speakers: Why we chose them?

Veronique Lafon Vinais: A Banker’s perspective

1. HK’s role in Asian financial markets – current status

A. ECM – mostly Greater ChinaB. DCM (G3 & local currency) – dim sum market, G3 for north AsiaC. FX – major hub is SingaporeD. M&A – mostly for Greater China, Sing is hub for South and Southeast Asia

B. Weaknesses:•Political (in)dependence from Beijing•Pollution•Distance from south Asia•Education (heavy government investment in Sing v. HK; US and European unis setting up campus in Sing/China)•Social inequality

3. “Talent” in HK v. other Asian cities

•% of educated population in HK v. other cities•Language skills in HK v. Sing – English level? Mandarin v. Cantonese?•Work ethic (HK survival skills v. Singapore?)•Culture and diversity

2. HK pro/cons analysis

A. Strengths: •Gateway to China/greater China/North Asia•Infrastructure (port/airport/technology/transport…)•Rule of law•Education (top business school!)•Work ethic

John Levack, A Fund/PE Perspective 1/2

1. Hong Kong is back at the center for the offshore RMB settlement and the Asset Management industry for China. “We will support Hong Kong in consolidating and elevating its position as an international financial, trade and shipping center, and enhancing its global financial influence.” 3/2011 China Five Year Plan

2. Figures about HK Fund Industry• HK Asset Management business (excl Insurance, Private Banking)

• SFC regulated entities in HK - AUM US$850 bn at 12/2010

• Includes Hedge & Private Equity – but bulk is quoted equities

• 66% of AUM is sourced from non-HK investors

• Mainland China money contributed only $10 bn

• 80% of assets invested in Asia

• 350 entities registered with SFC

• Fund entities are offshore (mainly Luxembourg & Dublin)

• Employing 29,000 people in HK (76% sales & marketing)

John Levack, A Fund/PE Perspective 2/2

3. Hong Kong as a fund hub B. Strength

• Gateway to China/greater China/North AsiaCapital – and free capital flows

• Legal framework

• Legal enforcement

• Manpower availability

• Double Tax Agreements

• Low Tax RatesB. Weaknesses

• Onshore RMB fund growth• Singapore as Fund hub (Distance from south Asia) • Too narrow focus on China

Recommendations

Government investment in education in HK should increase (land, funding…)

More opening to foreign students (limited to 20% in local Us at moment) keep

on attracting talents

Opportunity for China inbound/outbound investments

Government should reduce issue with tax treaty to bring Offshore funds onshore

Follow regulations closely as it could impact some parts of the financial sectors ( ex:

regulations on derivatives, more transparency from hedge fund…)

Appendix

Total: + US$48 billion

India14.18%

Hong Kong5.20%

China39.37%

Australia17.48%

Other Asia Countries8.35%

Singapore7.01%

Japan8.41%

Asian Private Equity: where invested (in 2010)

Total: + US$280 billion

India12.66%

Japan14.61%

Singapore5.69%

Other Asia Countries14.70%

Australia8.07%

China21.90%

Hong Kong22.36%

Asian Private Equity: Capital Under Management (2010)

Source: AVCJ

0

20

40

60

2005 2006 2007 2008 2009 2010

$ bn under management

Source: AVCJ

Hong Kong Private Equity: Capital Under Management