China Reunification At 20: A Mixed Bag

Hong Kong has grown beyond most expectations since its reunification with China two decadesago. ButShanghai and Shenzhen pose fresh challenges.

Beijing famously promised to maintain “one country, two systems” following its 1997 takeover of Asia’s most vibrant financial center from Britain. Skeptics such as Fortune magazine predicted “The Death of Hong Kong,” to recall a resonant cover headline.

Reality has fallen somewhere in between. Communist Chinese authorities have undermined Hong Kong’s political independence, which has sown fear among bankers and investors. The winner from this anxiety has been archrival Singapore, which moved ahead of Hong Kong last year to become Asia’s number one money nexus, according to the closely watched Global Financial Centres Index.

Singapore is proving the more powerful draw for a rising generation of financial technology entrepreneurs. A recent study by EY consultants ranks Singapore as the world’s number four fintech center, with Hong Kong lagging at number seven.

But reintegration with China has also bolstered Hong Kong’s economy, as wealth and capital markets on the mainland have mushroomed beyond most expectations from two decades ago. Chinese corporations have flooded across the former border to list shares protected by Hong Kong’s English law. Hong Kong’s two stock markets list 8,000 companies, dwarfing Singapore’s 800, and last year raised more capital through IPOs than either London or New York. Rich Chinese individuals have fueled a private banking boom in Hong Kong. Wealth management assets have more than doubled there since 2008, to $640 billion, while Singapore’s climbed 29%, to $470 billion, according to a Deloitte study.

Over the next 20 years, Hong Kong financiers face fresh challenges from their counterparts in Shanghai and Shenzhen, which has become the global IPO leader by volume. But the mainland money centers will struggle for some time to gain global investors’ confidence, giving Hong Kong a profitable role to play as China’s window on the world.