New York is the financial capital of the world. What might surprise people is that it has kept this title longer than market forces might have otherwise dictated thanks to an assist from the Chinese Communist Party. Certainly, all the money running through New York is thanks to the booming Chinese economy, and Communist Party leaders laundering bribes has helped. But what has benefited New York’s financial markets the most is communists doing what communists do best: wreck things. The Communist Party is currently wrecking Hong Kong, and New York is benefiting from it.
Winning by the other side losing is not rare in sports or business. There is a competition between financial centres in the world. In the case of Hong Kong, the Communist Party has become a drag on the financial sector, where as – in pre-Xi Jinping’s China – it could be argued with quite a bit of validity that China was propelling Hong Kong to the top.
By most measures, Hong Kong has a solid claim as the world’s top financial market. Hong Kong recaptured the lead as the top market for initial public offerings (IPO’s) in 2018. In terms of trade finance, Hong Kong is far ahead of New York thanks to our proximity to China and an export/import-oriented economy. Even in wealth management Hong Kong holds significant advantage over New York.
Hong Kong doesn’t have a comparable bond market to New York, but that pales against Hong Kong’s superiority in any matchup of regulatory oversight, taxation, or free movement of funds. Hong Kong is far more business-friendly than New York when it comes to the hard costs of business. Taxes are lower. Regulation lighter. Even in terms of attracting International talent, Hong Kong is far ahead. Any non-American would prefer Hong Kong’s 15 per cent tax rate against New York’s nearly 50 per cent. Everyone makes more money in Hong Kong. (And, by God, the Hong Kong MTR alone could make one move here if the option was NJTransit.)
So why isn’t Hong Kong considered top dog? We all know the answer. The Chinese Communist Party and the uncertainty in how it deals with Hong Kong.
A communist system that can neither protect intellectual property rights nor offer rule of law is a system that damages business confidence. Hong Kong’s decline in its autonomy and security from a mainland that is growing more authoritarian lessens the safety of doing business in Hong Kong.
The city’s leader Carrie Lam and China’s Xi Jinping – in their zeal to implement the new extradition law – bring into Hong Kong the highest cost, and greatest burden: the Communist Party legal system. Allowing mainland courts to reach into Hong Kong is importing corruption, politics, and general uncertainty.
That capital flows along the path of least resistance is as true as ever. It is just that “resistance” in 2019 is not only taxes and regulation. It is safety. Safety for business is an honest, independent, and transparent legal system. The Hong Kong business community is not lobbying against the extradition because they spoil for a fight with the Communist Party. Business sees the threat of the extradition treaty as the true cost it will become. The cost of Carrie Lam’s extradition treaty is safety. Without safety in an economic system, the cost of that system is too high for international finance.
Which brings us to New York City.
If Hong Kong is losing, someone is winning. Yes, Singapore and Japan will see some benefit, maybe even London will benefit from the effects of the extradition law. But Hong Kong and New York are the top tier and it is more rational to switch to among equals rather than drop down a tier. Also, if the fear is the Communist Party, then go to where it has the least impact.
Again, you can win because someone else loses. The Communist Party is destroying Hong Kong’s one real advantage, the rule of law – New York City says thanks.
Hong Kong’s psychedelic disco rock superstars Shumking Mansion will play this year’s Hong Kong Free Press 2019 fundraising party at the Hive Spring in Wong Chuk Hang. Tickets are available now for a minimum donation of just HK$50 in advance (free for HKFP monthly donors).