Four Critical Variables Determining the Future of Hong Kong as an International Financial Center
Regarding the issue of coordination between the market and the “visible hand,” the principle should be that market forces remain the primary driver. The importance of the visible hand should lie mainly in supporting, guiding, and—at critical junctures—leading the market toward development in higher dimensions.
Author: GUDORDI | 2026-04-21
海納百川，有容乃大；壁立千仞，無欲則剛。
──林則徐
In the previous section, I mentioned that we could catch a glimpse of the most critical variables determining the future of Hong Kong’s international financial center from its path onto the global stage. This time, I intend to begin by exploring the activation of a virtuous cycle between the market and the “visible hand,” while identifying the other three important variables.
Hong Kong’s journey has been quite unique.
It is worth noting that the virtuous cycle between the market and the “visible hand” that appeared in Hong Kong’s past was quite unique, as it demonstrated a subtle coordination between the two. Fundamentally, Hong Kong’s path as an international financial center was first ignited by the stock market, an origin that can be traced back to the listing of Tsingtao Brewery in 1993. However, the policies at that time contained a significant element of exploration; the subsequent increase in policy strength was likely because the Hong Kong market proved it possessed the capability to execute those policies. Looking back today, this required at least the international investment banks deciding to use Hong Kong as their hub for equity research—a decision that only came after a substantial period of testing and verification.
From this perspective, had China’s policy decision to support Hong Kong come too early, it might have actually had an adverse effect on Hong Kong’s prospects as a financial center. If that had happened, the immediate reaction of international investment banks might have been that their then-small Hong Kong offices could not handle the load, especially since experienced researchers for many industries were all based in head offices or overseas. On the other hand, the funds previously active in the Hong Kong stock market were primarily “Asia ex-Japan” or Greater China funds, which generally were not very large in scale. The largest global funds and pension funds had not yet viewed Hong Kong as a significant market (at the time, Hong Kong’s weight in global stock indices was likely less than 1%). Therefore, if China had decided in the mid-1990s that all large state-owned enterprises were only allowed to list in Hong Kong, the market might not have been able to digest them at all, and the virtuous cycle mentioned above might never have been activated.
Market Forces and Pacing Should Remain the Primary Driver
This actually highlights the significance of China Mobile’s listing in late 1997 and its subsequent performance in the secondary market. Therefore, the strength of a policy is often not as important as its ability to appear at the “right time and in the right way.” In other words, regarding the coordination between the market and the “visible hand,” the principle should be that market forces lead, while the importance of the visible hand lies in coordinating, guiding, and—at critical moments—leading the market toward higher-dimensional development.
However, it is worth noting that the above perspective may not necessarily apply to mainland China. I recall former Chinese Premier Zhu Rongji saying something similar over 20 years ago: that China’s economy, from the perspective of history, structure, and many other facets, is quite different from the West. Therefore, even if Alan Greenspan were to come to China, he would not necessarily be able to manage the Chinese economy better than the local leadership. Premier Zhu’s statement is supported by many objective facts and experiences.
Yet, it is important to recognize that after World War II, with the exception of the Soviet bloc and China, almost all other parts of the world were integrated into the global economic and financial system established under U.S. leadership in 1944. Hong Kong has operated within this system for over 80 years, and many of its practices are deeply ingrained and interconnected. Consequently, the situation in Hong Kong is very different from that of mainland China. Whether policymakers in both Hong Kong and the mainland understand this—and whether they can handle these issues pragmatically and creatively—is a critical variable for ensuring that this virtuous cycle continues, or at the very least, does not reverse.
Simultaneously Serving Both Chinese Enterprises and Global Multinationals
In addition, I believe another critical variable is whether the market can develop a long-term vision for the future of Hong Kong’s international financial center (IFC) that gains broad consensus. I will discuss the importance of this condition further. One idea I have observed for the time being is positioning Hong Kong as an IFC that serves both Chinese and foreign enterprises.
Logically, I do not disagree with this positioning, but I would like to point out that—based on my understanding of the evolution of the global financial system over the past few centuries and its development after 1944, as well as my understanding of China’s current financial culture and banking system—this positioning hides many risks. Without careful handling, it could potentially squander much of Hong Kong’s original potential.
On this issue, I believe we should set our vision even higher: to become a true international financial center on par with London and New York. While effectively addressing the genuine financial needs of Chinese enterprises, it should simultaneously serve the enterprises of many other countries globally. In my view, the path for an IFC implied by this positioning is much broader and would be better for China’s long-term development. Furthermore, it could help avoid many potential problems, which I will elaborate on later.
The Other Two Major Variables
In addition, I believe the other two variables are whether Hong Kong can continuously attract talent and institutions from all over the world (including but not limited to China) to stay in the city, and whether it can develop Hong Kong’s international status in various other fields—such as culture, arts, trade, services, law, and entertainment—while advancing its career as an international financial center. I believe these four variables are closely intertwined and complement each other, upholding the ancient wisdom that “greatness comes from capacity and inclusion.” I will speak more on this when the opportunity arises.
