The Key is Activating the Virtuous Cycle Between the Market and the "Visible Hand"
Hong Kong’s journey as an international financial center can be viewed as a series of interactions between the market and various corporations.
Author: GUDORDI | 2026-04-16
故有無相生，難易相成，長短相形，高下相傾，音聲相和，前後相隨。是以聖人處無為之事，行不言之教。萬物作焉而不辭。生而不有，為而不恃，功成而弗居。
──《道德經》第二章，老子
In the previous section, I mentioned that the listing of China Mobile marked the true beginning of Hong Kong’s capital market stepping onto the global stage. From this, we can catch a glimpse of the most critical variables that determine the future of Hong Kong as an international financial center. The most important among them, I believe, is whether a virtuous cycle between the market and the “visible hand” can be activated and sustained indefinitely.
Both enterprises and governments can be viewed as types of "corporations."
Strictly speaking, the virtuous cycle mentioned above refers to the cycle between the market and the firm. According to the economics of property rights, the “market” and the “firm” represent the two extremes of all economic organizational arrangements. The spontaneous forces of individual economic actors can be collectively termed the market, while the power exercised through a “visible hand” can be collectively termed the firm.
Looking back today, Ronald Coase, the 1991 Nobel Laureate in Economics, asked a vital question in his 1937 paper (published when he was 27), The Nature of the Firm: If the “invisible hand” of the market is so powerful, why do we see so many “visible hands” (or firms) emerging in the real world? What does their existence reveal about the essence of market operations?
Coase’s answer was that the nature of market forces is far more complex than traditional understanding suggested. He pointed out that the emergence of market forces is not inevitable; their operation requires costs and specific prerequisites. However, when the market encounters these challenges, it can spontaneously generate the “firm” as an organizational structure to assist itself. This capacity for self-improvement within the market is highly significant. In theory, wherever the power of a visible hand is involved, it can be classified as the power of a firm. Therefore, a business enterprise can be viewed as a type of firm, and a government can also be viewed as a type of firm.
The Vital Importance of a Virtuous Cycle Between the Two
This is the 1.0 version of the Theory of the Firm, and its essence is to assist the market. Applying Coase’s terminology, in situations where the transaction costs of utilizing the market mechanism are high, the “firm superseding the market” often occurs. Looking back today, Coase’s perspective was not incorrect, but the actual situation may be far more complex than his understanding at the time.
In real life, it is extremely difficult—and perhaps not even that important—to completely separate the firm from the market. If we view every behavior as an underlying contractual arrangement, then in most practical situations, elements of both the market and the firm coexist; the essence of a firm is simply a form of contract. If this is the case, the focus of our analysis should perhaps be on whether the proportion between the market and the firm is appropriate, and whether the two can exhibit a virtuous cycle of interaction.
This also leads to a crucial point: how to handle the role of the government, a “mega-enterprise,” in economic operations. According to Coase, a firm that emerges solely to reduce transaction costs remains subject to market discipline. If transaction costs in the market were to drop significantly one day, some firms that were once valuable might gradually be phased out by the market. However, the situation with a government is far more difficult, as using market forces to eliminate a government or its laws is very hard to execute in the real world. This is precisely why the case of Hong Kong’s path as an international financial center is so worthy of attention—it classically demonstrates how a virtuous cycle between the market and the “firm” (government/policy) can be nurtured.
The Golden 20 Years of Hong Kong’s Path as an International Financial Center
Looking back, Hong Kong’s journey as an international financial center can be viewed as the result of a series of interactions between the market and various “firms.” The listing of Tsingtao Brewery in 1993 signaled that Hong Kong would serve as a pilot site for national policies. At that time, the policy strength was not particularly high; it was more of an exploration. However, from the perspective of fostering a virtuous cycle between the market and firms, this was likely a good thing, as it provided the market with a direction for discovery and development.
In the ensuing years, investment banks gradually established dedicated teams in Hong Kong to research Chinese enterprises. Subsequently, China Mobile’s simultaneous listing in the United States and Hong Kong in 1997 provided an objective and clear method for comparing the relative effectiveness of state-owned enterprises (SOEs) listing in both locations.
Following this, both investment banks and investors demonstrated through their actions a strong preference for using Hong Kong as the primary hub for researching and investing in Chinese enterprises. National policy then solidified Hong Kong as the preferred destination for the overseas listing of SOEs. After China Mobile, large-scale enterprises in telecommunications, banking, insurance, and chemical energy listed in Hong Kong one after another. This led to a surge in the market capitalization of Hong Kong stocks and consistently placed Hong Kong at or near the top of global IPO fundraising rankings.
Later, the Hong Kong Stock Exchange successfully secured the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect. This further expanded the foundation of Hong Kong as an international financial center, deepening its role from a corporate fundraising hub to China’s primary international offshore financial center. Its business scope extended from equities into “FICC”—Fixed Income, Commodities, and Currency—evolving into a truly world-class international financial center structure.
Looking back today, the period from 1999 to 2019 can be described as the Golden 20 Years of Hong Kong’s path as an international financial center. However, this is merely the background of Hong Kong’s financial industry. The most important question is: what is the status of Hong Kong’s financial sector in 2026 and beyond? I will continue to discuss this.
How would you like to frame the transition into the discussion of 2026—should we focus on the current challenges or the emerging opportunities in the FICC sector?
