Our challenge, therefore, is to evolve successfully in the face of this shift and it is a philosophy that the HKMA has been actively pursuing in the past few years – exploring new policy headroom, improving our financial infrastructure, promoting Hong Kong’s offshore renminbi business in overseas markets in collaboration with the financial industry, and co-operating with other places, such as London, Paris, Australia, Malaysia and Thailand in developing renminbi business. A competition of soft power among international financial centres 11. As I have emphasised on many occasions, the competition among international financial centres is essentially a battle of soft power. That is not to say hard power is not important. Quite the opposite, the building of hard infrastructure such as airports, transportation system, telecommunications, and efficient offices, is a prerequisite for entering the race. Yet it can only go so far. Funds, especially at the wholesale level, tend to flow to and aggregate in the more efficient and safe financial centres. Therefore, the race ultimately depends on soft power, which is made up of a wide range of qualities and strengths that are difficult to quantify. They include, the most important of all, the rule of law, protection of property rights and intellectual property, the taxation regime, the soundness of financial institutions, the robustness of supervisory frameworks, the competency and integrity of professionals, such as financial practitioners, accountants and lawyers, the free flow of information, the free and convenient movement of people, and a favourable business environment.
These figures demonstrate that we should be able to seize the abundant business opportunities arising from the Mainland’s expansion in external trade if we continue to fortify our trade relations with the Mainland and the rest of the world, just like our trade intermediation activities growing from 15% of GDP in 1979 to 20% in the early 1990s, and then to 25% now. 6. Let me illustrate with another example why Hong Kong will not be marginalised as the Mainland continues to open up to the world. Let’s look at the opening of the cross-strait “Three Direct Links”. Prior to 2008, there were no direct flights between the Mainland and Taiwan. Passengers had to make a mid-way stopover at a third place. As a result, Hong Kong became the busiest transit point between the Mainland and Taiwan by virtue of its favourable location. Some pundits predicted that the opening of the “Three Direct Links” would deal a devastating blow to the aviation industry between Hong Kong and Taiwan. On the contrary, air traffic between Hong Kong and Taiwan increased by 15% from an average of 118 flights per day in 2007, before the implementation of the “Three Direct Links” in 2008, to 136 daily flights in 2013. This clearly illustrates that as long as Hong Kong is able to maintain its attractiveness and competitiveness, we can continue to effectively perform our role as an intermediary between the Mainland and Taiwan. Are Hong Kong and Shanghai deadly rivals? 7.