The financial industry is an integral part of Hong Kong. Not only is the city one of the world’s leading financial centers, the financial sector is also the territory’s second largest industry. Under British rule, Hong Kong became Asia’s financial hub. Since its return to Chinese control, Hong Kong has profited from its liberal financial system and proximity to mainland China. As a result, the city has evolved into a crucial contact point between mainland China and the rest of the world.
Financial industry sectors
Like any major financial industry, the financial sector in Hong Kong has a large variety of subsections. Thereby, banking and insurance services are the largest contributors of added value in the financial industry. The banking sector alone employs over one hundred thousand persons. Large banks such as Hang Seng bank originate from Hong Kong. In addition to that, many foreign banks and banks from mainland China have subsidiaries in the city. Similarly, many major international insurance companies have subsidiaries in Hong Kong and generate significant premium income.
In addition to the large industry subsections, smaller sectors thrive in Hong Kong’s business friendly environment. For instance, venture capitalists and private equity funds profit from favorable tax exemption schemes and private wealth managers cater to demands of Asia’s financial elite. Utilizing the city’s connections with counties such as Switzerland, Luxembourg, and mainland China, asset and wealth managers look after the assets of large institutions, as well as non-professional investors.
Hong Kong – mainland China cooperation
The political and geographical closeness to mainland China has become one of the unique advantages of Hong Kong in recent years. Even though the financial sector in mainland China is large and developed, it is still very secluded. Investors in China find it difficult to invest overseas and foreign investors have difficulties investing in mainland China. These hurdles are significantly lower in Hong Kong. Furthermore, as a result of cooperation agreements, Hong Kong became the financial gateway between mainland China and the rest of the world.
Examples for such cooperation agreements are the ‘Stock connect’ and ‘Mutual recognition of funds’ agreements. Stock connect is an investment channel between the Hong Kong Exchange and the bourses in Shanghai and Shenzhen. Through the investment channel, investors at both ends can trade on the opposite markets and investors do not need to change their broker or clearing house. By aligning the regulatory framework in Hong Kong and mainland China, the Mutual Recognition of Funds gives investors on both sides access to a common fund. This may be a contributing factor of the increased value of MRF funds in Hong Kong in recent years.
