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The Past & Present Status of Hong Kong: Emphasis on Banking & Business
Term Paper ID:27868
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Essay Subject:
Reviews the development of the Hong Kong banking industry & examines its prospects under the Communist regime.... More...
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5 Pages / 1125 Words
4 sources, 5 Citations,
APA Format
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Paper Abstract:
Reviews the development of the Hong Kong banking industry & examines its prospects under the Communist regime.
Paper Introduction:
In 1997, the status of Hong Kong will change. Hong Kong has been one of two Chinese areas -- the other being Macao -- under the control of foreign powers. The Chinese see these as "problems left over from history," and they were the result of imperialist aggression and incompetence on the part of Chinese rulers in the nineteenth century. Hong Kong has been under British control as the result of three treaties with the Chinese from the last century, but in the mid-1980s China concluded formal agreements with Britain for the return of Hong Kong in 1997. The Hong Kong area, fearful of being returned to Red Chinese dominion, has been given a high degree of autonomy in the agreement with Britain, and it will be considered a "special administrative region" of China. The banking industry is certain to be affected by these changes, as will every other industry in
Text of the Paper:
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The Consumer Council had found that the HongKong Association of Banks (membership of which is compulsory for any bankwanting a license to operate in the colony) had used its regular Fridaymeetings to peg interest rates below what they would have been in acompetitive market, with the estimates being that deposit rates were lowenough in 1992 to extract "monopsonistic" rents from depositors worth $83 million. In 1997, the status of Hong Kong will change. U.S. Hong Kong has been oneof two Chinese areas -- the other being Macao -- under the control offoreign powers. the colony's second largest food-supplier, behindChina. Hong Kong banks can do this because Hong Kong'sdeterminedly non-interventionist government allows a cartel of local banksto fix interest rates, leaving the small savers feeling rightly that theyhave been ripped off. It is the world'slargest buyer of American frozen poultry, apples, citrus fruits, andtobacco, making the U.S. The colony has become the largest banking center in thePacific region, after Tokyo, and financial services now generate 19 percentof the gross domestic product (GDP), almost as much as manufacturing.Agriculture and fishing account for only .3 percent of the GDP. Hong Kong banks are far lessstable, and it has been said that aside from gambling on Hong Kong'sunpredictable stockmarket, another sure way to lose money is to put it ondeposit at one of the colony's banks. Hong Kong has worked for many years to attract investors and hascreated a very favorable environment for new investment and new businesses,including foreign-owned businesses. Those profits can in fact be huge: HSBCHoldings, which owns, among other things, the Hongkong & Shanghai Bank anda 61 percent stake in Hang Seng Bank, said its 1993 pre-tax profits hadrisen by 51 percent to $3.8 billion ("Consuming Interest: Hong Kong Banks,"1994, 87). Also permissible are partnerships and sole proprietorships. Giddy. banks are located in Hong Kong, and each ofAmerica's top 1 banks has an office there. Financial statements donot have to be filed if a U.S. A comparison of thecommercial banking industry in Hong Kong with such an operation in theUnited States shows the sort of institution that the Hong Kong bank istoday, and may point to what it will become in the future. Annual inflation is running at morethan 8 percent, and the 2.75 percent a year offered to savers prepared tolock up their cash in a three-month time deposit is insufficient to make upfor the difference. In recent years many production processes havebeen relocated to China to take advantage of cheaper labor there, so thatHong Kong firms today employ more than twice as many people in China as inHong Kong. There are only minimal governmentcontrols or disclosure requirements on businesses. In January next yearseven-day deposits will be deregulated, followed in April by deposits witha fixed term of more than 24 hours. There are no minimal capitalization requirements for aprivate company. References"Consuming Interest: Hong Kong Banks." The Economist (March 5, 1994), 87- 88.George, Abraham M. Perfidious Albion: The Abandonment of Hong Kong 1997. firms are second amongforeign insurers in Hong Kong. Hong Kong is vital to the U.S. and Ian H. Six-month visas are generally granted to potentialresidents with employment. Hong Kong had considerable success in exporting manufactures toEurope and North American, and this attracted substantial investment byAmerican and Japanese firms beginning in the 195 s. Today, the United States has an estimated$7.1 billion invested in Hong Kong, which is more than twice what it hasinvested in China, and nearly a quarter of all foreign investment in HongKong. The United States is the largest foreign investor in the colony ofHong Kong (McGurn, 1992, 7). The bankingindustry is certain to be affected by these changes, as will every otherindustry in Hong Kong, and the shift will further affect the many foreigninvestors with money tied up in the Hong Kong economy. Considering the pivotal role Hong Kong will play in the economicdevelopment of China (it is the largest outside investor in the mainland),the future of American investment in the PRC itself depends to a greatdegree on the ability of Hong Kong to persevere in the role it has playedfor 15 years. New York: John Wiley & Sons, 1984."Interesting times: Hong Kong banks." The Economist (October 1, 1993), 1 1-1 2.McGurn, William. Hong Kong has a particular role for U.S.firms as a regional center (McGurn, 1992, 117). There is no central bank in Hong Kong or other official bankinginstitution, and all banks in Hong Kong are privately owned. More than 2 U.S. HongKong has been under British control as the result of three treaties withthe Chinese from the last century, but in the mid-198 s China concludedformal agreements with Britain for the return of Hong Kong in 1997. The Chinese see these as "problems left over fromhistory," and they were the result of imperialist aggression andincompetence on the part of Chinese rulers in the nineteenth century. Washington, D.C.: Ethics & Public Policy Center, 1992.----------------------- 6 This is a situation that is now changing, and as of October 1 of thisyear, deregulation has set in and is altering how Hong Kong banks dobusiness, though it will not benefit savers for some time. company is a wholly-owned subsidiary ofanother company. The government decided it could no longer defend the so-calledinterest-rate rules under which the cartel operates, rules established in1964 after several small banks got intodifficulties pushing up deposit rates during a battle for market share.Without the support of the government, the bankshad no choice but to agree on a phased deregulation of fixed-term timedeposits. After that all deposits of 24 hourswill be deregulated by a gradual reduction in the level at which the rulesapply. The banks are now free to set whatever interest rates they likeon fixed-term deposits of between one and 15 months. Leading exports todayinclude textiles and clothing, electronics, clocks and watches, domesticappliances, and plastics. Overseas companies setting up in Hong Kong generally eitherregister the overseas company with the local authorities or form a locallyincorporated subsidiary which can be legally distinct from the overseascompany. These changes are not momentous, and there will still be nocompetition for current and other savings accounts which represent 45percent of deposits ("Interesting Times: Hong Kong Banks," 1994, 1 1). International Finance Handbook: Volume 1. Certain quasi-bank functions, such as issuing bank notes or serving as the government'sbanker, have traditionally been performed by the two leading British banks,the Hongkong and Shanghai Bank and the Chartered Bank (George and Giddy,1984, 4-1 /1 ). as well as a specificmarket, for it ranks among the top three markets worldwide for selectedagricultural products, cut diamonds, and cigarettes. TheHong Kong area, fearful of being returned to Red Chinese dominion, has beengiven a high degree of autonomy in the agreement with Britain, and it willbe considered a "special administrative region" of China. Indeed, it isinteresting that the Hong Kong answer to the problem is deregulation ratherthan stronger and more consumer-directed regulation as in the U.S.commercial banking industry. Tourismis a big industry in Hong Kong, and over 5 million tourists visited in1989, contributing about 7 percent of the GDP. One clear difference between commercial banks in Hong Kongand those in the United States relates to government regulation and how thebanks behave in their separate environments. There is no compulsory union membership in HongKong, and there is minimal red tape for granting a registration forworkplaces. In a recent report the Consumer Council said thatbanks were profiting from setting deposit rates lower than they would be ina truly competitive market.
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