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Staying Competitive
as a Financial Center

Hong Kong needs to undertake a comprehensive benchmarking exercise to highlight recent changes in competing business and financial centers, and to show us where we need to make new ones, writes ANTHONY NIGHTINGALE

Our city's excellent business environment -- world class legal system, superb physical infrastructure and excellent talent -- combined with the rise of the Mainland of China's economy has kept us in the leading ranks of financial centers. Just as athletes need to continually train to maintain peak performance, staying on top in the highly competitive financial arena requires discipline and commitment. The rest of the field is out there testing their mettle every day, and we need to do the same.

Hong Kong needs to continue to show strong and steady progress in matching -- or beating -- the best practices in the world. Singapore is promoting private wealth management, attracting private banking business from Switzerland and elsewhere, and from January 1, 2004, packaging various tax incentives or concessionary rates for financial institutions into a single financial sector incentive scheme.

It has become something of a mantra that our low tax environment is "good enough" to attract business, particularly financial business, from around the region. Perhaps this was the case at one time, but it is clear that others -- particularly Singapore -- are not resting on the sidelines. The gap is narrowing, and quickly. Between 2001 and 2004, the difference between Singapore's profits tax and ours narrows from 8.5 percentage points (24.5 percent vs 16 percent) to 2.5 points (20 percent vs 17.5 percent), much less of a reason to choose one place over the other.

What is needed is a comprehensive benchmarking exercise in which our rules, regulations, laws and institutions are compared to those of other business and financial centers. Such a study would highlight recent changes in other, competing business and financial centers and show us where we need to make changes.

A recent study by the World Bank, Doing Business in 2004, ranks Hong Kong near the top of global business environments, as it rightly should. However, in the interest of keeping our keen competitive edge, it is instructive to note that in certain areas such as starting a business or enforcing a contract, Singapore requires more procedures than we do, but completes the job in less time and for about half the cost.

Further, the most recent World Economic Forum report on competitiveness lists the SAR below Singapore in areas such as number of days to resolve a dispute, consistency of regulation enforcement, effects of compliance on business and clarity and stability of regulations. My point is that for too long we have believed that our excellent legal and administrative systems and low tax environment was sufficient to keep us ahead of the pack. Today, others are working very hard to close the gap, and we need to pick up our pace.

Many of the differences between us and other jurisdictions that might be highlighted in a benchmarking exercise would seem small, and perhaps not worth the effort. However, if we undertake a comprehensive review, and then identify specific areas where Hong Kong's offering could be improved, the total package of revisions could be presented as policies designed to guarantee Hong Kong's continued strong standing among world class cities. We think it would be worth the effort.

There has been progress on bringing our taxes and regulations up to par, but not enough. In November, the Legislative Council passed a bill that provides for a tax concession on local corporate bonds, provided they meet certain stringent terms. The next step is to ease those terms and extend this concession to other financial instruments. While this small step is one in the right direction, and will make some difference to a few companies, it would be far more valuable as part of a comprehensive package aimed at boosting Hong Kong's overall financial environment.

Anthony Nightingale
Chairman
HKGCC