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Hong Kong's Financial Empire at a Crossroads: The Rising Influence of Chinese Power

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Hong Kong, once a leading financial hub, is now facing challenges. It has fallen to fourth place in the Global Financial Centers Index (GFCI) and slipped to ninth place in the Economist Intelligence Unit's ranking of business ecosystems.

Hong Kong Slips in Business Attractiveness Rankings

The latest GFCI by the Z/Yen Group and China Development Institute ranks Hong Kong's Special Administrative Region (HKSAR) fourth among 121 global financial centers. This position emphasizes Hong Kong's crucial role as a bridge between China and the international market.

A government spokesperson noted that Hong Kong continues to integrate into China's financial reforms, supported by new 2024-25 Budget policies to boost its financial sector.

The top five in the index remained unchanged, with New York leading, followed by London, Singapore, and San Francisco.

Shanghai and Shenzhen advanced among Chinese cities, ranking sixth and 11th, while Beijing fell to 15th. Wuhan, Hangzhou, and Dalian also climbed rankings, enhancing their global financial profiles.

Meanwhile, according to the latest report from the Economist Intelligence Unit, the research arm of The Economist Group, Hong Kong now ranks ninth in the list of most attractive regions for business over the next five years.

This marks a drop from seventh place last year when the Special Administrative Region (SAR) was ranked seventh. At the same time, Singapore continues to hold the top spot as the most favorable business destination.

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Hong Kong's Financial Dilemma Amidst Tightening Controls

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As Hong Kong debates whether to strengthen ties with mainland China or pivot towards the Middle East, it encounters a significant hurdle-China's stringent control over private financial activities, particularly cross-border money flows.

Billionaire investor Mark Mobius expressed difficulties transferring funds from his Shanghai HSBC account, indicating tighter financial controls.

Shih Wing-ching, founder of Centaline Property Group, highlighted challenges faced by mainland clients eager to invest in Hong Kong's real estate market but restricted by these controls.

Such regulations increase the risk of financial professionals facing criminal charges under CCP laws despite official statements denying any policy changes.

"The country's stance on cross-border fund transfers remains unchanged," a China's State Administration of Foreign Exchange spokesperson assured in a CNBC statement.

Despite these challenges, the Chinese government supports Hong Kong with initiatives like the Closer Economic Partnership Arrangement (CEPA) and regulatory measures to ease market access. However, the strict enforcement of foreign exchange controls poses considerable obstacles for businesses and investors.

Wing-ching recently argued that easing these restrictions could significantly benefit Hong Kong's property and broader economic sectors, which are currently struggling. "The retail and tourist industries are suffering, and as a service provider, Hong Kong's economic health is tightly linked to that of mainland China, which is also experiencing difficulties," he noted.

Previously, mainland authorities occasionally overlooked specific cross-border capital flows between Hong Kong and China unless they were illegal. Enforcement typically involved fines rather than more severe penalties. This softer approach, if reinstated, could foster a more thriving economic environment in Hong Kong.

About GFCI

The GFCI is a critical tool in ranking the world's financial hubs. It is developed from 145 distinct factors, which are quantitative measurements sourced from respected third-party organizations such as the World Bank, the Economist Intelligence Unit, the OECD, and the United Nations.

Additionally, the GFCI incorporates insights directly from industry professionals through an online questionnaire. For its latest edition, the GFCI collected 48,365 evaluations from 8,494 respondents, providing a comprehensive view of the perceptions and performances of financial centers around the globe.

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