The Hong Kong government has announced plans to develop the special administrative region into a private banking hub. However, Singapore is a step ahead, and Hong Kong may find it difficult to rival its neighbor, which is already being called the Switzerland of Asia.
Hong Kong has long been the capital market of Asia. It is also the primary hub for the internationalization of China's currency. Moreover, as the economic gateway to China, the Hong Kong financial sector benefits not only from high demand for cross-border corporate banking, but also from the vast number of wealthy Chinese looking to internationalize their wealth and escape the capital movement restrictions imposed by the state.
Mainland banking giants such as CITIC Bank and Industrial and Commercial Bank of China have international banking operations in Hong Kong. However, despite its proximity to the Chinese wealth market (forecast to grow by a CAGR of 7.8% during 2011-15 to a total value of $25.5tn in 2015, according to Datamonitor's Asia Pacific Wealth Markets Database), Hong Kong has been less active in its efforts (until now) to become an Asian private banking hub when compared to its closest wealth management rival, Singapore.
Both financial centers are well prepared to attract wealth management business. Singapore has a thriving derivatives foreign exchange market, while Hong Kong has an established fund management industry. Both remain attractive offshore banking centers due to established banking secrecy laws and an efficient legal system.
Hong Kong as a financial center does cater for the private banking industry, but it has not yet prioritized it as much as Singapore. The city-state has attracted Western clients leaving the increasingly regulated European markets, as well as the rapidly expanding South East Asian wealth market, by launching initiatives that pander to the post-crisis wealthy individual. Clients are increasingly looking for wealth managers they can trust, and in April 2011 Singapore launched a private banking code of conduct. Market professionals must now pass the Client Advisor Competency Standards assessment before they give advice to clients in Singapore. Singapore also boasts the Wealth Management Institute, which describes itself as "Asia's first centre of excellence for wealth management education."
Given the shortage of private banking professionals across Asia Pacific, Singapore with its educational infrastructure will lure clients and wealth managers alike. In a similar attempt to develop its private banking credentials, Hong Kong launched its own Certified International Wealth Manager qualification in mid-2011, but it is neither obligatory nor recognized in mainland China, restricting its uptake.
Despite Hong Kong's late start, it should not accept that Singapore has the upper hand. It is a question of geographies. A presence in Hong Kong allows wealth managers to serve mainland Chinese and Taiwanese clients. Singapore allows them to serve the rapidly growing South East Asian market. Neither market has seen weaker or stronger market activity than the other. Bank Sarasin & Cie, Barclays Wealth, and Julius Baer all opened new offices in Hong Kong in 2010. In 2011, both LGT Bank and Credit Agricole (Suisse) received full banking licenses form the Hong Kong Monetary Authority. Julius Baer also opened an office in Singapore in 2010, and Sarasin & Cie and Royal Bank of Canada have both launched trust companies in the city-state since 2010.
The only barrier that lies in Hong Kong's way is its relationship with China. Ties to the mainland are seen by some as a benefit, most clearly exemplified by its primary market status for the internationalization of the Chinese renminbi and the continuation of its laissez faire business environment, despite being under Chinese rule since 1997. Others see the relationship as placing Hong Kong at the mercy of China's fiscal policy, which may become more rigid if the economy slows significantly and capital controls have to be established.
Singapore has outpaced Hong Kong in the race for private banking development, but Switzerland beat them both to it. The two Asian financial centers have been able to watch the strategies undertaken and mistakes made by Western financial centers and act on them. Hong Kong should look at Singapore's actions and do the same.