Hong Kong's Financial Supremacy Threatened by Cross-Border Money Flow Obstacles

By Giuliano De Leon & Michael Lee

May 16 2024, 19:48 PM EDT

A tram passes by in the Central business district of Hong Kong on February 27, 2024, a day ahead of the city's annual budget to be announced on February 28. (Photo by Peter PARKS / AFP) (Photo by ) PETER PARKS/AFP via Getty Images

The financial dominance of Hong Kong is currently facing challenges, primarily due to difficulties in sustaining cross-border money flows within China's special administrative region.

Once a financial beacon in Asia, Hong Kong has been outranked by other countries. This means it is no longer the top financial empire in the Asian region.

In the Global Financial Centers Index report, Hong Kong is only ranked fourth after being overtaken by Singapore, London, and New York. The financial empire was also demoted to ninth by the EIU (Economist Intelligence Unit) for its business ecosystem.

According to the International Business Times, Hong Kong's financial power is declining because it faces a new problem: the strict regulations of the Chinese Communist Party.

Strict Foreign Exchange Controls Drastically Affect Hong Kong's Financial Sector

China is clamping down on cross-border money flows, drastically affecting clients, investors, and businesses. Among them is billionaire investor Mark Mobius, who said he struggles to transfer funds from his Shanghai HSBC account.

Centaline Property Group founder Shih Wing-Ching is also affected. He shared that his mainland clients are interested in purchasing properties in Hong Kong but cannot do so because they can't move their money out.

A number of Hong Kong insurance agents have recently disclosed that they've been fined by the State Administration of Foreign Exchange. Additionally, they've received calls from Jiang Yin Public Security Bureau, urging them to return to the mainland to aid in ongoing investigations. There's a looming threat of potential criminal charges for engaging in illegal business operations.

CCP supports Hong Kong in many ways, including initiatives such as the China Securities Regulatory Commission's "New Five Measures" and CEPA (Closer Economic Partnership Arrangement). However, China's strict foreign exchange controls have drastically affected Hong Kong's financial sector. But, CCP officials claimed that they didn't make any policy changes.

"There is no change in the country's policy on cross-border remittance of funds," stated a spokesperson from the State Administration of Foreign Exchange (SAFE).