Hong Kong <i>and</i> Shanghai

Robert N. McCauley and Eric Chan

in Financial Sector Development in the Pacific Rim

Published by University of Chicago Press

Published in print April 2009 | ISBN: 9780226386843
Published online February 2013 | e-ISBN: 9780226386867 | DOI:
Hong Kong and Shanghai

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This chapter argues that Hong Kong will gain stature as an international financial center when China is more open financially and Shanghai returns as a competing center. The analysis is in three parts. Section 1.2 builds on the analysis of 1900 to 1980 in Reed (1981) to demonstrate that Hong Kong ranked higher among international banking centers in the twentieth century when China was financially open, that is, before and just after the Second World War. Section 1.3 emphasizes the current gap between Hong Kong and Shanghai, especially in the trading of foreign exchange and derivatives. The value of Hong Kong's legal and regulatory institutions is discussed by reference to the gap between the valuations of firms listed on the Hong Kong and Shanghai stock exchanges. Section 1.4 draws on Lane (2000) and Cheung et al. (2006) to fit a Kuznets curve relating international banking assets and liabilities to real income and openness in order to assess the potential growth of China's international banking activity. A final section concludes that China's financial opening and Shanghai's consequent reemergence as an international financial center promise to raise Hong Kong's standing vis-à-vis London and New York.

Keywords: Hong Kong; Shanghai; international financial center; China; stock exchanges; foreign exchange; derivatives; banking

Chapter.  14264 words.  Illustrated.

Subjects: Business and Management

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