Originally published in the New Zealand Herald
Earlier this year I travelled to Hong Kong to attend the Asian Financial Forum.
The forum, now in its 12th year, brings together financial and business leaders, global policymakers and financial regulators from over 40 countries and regions.
While the theme of the Forum this year was “creating a sustainable and inclusive future,” it was unsurprising this was clouded by the uncertainty hanging over the United States-China trade negotiations, fears of growing protectionism, populism and wider geopolitical tensions.
In her opening address, Hong Kong’s chief executive Carrie Lam wished attendees success in finding innovative new ways to excel in 2019 — but acknowledged it will likely be a considerable challenge this year.
She was, of course, referring to the trade discord between the world’s two largest economies — as well as lingering uncertainties in other parts of the world.
“For many economies — including Hong Kong — moderated growth and, for many companies, diminished business and financial results appear inevitable,” she said.
The more than 3300 attendees agreed — the audience were given the chance to vote on sentiment throughout the forum.
When asked about the outlook for the global economy in 2019, just 15 per cent of respondents were optimistic; 47 per cent were pessimistic. This is in dramatic contrast to the 2018 Forum, where 58 per cent were optimistic and just 6 per cent were pessimistic
A follow-up question asked the source of risk for global financial stability this year: US-China trade tensions came out on top with 77 per cent of respondents.
This was followed by monetary policy normalisation (10 per cent), cyber breaches and security risks (7 per cent) and Brexit and fiscal discipline in the European Union (6 per cent).
Perhaps in light of the concern around China uncertainty, attendees at the forum felt that Southeast Asia offered the best guarantee of investment return for 2019 (39 per cent). This was followed by China (35 per cent), the United States (16 per cent), Japan (3 per cent) and Western Europe (2 per cent).
Hong Kong’s Financial Secretary Paul Chan said that global uncertainty weighs heavily on global investment and business sentiment, and adds downside risk to economic growth and increased volatility in financial markets.
Although Hong Kong is part of China under the “One Country, Two Systems” principle, it has distinct advantages for attracting investment — including operating with a strong rule of law based on English common law, independence of the judiciary, a simple tax system, and respected intellectual property protection.
Chan said Hong Kong’s position as the freest economy in the world comes with an assurance that protectionism won’t happen there.
“We support free trade and the multilateral trading system, as well as the free flow of capital, people and information.
“Indeed, it is the cornerstone of our economy,” he says.
“The International Monetary Fund has commended Hong Kong’s prudent macroeconomic policies.
“The fund noted that our long-standing buffers will help Hong Kong maintain stability despite the increasing risks confronting global growth.”
He noted that the Government is enhancing the regulatory regime and the resilience of the financial markets to help Hong Kong maintain financial stability amid heightened external uncertainties.
But US-China trade tensions, the economic slowdown in China, cooling property prices and volatility in the stock market have had a demonstratable impact.
The trade-reliant Hong Kong economy expanded at just 1.3 per cent in the fourth quarter of last year — significantly down on the 2.9 per cent GDP growth recorded in the third quarter.
Export growth was near-zero, a dramatic decrease from the 6 per cent average in the first three quarters. Retail sales were also down.
Denis Beau, First Deputy Governor of the Bank of France, told the forum: “the world economy is facing a maturing financial and economic cycle, but we are far from a downturn”.
Overall, financial intermediaries were much better equipped to withstand shocks than during the financial crisis in 2008.
Burkhard Balz, executive member of Deutsche Bundesbank (Germany’s central bank) said uncertainty was significantly higher than 20 years ago — due to disintegration (referencing Brexit), political disturbances and trade tensions — but “by historical standards, volatility is not high”.
Other keynote speakers, including Vice-President of the China Banking and Insurance Regulatory Commission, Wang Zhaoxing, recognised that despite the challenges, there were still many opportunities.
He was confident the Chinese economy would remain stable because of the potential for supply and demand in the country and said although the opening up of China’s banking and insurance sector had so far been gradual, President Xi announced an acceleration which has been welcomed globally.
Wang said China’s central government would focus on five key areas this year: the real estate market, local government debt, the influence of global markets, monetary policy in developed countries, and the trade relationship between China and the United States.
“China will continue to work with other Asian countries to strengthen collaboration and promote the development of the Asian economy and financial markets,” he said.
In response to the Forum’s theme, participants were polled on what the biggest challenge was to achieve a sustainable future globally.
A total of 43 per cent said it was a “reluctance to trade higher cost today for better sustainability for future generations”.
This was followed by “reluctance by some governments to adopt policies for sustainable development” (23 per cent), “insufficient attention to environmental, social and governance factors in asset markets” (21 per cent), “lack of financially viable green projects” (10 per cent), and “lack of green funding” (3 per cent).
Tim McCready travelled to the Asian Financial Forum as a guest of the Hong Kong Government.