“Hong Kong is back in business” is the message that the Special Administrative Region’s (SAR) government is keen to convey to the international community. To this avail, last month it established a new task force comprising prominent private and public sector individuals to advise on outward public communication.
Peter Burnett, current managing director at Standard Chartered Bank Hong Kong and former chair of the market’s British Chamber of Commerce, is part of this effort.
During an interview with FinanceAsia, Burnett offered his views on the territory’s successful reopening; how his professional roles to date have shaped his perspective of what the region can offer international participants; renewed investor interest in China; and the significance of Hong Kong’s role as a gateway to the mainland.
Excerpts from the interview are published below, with edits for clarity and brevity.
You are part of a new taskforce to promote Hong Kong internationally. How did this come about?
There's a recognition that the international perceptions of Hong Kong need to be addressed because we've been quiet for the last three years. We haven't been able to go out, and people haven't been able to come and visit us.
Efforts started last year with the Hong Kong Monetary Authority’s (HKMA) Global Financial Leaders' Investment Summit, in November. The event was the result of a push from the quasi-private sector for Hong Kong to begin to reopen, and it was very successful, with people travelling from all over the world to attend.
Now, with the further reopening of the borders, there's an acknowledgement that Hong Kong needs to do something to say, “we're back in business”. We need to demonstrate that everything's fine in the international financial hub – in fact, it may be even better than before.
Do you think Hong Kong’s status as a gateway to China has changed since the pandemic?
If anything, it's been enhanced.
When President Xi Jinping came to Hong Kong for the 25th anniversary of the handover, he conveyed a number of important messages including confidence in the policy of “one country, two systems”; in the operation of common law; and in the capitalist system for Hong Kong. He even suggested that the state of affairs might extend beyond 2047. I think this has reinforced Hong Kong's position and has allowed the market to become an even more important conduit for international finance.
From your experience as chair of the British Chamber – a role you held until September – how do you view the sentiment among foreign corporates operating in Hong Kong today?
Many British Chamber members, have deep historic roots in Hong Kong and very large domestic businesses here. Hong Kong is a critical market, and by extension, so is the mainland. These businesses are not going anywhere – each is happily entrenched in the market and part of the community. We should see significant upside as business comes back.
Hong Kong was hit by a fifth wave at the beginning of 2022. We went from zero cases of Covid-19 in December 2021, to 75,000 cases per day at peak in February last year. Those were dark days – they impacted business sentiment – not just internationally, but across the business community in general.
There were lifestyle decisions taken by a few people to leave Hong Kong, but I think we're beginning to witness a reversal now. Business operations are returning.
Some companies decided to relocate their regional headquarters, but most of these were involved in manufacturing around the wider region. They weren’t reliant on the built-out ecosystem of financial institutions, lawyers, accountants, consultants and advisors which would be difficult to recreate elsewhere and that operate so effectively in Hong Kong.
Businesses that rely upon and need access to this ecosystem need to remain present.
Reports suggest that global investors are regaining interest in China following the recent (and sudden) reopening. Do you agree, and where do you see investment opportunity?
Definitely – just look at the difference in valuations between China and India at the moment. These are very sentiment-driven and have been affected by concerns around China’s Covid-19 policy, and its recent emergence from the pandemic. There’s value available in China.
If you think about the policy response of China’s Central Economic Work Conference (CEWC), which is the working committee that looks at economic policy at the end of every year, the clear priority is economic recovery. Everything else appears to be secondary.
One key concern is getting the real estate sector up and running again, because it's a significant component of the mainland’s economy.
Additionally, there is a big focus on properly regulating technology companies, encouraging inward investment, and making sure that the government addresses the job situation sensibly and carefully. Added to this, is the market’s accommodative monetary policy. All of these elements send a positive message about the opportunity available in China and I'm hopeful that we will see this reflected in stock market recovery.
In terms of sectors, without a doubt there's a huge investment focus on growth areas, such as innovation and technology. I suspect this also applies to certain types of real estate, for example logistics.
Residential real estate remains difficult. It is where the problems lie, but policymakers are encouraging restructuring and M&A alongside more targeted lending in these businesses, which should lead to a ripple effect across all of the supply chains involved in the property sector.
What are you seeing in terms of the development of the Greater Bay Area (GBA)?
A negative consequence of the pandemic was that part of the GBA’s development was put on hold, or it was certainly restrained, as we couldn’t travel easily across the boundary to the mainland.
Hong Kong-based businesses that trade in intellectual property rather than goods or manufacturing fared ok. Financial services, for example, saw improvements with the expansion of the Connect Schemes. These were initially slow to get off the ground, but with China's recovery, we expect them to grow.
How do you assess Hong Kong’s potential as a green finance centre?
The development of green finance is a global work in progress. We need to align reporting standards and have access to a common taxonomy. That said, standards in Hong Kong are already pretty high; better than in some other developed markets.
There's been a massive push from both regulators and the private sector to establish Hong Kong as a sustainable finance centre. The components required to succeed include capital – or access to capital – which we have in abundance; risk-taking; proper regulation; and crucially, opportunity, which increasingly, will come from the mainland.
There were two very large sustainable dim sum bonds last year from Shenzhen and Hainan Provinces, at about 5 billion yuan ($775 million) apiece. These local governments could have raised renminbi in the mainland, but they wanted to pursue these issuances in Hong Kong because of its clear status as a developed market for sustainable finance.
At Standard Chartered, last year we did a very interesting deal, a sustainable loan, for the West Kowloon Cultural District Authority, which was a first for a cultural centre. There have been a number of bond issuances by Hong Kong companies like MTR, as well.
There is a lot happening in Hong Kong and much more to come.
In January, you spoke at the Asia Financial Forum (AFF) on fintech disruption. How can banks and other legacy players remain relevant in the face of fast change?
The thing that fintech has always had in its favour, is easy access to start-up capital and hence, an environment that has allowed risk-taking with few financial consequences.
But this has changed in the last three months. We've seen private sector fintech valuations calibrate downwards as companies have raised new finance or offered stock options to employees. They are also facing the reality of having to provide financial returns to investors. Incumbent banks, meanwhile, continue to have to supply a return on equity (ROE) to their investors.
I think we're beginning to see that these two entities can live symbiotically. I don't think they're mutually exclusive; they can work together.
The incumbents have some advantages – in our case, it’s 160 years of history. While on the one hand, this is something that has the potential to burden us with legacy, on the other, it offers very deep and long-established client relationships.
As a longstanding regulated entity, we also know how to deal with regulation, embrace it, manage and apply it. Of course, we also have capital, and we know how to do what banks have always done - to convert short-term bank deposits into long-term lending. Fintechs have an innovative and entrepreneurial mind-set combined with exciting and ground-breaking technology.
In order to add value, fintechs need to come together with incumbents. This, I think is going to be the model going forward.
Is an e-HKD in the pipeline anytime soon?
We are involved in a central bank digital currency (CBDC) programme, Project mBridge, which involves participation from the HKMA, the Digital Currency Institute of the People’s Bank of China (PBOC), the Bank of Thailand (BOT), the Central Bank of the UAE (CBUAE) and the Bank for International Settlements (BIS) Innovation Hub, as well as other commercial banks. It has achieved proof of concept; we've shown that the technology works.
The next step is how to scale it.
Hong Kong can develop its own CBDC, the e-HKD. What this should do is enable the instantaneous transfer of money, which we’ve already achieved domestically through our faster payment system.
Next, what Hong Kong should aim for is to work internationally to see how, as an international financial centre, it can connect and speed up cross-border payment systems through CBDCs.
What is your outlook for Hong Kong’s capital markets in 2023?
The Hong Kong Exchanges and Clearing Market (HKEX) CEO, Nicolas Aguzin, is very hopeful.
I understand that there is a backlog of deals that did not get done last year because markets were not propitious and it was difficult to execute IPOs in Covid-19 isolation. So, I expect 2023 will be better than 2022, though that’s not a very high bar. To some extent, performance will depend on what happens in the interest rate markets and broader equity and bond markets.