:00:00. > :00:10.What makes a successful international financial centre?
:00:11. > :00:13.Why do a handful of centres like London and New York dominate
:00:14. > :00:17.Is there scope for new centres like Shanghai to take a piece
:00:18. > :00:42.Here in Singapore, I'm Linda Yueh, and we're Talking Business.
:00:43. > :00:48.Global financial centres like London and New York have existed
:00:49. > :00:51.for more than a century, but new centres are being boosted
:00:52. > :00:57.by governments such as China and Qatar to compete for business.
:00:58. > :01:00.Since the creation of the Eurozone, Luxembourg has seen its position
:01:01. > :01:01.as an international financial centre grow.
:01:02. > :01:04.It has attracted global banks, such as the big Chinese ones,
:01:05. > :01:12.to locate there in order to serve the European single market.
:01:13. > :01:15.I caught up with the Luxembourg Finance Minister, Pierre Gramegna,
:01:16. > :01:17.to discuss the challenges of being and remaining
:01:18. > :01:23.Our greatest advantage has been to always play the card of the European
:01:24. > :01:28.single market since the very beginning, and always being
:01:29. > :01:34.the first to translate legislation into the national one, I mean EU
:01:35. > :01:42.And that is, for example, what triggered the birth
:01:43. > :01:45.of the investment fund industry in the middle, end of the '80s,
:01:46. > :01:52.and so we developed the know`how quite quickly,
:01:53. > :01:55.and again here it was this speed and the openness that helped us.
:01:56. > :01:58.So today we are, after the United States, the largest investment`fund
:01:59. > :02:05.But there is still a high degree of competition, for instance London
:02:06. > :02:10.and Frankfurt getting clearing banks to allow them to trade RMB offshore
:02:11. > :02:16.with a clearing bank, CCB for London, Bank of China for Frankfurt.
:02:17. > :02:20.That must put Luxembourg at a disadvantage in a growing area
:02:21. > :02:29.I am just coming back from a mission to China in the last days, and I
:02:30. > :02:33.must say I'm very glad to report that the central bank of China has
:02:34. > :02:37.signed a memorandum of understanding with the central bank of Luxembourg
:02:38. > :02:41.to also allow Luxembourg to now do the clearing.
:02:42. > :02:46.So this is brand`new, and it will boost our role as a renminbi hub.
:02:47. > :02:50.In fact, we are, for the time being, already number one
:02:51. > :02:55.for the internationalisation of the renminbi.
:02:56. > :02:58.If we look at the listing of renminbi denominated bonds,
:02:59. > :03:01.we have 46 listed at the Luxembourg stock exchange,
:03:02. > :03:07.And also, if you look at the funds denominated
:03:08. > :03:11.in renminbi in the investment fund industry, we are also number one.
:03:12. > :03:16.So the market had already chosen Luxembourg to some extent,
:03:17. > :03:20.but now that it's the clearing possibility, I think we
:03:21. > :03:27.Let me also say that the Chinese have recognised very well that
:03:28. > :03:30.if you want to achieve something, and if you want to reach
:03:31. > :03:32.your goals, you better play on the market economy and the competition,
:03:33. > :03:37.I know one thing which Britain and Sweden and other countries are
:03:38. > :03:45.What are some of the changes that you are working towards within the
:03:46. > :03:51.Eurozone, and how might it affect these countries which don't have
:03:52. > :03:53.the Euro but have massive banking systems which are very integrated
:03:54. > :03:59.Well, I think, first of all, if you had asked me two years ago
:04:00. > :04:04.if I believed that Europe could achieve the banking union, most
:04:05. > :04:07.people, and me included, would have said that it's impossible to reach
:04:08. > :04:14.The same was said about the birth of the euro 25 years ago.
:04:15. > :04:17.So we have achieved something which is very difficult,
:04:18. > :04:21.and which has never been done in the past, is that countries that have
:04:22. > :04:25.the same currency, in this case the euro, will have a common umbrella.
:04:26. > :04:31.A common umbrella to supervise the banks, a common umbrella to protect
:04:32. > :04:34.deposits of the customers, and a common umbrella to deal with a
:04:35. > :04:43.banking crisis in one country, or in several countries in a common way.
:04:44. > :04:47.So to put it very simply, because banking is a complicated
:04:48. > :04:52.issue, if a bank in France has a problem, it will get the help of the
:04:53. > :04:57.single resolution fund of the whole of the banking union countries,
:04:58. > :05:02.If a bank has a problem in England, well, it can only count
:05:03. > :05:08.The same for Sweden, because they are outside of it.
:05:09. > :05:10.Mind you, the rest of the world is like that.
:05:11. > :05:13.You just depend on the country where you are located,
:05:14. > :05:17.and we have here done a piece of integration that's quite amazing.
:05:18. > :05:21.Now, there's been some criticism that it's not going far enough,
:05:22. > :05:27.So I think we have made a good compromise, and over the years it
:05:28. > :05:32.will prove that it stabilises the eurozone, that it gives back
:05:33. > :05:35.credibility to the banking system, because all the banks are going to
:05:36. > :05:41.be assessed, will have to undergo a stress test,
:05:42. > :05:45.and also all the assets of the bank going to be double checked.
:05:46. > :05:49.So I think the credibility of the banks in the eurozone will
:05:50. > :05:53.be increased, and last but not least, this will enhance
:05:54. > :05:57.Do you think that will enhance the role of Luxembourg
:05:58. > :06:01.as an international financial centre over, say, a centre outside
:06:02. > :06:06.Because from what you're describing, you have a much bigger backing
:06:07. > :06:09.for any banks that would get into trouble.
:06:10. > :06:12.That raises the security of the banks, so it sounds to me, by not
:06:13. > :06:17.joining, you're suggesting that the countries which are outside, their
:06:18. > :06:21.banking systems only have their own governments to rely on, and over
:06:22. > :06:26.time that doesn't sound to be a great position to be in.
:06:27. > :06:35.The British might answer that they prefer to have that independence,
:06:36. > :06:40.and they prefer to have their own currency, where they also have more
:06:41. > :06:44.influence where that currency stands and what role it plays.
:06:45. > :06:48.So it's a give and take that you have to make.
:06:49. > :06:54.For us, Luxembourg, there's no doubt that to be inside this umbrella is
:06:55. > :06:58.by far better, because it gives common rules, and these common rules
:06:59. > :07:03.are what investors outside, I suppose, want to see,
:07:04. > :07:10.What else is still coming down the line for eurozone?
:07:11. > :07:13.After the banking union, will there be a fiscal union?
:07:14. > :07:16.Will there eventually be a political union?
:07:17. > :07:20.Well, obviously, Europe has been built step`by`step.
:07:21. > :07:23.Even the banking union, which is now more or less put
:07:24. > :07:26.into place, with some treaties that needs to be ratified,
:07:27. > :07:32.it is not going to happen in one day, so it is a gradual effort.
:07:33. > :07:38.The same is probably true for fiscal union and political union.
:07:39. > :07:42.And one must have a measured approach to all these subjects.
:07:43. > :07:45.Fiscal matters, there is unanimity, I have to underline that, that means
:07:46. > :07:51.that countries have to accept fiscal union or have to accept changes
:07:52. > :07:57.in fiscal policies, which means again that this is the heart of
:07:58. > :08:00.sovereignty, and that is why this is a subject that has also been
:08:01. > :08:07.So my guess is that, in this field there's going to be
:08:08. > :08:14.Being a global financial centre can add substantially to
:08:15. > :08:19.London accounts for one fifth of Britain's GDP.
:08:20. > :08:22.Can existing financial centres hold onto their positions
:08:23. > :08:28.For instance, China is pushing to establish Shanghai as
:08:29. > :08:34.According to the Global Financial Centres Index, the top centres
:08:35. > :08:38.remain the long established cities of New York and London.
:08:39. > :08:40.Asian centres such as Hong Kong and Singapore are also
:08:41. > :08:45.Frankfurt and Luxembourg are just outside the top ten,
:08:46. > :08:49.while new centres like Shenzen and Shanghai are in the top 20.
:08:50. > :08:52.So can new entrants topple the existing centres?
:08:53. > :08:56.After all, London has remained a top financial centre despite the rise of
:08:57. > :09:02.What is needed for a global financial centre to
:09:03. > :09:05.hold onto its place, and which new centres could begin to redefine
:09:06. > :09:12.Here with me to discuss this are David Zemans, Asia managing partner
:09:13. > :09:15.of global law firm Milbank, and joining us from London is
:09:16. > :09:18.Chris Cummings, CEO of City UK, an independent body promoting
:09:19. > :09:31.David, you have worked with emerging markets,
:09:32. > :09:34.what are the key traits that make a successful financial centre
:09:35. > :09:36.from a new emerging markets perspective?
:09:37. > :09:39.I think the key is to be able to attract the best and the brightest.
:09:40. > :09:42.People who want to move here, whether individuals or company,
:09:43. > :09:45.both human and financial capital are very mobile these days.
:09:46. > :09:48.You need to create an environment where people want to come and they
:09:49. > :09:52.want to live, where they know there is financial, regulatory certainty,
:09:53. > :09:55.where they know when they've been offered something by the government,
:09:56. > :10:02.And Singapore, Hong Kong and other financial centres
:10:03. > :10:05.in the emerging centres have proven that this can happen.
:10:06. > :10:07.I think the real challenge over the next few years
:10:08. > :10:10.are going to be the more truly emerging markets of today,
:10:11. > :10:14.like Indonesia and Jakarta, Shanghai,
:10:15. > :10:16.if they can really follow through on these promises
:10:17. > :10:20.and make these places attractive in the long term.
:10:21. > :10:23.PK, what is it about, say, Singapore and Hong Kong that has
:10:24. > :10:25.allowed them to really rise very quickly to become leading centres
:10:26. > :10:28.against, frankly, centres that have been around for a century,
:10:29. > :10:32.Well, of course, the fact that they are in Asia,
:10:33. > :10:35.the fastest`growing part of the global economy,
:10:36. > :10:41.that there is some depth in their own financial markets.
:10:42. > :10:46.There is a very vibrant market in Hong Kong.
:10:47. > :10:54.Singapore has worked very hard on creating its own bond market.
:10:55. > :10:57.It is a kind of artificial bond market,
:10:58. > :10:59.but it's got a certain amount of vibrancy.
:11:00. > :11:02.And the competition in Asia has withered away.
:11:03. > :11:07.If you think about the lead up to the Asian financial crisis,
:11:08. > :11:10.Bangkok had the international banking facility.
:11:11. > :11:14.Kuala Lumpur was trying to become a financial centre.
:11:15. > :11:17.And they all decided that those ambitions were
:11:18. > :11:20.a little bit excessive post`Asian financial crisis.
:11:21. > :11:27.And so Singapore and Hong Kong were the survivors that grew rapidly.
:11:28. > :11:30.And the fact that they had some depth in their own markets,
:11:31. > :11:32.the fact that there was a lot of fund management
:11:33. > :11:37.going on in Hong Kong and Singapore, helped a great deal,
:11:38. > :11:41.Chris, outside of that competition, especially coming from Asia,
:11:42. > :11:47.can London hold onto its place as a leading financial centre,
:11:48. > :11:51.given, as PK says, the growth increasingly as coming from Asia?
:11:52. > :11:54.The challenge for London is actually not too see these
:11:55. > :11:57.financial centres as competitors, but as emerging partners.
:11:58. > :12:03.The reason that London has managed to maintain its position is by being
:12:04. > :12:08.relevant, by actually offering its expertise, whether that is in legal
:12:09. > :12:12.services, professional services, consultancy, banking,
:12:13. > :12:14.to help emerging financial centres really take advantage
:12:15. > :12:18.of the trade flows that we now see emerging.
:12:19. > :12:21.So, actually, that's why we take great credit and great comfort
:12:22. > :12:29.where the City of London was able to further its appeal
:12:30. > :12:32.as the RMB trading centre for the West.
:12:33. > :12:35.It is why we are so pleased that Islamic finance
:12:36. > :12:37.is now really taking hold in London as well.
:12:38. > :12:40.So it's about being relevant and offering expertise,
:12:41. > :12:45.PK, is that consistent with what you just said about Hong Kong
:12:46. > :12:49.and Singapore being the survivors and others sort of falling away?
:12:50. > :12:51.Do you see London and Frankfurt and Luxembourg as partners,
:12:52. > :12:55.or actually they are competitors in some sense, aren't they?
:12:56. > :12:57.Well, they are competitors, but they are also partners to some degree.
:12:58. > :13:01.The important thing about London in New York is that they have the lead.
:13:02. > :13:06.They have critical mass that almost nobody else has,
:13:07. > :13:09.so if you just compare London to Frankfurt or Luxembourg,
:13:10. > :13:13.the lead that London has is enormous.
:13:14. > :13:17.Frankfurt has been attempting to become the centre.
:13:18. > :13:21.It has the ECB, but it still is not a financial centre
:13:22. > :13:27.of anything like the size that London is.
:13:28. > :13:31.In Asia, we got Hong Kong and Singapore as emerging competitors.
:13:32. > :13:33.You have to think back to 20 years ago,
:13:34. > :13:40.when Tokyo was well ahead of both Hong Kong and Singapore.
:13:41. > :13:43.I'd say now in Asia there are really three centres,
:13:44. > :13:46.People often overlook Tokyo, but it still remains relevant,
:13:47. > :13:49.because it has the depth of its own capital markets,
:13:50. > :13:52.it has the depth of a liquid global currency,
:13:53. > :13:56.which is a slight disadvantage for Hong Kong and Singapore.
:13:57. > :13:59.Hong Kong, of course, doesn't really have a currency of its own,
:14:00. > :14:08.Singapore has to make its own way as a centre in Southeast Asia,
:14:09. > :14:12.as a global centre based in Southeast Asia,
:14:13. > :14:14.but trying to cater to the whole world.
:14:15. > :14:18.really pushing Shanghai as an international financial centre.
:14:19. > :14:22.I think the major problem for Shanghai
:14:23. > :14:26.is that China still doesn't have a convertible currency.
:14:27. > :14:29.There is the offshore renminbi market,
:14:30. > :14:34.is that it doesn't have a properly convertible currency,
:14:35. > :14:40.to have a global financial centre based in China.
:14:41. > :14:46.I see no reason why they should try to duplicate Hong Kong in Shanghai.
:14:47. > :14:55.a place where a lot of corporate headquarters are based.
:14:56. > :14:58.The financial centre is Hong Kong, and it is a pretty successful one.
:14:59. > :15:01.The Hong Kong currency is a genuine hard currency,
:15:02. > :15:08.The certainty that comes from having a convertible currency
:15:09. > :15:11.is what gives Hong Kong its edge, as well as, of course,
:15:12. > :15:15.the rule of law, predictability and all of the other things,
:15:16. > :15:19.transparency and so on, that make a financial centre.
:15:20. > :15:22.David, do you think that China can succeed here?
:15:23. > :15:24.Because they've had some regulations and some policies
:15:25. > :15:28.that have worried foreign investors in particular.
:15:29. > :15:32.I think Shanghai will no doubt be a huge financial centre.
:15:33. > :15:36.Whether it's a global financial centre is a different question.
:15:37. > :15:39.It will be huge, just because of the sheer size of the Chinese
:15:40. > :15:43.economy, huge because people have to be there because of that.
:15:44. > :15:46.But whether or not it actually attracts the best and the brightest,
:15:47. > :15:49.if it can sort out its regulatory issues,
:15:50. > :15:52.whether it can make Shanghai a place where people want to live.
:15:53. > :15:54.It is obviously a vibrant, exciting place,
:15:55. > :15:57.but pollution is a real issue, day`to`day living.
:15:58. > :16:02.If people, when they have an option to station their business,
:16:03. > :16:09.Is it going to have all of these buzzwords that we've talked about,
:16:10. > :16:14.you know, transparency, rule of law, consistency?
:16:15. > :16:17.I think that is, again, very much an open question.
:16:18. > :16:20.Chris, let me bring you in here, because Shanghai has clearly tried
:16:21. > :16:23.to position itself as an international financial centre.
:16:24. > :16:26.It would be good to get your take on that,
:16:27. > :16:28.but obviously the internationalisation of the RMB
:16:29. > :16:31.is transforming quite a lot of global business,
:16:32. > :16:35.that a lot of financial centres would want a piece of.
:16:36. > :16:39.Indeed, and that has been one of the success stories of London
:16:40. > :16:44.and the City of London has worked very hard to make itself relevant
:16:45. > :16:46.and interesting to the Chinese authorities,
:16:47. > :16:50.to make London the main RMB clearing centre in this part of the world.
:16:51. > :16:55.That is another good example of an emerging, aspiring partnership.
:16:56. > :16:59.But on the wider issue of China, there's no doubt that the size of
:17:00. > :17:03.the economy, business interest in doing business there,
:17:04. > :17:07.and the vibrancy of Shanghai means that there is great opportunity,
:17:08. > :17:11.and we have been really happy to work with Shanghai authorities
:17:12. > :17:15.to see the development of the Shanghai free`trade zone.
:17:16. > :17:17.But it does come down to the attractiveness
:17:18. > :17:21.of the location, both for businesses.
:17:22. > :17:23.Of course, we've seen that, because people want
:17:24. > :17:26.to be close to the market, but it is about the talent.
:17:27. > :17:29.Do people who want to have a global career
:17:30. > :17:32.want to be based in some parts of the world compares to others?
:17:33. > :17:37.people want to have that London stamp in their passport,
:17:38. > :17:41.because basically it means you can compete with the best in the world.
:17:42. > :17:44.And that is part of the hidden attractiveness
:17:45. > :17:50.But I do think there is a great deal that we can do to work
:17:51. > :17:52.with the Chinese authorities, particularly in Shanghai,
:17:53. > :17:55.and the other emerging free`trade zones,
:17:56. > :18:02.And that is actually how businesses will be attracted,
:18:03. > :18:07.beyond financial services, and to help the economy grow more stably.
:18:08. > :18:09.I want to do predictions now from the panel.
:18:10. > :18:12.We have talked about financial centres,
:18:13. > :18:15.what makes good practice, the challenges.
:18:16. > :18:23.what are your three leading international financial centres
:18:24. > :18:29.that will dominate the global financial services landscape?
:18:30. > :18:43.I'd start with London as being the major global financial
:18:44. > :18:46.It will look different, because of London's desire
:18:47. > :18:48.to continually reinvent itself to be attractive.
:18:49. > :18:52.But I'm going to plump for either a major Asian one...
:18:53. > :18:55.If you were to ask me to choose between Singapore,
:18:56. > :18:58.Hong Kong and Shanghai, perhaps there is a hub network there...
:18:59. > :19:08.I don't want to disappoint Chris by not mentioning London,
:19:09. > :19:12.and I think London will still say relevant, for sure,
:19:13. > :19:13.but I think New York will continue too,
:19:14. > :19:18.it will continue to be a mecca of talent
:19:19. > :19:27.I think that I would put my sort of outlier vote on Mumbai.
:19:28. > :19:31.I think that 50 years is enough time for a place like Mumbai,
:19:32. > :19:35.with such an enormous population, a well educated one by and large,
:19:36. > :19:38.English`speaking population, where I do think
:19:39. > :19:44.that world business being in English is very relevant,
:19:45. > :19:48.will hopefully find its way to that top three.
:19:49. > :19:50.And then I agree, actually, I think the battle
:19:51. > :19:55.I think that there are a lot of bets you could put down.
:19:56. > :19:59.I'm not sure where it will end up, I think it may be a miscue,
:20:00. > :20:01.rather than somebody doing something great.
:20:02. > :20:05.I think there is also a lot of exciting times ahead for Asia,
:20:06. > :20:07.but a lot of potentially volatile ones as well,
:20:08. > :20:10.and political and social and economic instability
:20:11. > :20:21.Well, 50 years is a very long time, I think that over the next 50 years
:20:22. > :20:23.the demographic advantage will ensure
:20:24. > :20:28.that an Indian financial centre emerges as quite important.
:20:29. > :20:31.So it could be Mumbai, it could be Delhi, it could perhaps be Calcutta.
:20:32. > :20:35.It is almost unthinkable at the moment,
:20:36. > :20:39.but you know, one of those, or perhaps even Bangalore.
:20:40. > :20:41.So one Indian financial centre among them.
:20:42. > :20:45.New York certainly will be among them, and I think that
:20:46. > :20:51.the third one will either be London or it will be Hong Kong,
:20:52. > :20:57.or perhaps Shanghai, Perhaps even Shenzen.
:20:58. > :21:01.a China financial centre of some significance.
:21:02. > :21:03.I think there will be four global financial centres,
:21:04. > :21:10.London basically has a huge lead, but it has a disadvantage
:21:11. > :21:18.in that it on currency, sterling, is a relatively minor currency.
:21:19. > :21:24.The euro will probably become of less importance
:21:25. > :21:26.as we look 20, 30, 40 years down the road.
:21:27. > :21:29.And so I think it will be a China financial centre,
:21:30. > :21:33.an Indian financial centre, and the US one.
:21:34. > :21:38.That was PK Basu, David Zemans and Chris Cummings from London.
:21:39. > :21:40.Being an international financial centre
:21:41. > :21:43.can be an important driver of economic growth.
:21:44. > :21:46.Once established, there is a longevity to financial centres
:21:47. > :21:50.such as London and New York, but to ensure that position it's essential
:21:51. > :21:54.to continue to adapt to the changing nature of global business,
:21:55. > :21:57.such as the growing use of the Chinese currency internationally.
:21:58. > :22:00.Also, there's more competition than before,
:22:01. > :22:05.as new centres, especially in Asia, are catching up fast.
:22:06. > :22:09.Check out our website and me on Twitter, I'm @lindayueh.
:22:10. > :22:14.Join us next time for more Talking Business with me, Linda Yueh.