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