Will Seoul gain from Hong Kong's pain?

By John Burton

The protests that have paralyzed parts of Hong Kong have raised questions about the city’s stability and its future as an international financial center. A key question is if long-term damage will be inflicted on the city because of continued unrest or a Chinese government crackdown and will foreign banks or other financial institutions reduce their presence and move some of their operations elsewhere in Asia?

The jury is still out on whether this will indeed happen, but the recent events in Hong Kong nevertheless provide a wake-up call for Seoul to burnish its credentials in hopes of attracting financial players if things continue to deteriorate in Hong Kong.

Although the protests in Hong Kong appear to be dwindling as I write this, it is pretty clear that the problems that have sparked the protests are not going away since they revealed longstanding and fundamental social divisions within the city, particularly the growing gap between rich and poor, which is exceedingly wide. Further unrest could undermine investor confidence in Hong Kong. In the long-term, the increased influence of Beijing in Hong Kong’s affairs threatens to corrode the local legal system, which has been one of the city’s core advantages in becoming an international financial center.

Singapore has often been mentioned as the most likely beneficiary of a financial industry exit from Hong Kong because of its well-established financial infrastructure and friendly attitude to foreign bankers and investors generally. The same applies to wealthy Chinese. “Rich Chinese fear pro-democracy protests may force Beijing to tighten its grip on Hong Kong, making it a less safe place to park wealth offshore. Wealth managers said Singapore, another popular offshore wealth center for the Chinese, will likely view the pro-democracy protests as an opportunity to grab business from Hong Kong,” the Wall Street Journal reported this week.

Singapore is seen as Asia’s leading financial center after Hong Kong, according to the latest Global Financial Centers Index (GFCI). But turmoil in Hong Kong could also provide an opportunity for Seoul if it wants to attract financial institutions that still need to do business in China. For one thing, the flight time between Seoul and Beijing and Shanghai is shorter than from Singapore.

Seoul can point to other advantages. After all, it was ranked as the world’s eighth most important financial center, according to the GFCI survey, and fourth in Asia after Hong Kong, Singapore and Tokyo and this assessment has been very stable over the years. The finding may seem surprising since foreign bankers working in Seoul often complain about what they see as an opaque regulatory system and limits on making profits.

But Seoul ranks among the top global players because it offers broad and deep financial services, while being connected with many other leading financial centers. Seoul’s rise as a financial center has been dramatic since the GFCI survey was first conducted in 2007 and it is now almost level with Tokyo. Seoul is particularly strong in the banking and insurance sectors and even its regulatory framework receives high marks despite the complaints by some foreigners. Where Seoul is still weak is in professional services, such as accounting and legal services, and attracting investment managers.

The GFCI survey said that when it came to business environment, Seoul ranked 8th, financial sector development 7th, infrastructure 6th, human capital 9th and reputation 10th among the top 16 financial centers. What is particularly encouraging for Seoul is that its reputation among financial professionals is rising based on the city’s appeal, level of innovation, cultural diversity and comparative positioning with other financial centers.

Given that Seoul already enjoys a good reputation, it should build on its favorable impression in attracting financial institutions. Perceptions about Seoul are important since lifestyle factors are key to attracting the sophisticated and cosmopolitan foreigners working in the financial industry. According to the latest Livability Rankings by the Economist Intelligence Unit, Seoul is on a par with Singapore, London and New York, although Tokyo and Hong Kong achieved higher ratings, with the latter now certain to fall.

Seoul is doing the right things in appealing to foreign professionals, such as expanding international schools. The city also has achieved a coolness factor, at least among Asians and some Westerners, because of the Korea wave of cinema, music and TV dramas, which will be instrumental in attracting younger expats. Blessed as one of the world’s most wired cities, Seoul must now tackle the conflict between its industrial age regulatory mindset and its advanced digital culture to achieve its full potential as a city that is “smart and sexy” to foreign investors.

John Burton, a former Korea correspondent for the Financial Times, is now a Seoul-based independent journalist and media consultant. He can be reached at john. burton@insightcomms.com.