Module 18 International Financial Centre PDF

Module 18 Life Exploring International Financial and Society Centre & Economic Activities Resources 1 Module 18 Int...

Module 18 Life Exploring International Financial and Society Centre & Economic Activities Resources 1 Module 18 International Financial Centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 2 Module Explorer Carefully study the following photos and answer the questions. 1 What industry do the above organisations engage in? 2 What is the importance of that industry to the Hong Kong economy? Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 3 Key Point 1 As an international financial centre 1.1 Hong Kong being an international financial centre ❖ Finance refers to the channeling of capital. This includes raising, managing and investing of capital. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 4 Key Point 1 As an international financial centre ❖ International financial centre is a place for channelling capital, which must have: Many large multinational financial institutions such as banks and insurance companies providing a wide range of financial services, including deposits, loans, securities trading and insurance services; Major financial markets like stock market and foreign exchange market for the transaction and circulation of various financial products. Frequent and large-scale financial activities are found. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 5 Key Point 1 As an international financial centre A comparison between international financial centres Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 6 Key Point 1 As an international financial centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 7 Key Point 1 As an international financial centre 1(a) According to Info. 1, compare the scale of Hong Kong’s stock market with that of other major stock markets. Answer According to Info. 1, the market capitalisation of Hong Kong’s stock market is far lower than that of New York, but it is close to that of Tokyo and London. This shows that the scale of Hong Kong’s stock market is comparable with that of other major stock markets in the world. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 8 Key Point 1 As an international financial centre 1(b) According to Info. 2, compare the amount of financial activities in Hong Kong’s stock market with that in other major stock markets. Answer According to Info. 2, the Hong Kong Stock Exchanges raised a total of $595.5 billion in 2010. It was ranked fourth in the world, following major stock markets such as New York and London. This shows that the amount of financial activities in Hong Kong is quite large. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 9 Key Point 1 As an international financial centre 1(c) According to Info. 3, are there many foreign banks and large multinational financial institutions operating in Hong Kong? Explain your answer. Answer Yes. By July 2014, among the 159 banks operating in Hong Kong, 138 (about 87%) of them are foreign banks. Moreover, 70 out of the 100 largest banks in the world have set up branches in Hong Kong. It can be seen that many large multinational financial institutions operate in Hong Kong. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 10 Key Point 1 As an international financial centre 1(d) Based on the answers to the questions above, is Hong Kong an international financial centre? Explain your answer. Answer Yes. The scale of Hong Kong’s stock market is comparable with that of other major stock markets. This shows that it has a major stock market. Moreover, in terms of the capital raised, it has a high ranking in the world. This implies that large-scale financial activities are found in Hong Kong. In addition, many multinational financial institutions set up branches, some of which are large in scale, here. In sum, Hong Kong has the conditions for being an international financial centre. (Or other possible answers) Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 11 Key Point 1 As an international financial centre 2 What is the importance of being an international financial centre to the Hong Kong economy? Answer Being an international financial centre can promote Hong Kong’s economic development and raise people’s living standard. Therefore, it is closely related to us. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 12 Key Point 1 As an international financial centre ❖ Being an international financial centre, Hong Kong has the following features: There are many large multinational financial institutions; Its stock market is large in scale; It is ranked high in the world in terms of the amount of capital raised. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 13 Key Point 1 As an international financial centre ❖ According to the ‘Global Financial Centres Index’ made by the London-based think-tank Z/Yen, Hong Kong was ranked third in 2014, following London and New York. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 14 Key Point 1 As an international financial centre 1.2 Factors contributing to Hong Kong becoming an international financial centre Background Information The decline of Hong Kong’s manufacturing industry in the 1980s Hong Kong’s manufacturing industry thrived in the 1960s and 1970s. However, it has declined since the 1980s due to: ❖ Production costs in Hong Kong have been rising, while those in the mainland of China and some Southeast-Asian countries were relatively low. Therefore, many Hong Kong factories relocated their production lines to these places; Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 15 Key Point 1 As an international financial centre Background Information ❖ Hong Kong’s manufacturing industry relied on exports heavily. However, the economic recession in Europe and the US in the 1980s reduced their demand for Hong Kong goods; ❖ To protect local industries, some countries imposed trade restrictions like tariffs and quotas on imported goods. Hence, Hong Kong’s export volume fell; ❖ Hong Kong did not develop high-tech industries. Its high-tech manufacturing industry hence lags behind South Korea and Taiwan, etc. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 16 Key Point 1 As an international financial centre Hong Kong’s comparative advantage in developing its financial industry Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 17 Key Point 1 As an international financial centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 18 Key Point 1 As an international financial centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 19 Key Point 1 As an international financial centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 20 Key Point 1 As an international financial centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 21 Key Point 1 As an international financial centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 22 Key Point 1 As an international financial centre 1 Refer to Info. 1. Explain the historical factors contributing to the rapid development of Hong Kong’s financial industry since the 1980s. Answer The mainland reformed and opened up in 1978. It encouraged foreign enterprises to invest there. Many foreign enterprises used Hong Kong as a stepping stone to investing in the mainland. Therefore, the development of Hong Kong’s financial industry was promoted. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 23 Key Point 1 As an international financial centre Answer Hong Kong’s stock market was rather mature. It has attracted many Chinese enterprises to list in Hong Kong for raising capital since the 1990s. This contributed to the development of Hong Kong’s stock market. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 24 Key Point 1 As an international financial centre 2 Refer to Info. 2. Explain the comparative advantages of Hong Kong’s financial market. Answer In Hong Kong, information spreads freely. People can get financial information quickly and make investment decisions. Moreover, Hong Kong’s financial market bridges the two international financial markets in New York and London. This enables financial activities to be carried out 24 hours a day. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 25 Key Point 1 As an international financial centre 3 Refer to Info. 3 to 5. Explain how Hong Kong’s investment environment is favourable to the development of its financial market. Answer The regulatory system for financial services in Hong Kong is comprehensive. Different institutions are responsible for different areas. For example, the Hong Kong Monetary Authority is responsible for monitoring the banking industry and ensuring healthy development of the financial industry. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 26 Key Point 1 As an international financial centre Answer Moreover, Hong Kong’s tax rates are low and the tax system is simple. There is no foreign exchange control. This encourages foreign enterprises (including financial institutions) to operate and carry out financial transactions in Hong Kong. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 27 Key Point 1 As an international financial centre Answer Hong Kong is ranked 15th in the Corruption Perception Index over the world in 2013. The ranking is quite high. This shows that corruption is rare in Hong Kong. Enterprises can operate and invest in a fair environment. Enterprises in Hong Kong enjoy enough legal protection such as the contract law and the property law. This provides an ideal business environment. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 28 Key Point 1 As an international financial centre 4 Refer to Info. 6. Describe how Hong Kong people’s educational level changed in the 1990s and explain how this affects the development of Hong Kong’s financial industry. Answer The population aged 15 or above who have received tertiary education rose in the 1990s. It increased greatly from 11.4% in 1991 to 17.7% in 1999. This shows that Hong Kong people’s educational level has risen significantly. This has provided financial industry with plenty of highly educated professionals such as bankers and analysts. This helps develop Hong Kong’s financial industry. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 29 Key Point 1 As an international financial centre 5 In your opinion, among all the factors, which is the most important factor to make Hong Kong become an international financial centre? Explain your answer. Answer Free answers (E.g. A good investment environment is the most important. It helps investors to earn a good return. The comprehensive regulatory system for financial services in Hong Kong gives investors confidence in Hong Kong’s financial market. Low tax rate, a simple tax system and the absence of foreign exchange control also attract foreign capital. This makes Hong Kong become a cluster of foreign capital.) Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 30 Key Point 1 As an international financial centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 31 Key Point 1 As an international financial centre 1.3 Effects on the Hong Kong economy and people’s livelihood Hong Kong being an international financial centre brings the following effects to the local economy and people’s livelihood: ❖ Promote economic growth The development of its financial industry contributes greatly to Hong Kong’s economic development. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 32 Key Point 1 As an international financial centre Between 2000 and 2012, the percentage of financial industry’s production value to GDP has shown an upward trend. This shows that the financial industry has become more important to the Hong Kong economy. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 33 Key Point 1 As an international financial centre ❖ Support other industries The financial industry provides different types of financial services including loan, currency exchange, remittance, insurance, etc. Therefore, Hong Kong being an international financial centre can support and promote the development of different industries. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 34 Key Point 1 As an international financial centre ❖ Provide employment opportunities The thriving financial industry brings many employment opportunities to people. At the end of 2012, there were 220 000 people engaging in the financial industry. This represents 6.3% of total employed population. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 35 Key Point 1 As an international financial centre Between 2000 and 2012, the ratio of people working in the financial industry to total employed population has shown an upward trend. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 36 Key Point 1 As an international financial centre Developing the financial industry brings good only? Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 37 Key Point 1 As an international financial centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 38 Key Point 1 As an international financial centre Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 39 Key Point 1 As an international financial centre 1 How are grass root workers affected by Hong Kong becoming an international financial centre? Explain with reference to Info. 1. Answer Highly educated and skill labour is required when Hong Kong focuses on developing its financial industry. As former manufacturing workers do not have the related skills, they have become unemployed. Some workers have switched to work in the low-end service industry and earn a lower wage. This worsens their living standard and may lead to poverty easily. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 40 Key Point 1 As an international financial centre 2 Info. 2 shows another effect of Hong Kong becoming an international financial centre. Explain this effect. Answer Info. 2 shows that the percentage increase in the real wage of the financial industry between 2004 and 2013 was much higher than those of other industries. This is because Hong Kong developing the financial industry has increased employers’ demand for financial professionals. Therefore, their pay rise was much higher than those of other industries. This has widened the income gap between labour in different industries. Income inequality has become more serious. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 41 Key Point 1 As an international financial centre 3 (a) Refer to Info. 3. What were the effects of the financial tsunami on the Hong Kong economy? Answer The financial tsunami caused layoff in the financial and other related industries. This worsened Hong Kong’s unemployment problem and its economy hence contracted. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 42 Key Point 1 As an international financial centre 3 (b) Explain why the financial tsunami would cause the effects above. Answer Financial industry is one of Hong Kong’s major industries and hires many employees. It is crucial to the economy. The financial industry was hit hard by the financial tsunami. Large-scale layoffs therefore resulted. This caused negative effects to the Hong Kong economy and its labour market. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 43 Key Point 1 As an international financial centre ❖ Financial industry also have negative effects: Under economic restructuring, former manufacturing workers become unemployed or can only switch to low-end service industry as they lack related skills. This leads to lower wages and living standard; The demand for highly educated and skilled labour increases and the wages of these workers become much higher than those of less educated and unskilled workers. The income gap is widened; When the financial industry is hit hard by external factors, Hong Kong’s economy and labour market will be negatively affected. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 44 Key Point 1 As an international financial centre 1.4 Importance of Hong Kong being an international financial centre, the challenges it faces and the solutions ❖ Financial industry is the pillar of the Hong Kong economy. It affects Hong Kong’s economic development and employment market greatly. ❖ Therefore, Hong Kong should strengthen its position as an international financial centre. ❖ However, Hong Kong faces many challenges and competition. Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 45 Key Point 1 As an international financial centre The challenges Hong Kong’s financial industry faces and the remedies Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 46 Key Point 1 As an international financial centre The challenges Hong Kong’s financial industry faces and the remedies Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 47 Key Point 1 As an international financial centre 1 According to the newspaper clipping above, which two countries / cities are Hong Kong’s major competitors? What favourable conditions do these places have respectively so that they can compete with Hong Kong’s financial industry? Explain your answer. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 48 Key Point 1 As an international financial centre Country / Answer Condition City It actively develops infrastructure such as communication network to help the flow of information and the development of its financial industry. Singapore By developing higher education, it can provide the financial industry with plenty of highly educated talents. This helps promote the development of its financial industry. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 49 Key Point 1 As an international financial centre Country / Answer Condition City The further opening-up of its financial industry may cause some of Hong Kong’s financial activities to lose to the mainland. This will weaken the importance of Shanghai Hong Kong’s financial industry to the world. Since it benefits from the mainland’s rapid economic growth, business opportunities can be found everywhere. This can attract foreign investment. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 50 Key Point 1 As an international financial centre 2 Apart from facing competition, what other difficulties does Hong Kong’s financial industry have? Explain with reference to the newspaper clipping. Answer Hong Kong’s rent and labour costs are high. This will lower foreign financial institutions’ incentive to invest in Hong Kong. (Or other possible answers) Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 51 Key Point 1 As an international financial centre 3 Facing the above challenges, what solutions does Hong Kong have? Make some suggestions with reference to the newspaper clipping above. Answer Hong Kong can cooperate with mainland cities (e.g. Shanghai) to a greater extent and then carry out division of labour. As Hong Kong bridges the mainland and the world, it can develop its financial business. For example, it can bring capital to mainland enterprises. Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 52 Key Point 1 As an international financial centre Answer The government can use more resources to train financial talents, or make policies that attract foreign financial talents. The government should carry out policies to control rent and labour costs. This can increase foreign financial institutions’ incentive to invest in Hong Kong. Besides legal framework, Hong Kong should also strengthen its financial regulatory system. The quality of practitioners should also be raised to avoid dishonest practices. This can increase investors’ confidence in Hong Kong.(Or other possible answers) Exploring Life and Society © Times Publishing (Hong Kong) Ltd. Module 18 International Financial Centre 53 Key Point 1 As an international financial centre ❖ Hong Kong’s financial industry faces the following challenges: Exploring Life and Society © Times Publishing (Hong Kong) Ltd Module 18 International Financial Centre 54 Key Point 1 As an international financial centre ❖ Facing the challenges above, Hong Kong should respond actively: Exploring Life and Society © Times Publishing (Hong Kong) Ltd