Hong Kong returned to China 15 years ago, and its role as an international financial hub has since then been elevated and enhanced.

The City of London Corporation has published the Global Financial Centres Index twice a year since 2007, and most of the time Hong Kong has ranked behind only New York and London.

The development of Hong Kong's stock market remains robust. The number of companies listed on the Hong Kong Stock Exchange was 1,496 in 2011, up from just 658 in 1997, representing a total market capitalization of HK$17.5 trillion ($2.26 trillion), more than five times the HK$3.2 trillion of 1997. Meanwhile, the average daily turnover increased from HK$15.5 billion in 1997 to HK$69.7 billion in 2011.

Noticeably, Hong Kong's stock market has become an important platform for mainland companies to raise funds. Mainland companies represented less than 20 percent of the market capitalization and less than 40 percent of the market turnover in 1997. However, by 2011, 640 of the listed companies were from the Chinese mainland, registering a market capitalization of $1.25 trillion, or 55 percent of the total, representing more than 60 percent of Hong Kong's total equity market turnover. With large-sized State-owned enterprises being listed, Hong Kong ranked the world's largest initial public offering market in 2011, claiming the top spot for the third consecutive year.

Hong Kong has also helped facilitate the reform of mainland companies. Specifically, mainland companies have to make systemic changes to meet the listing requirements of the Hong Kong Stock Exchange and certain disclosure requirements and legal regulations. As investors worldwide hold stakes in the companies after they are listed, the companies have to take into account stakeholders' expectations and their business operations are subject to supervision. Through its strict requirements for governance structure and investment decision-making, the Hong Kong equity market has helped spur the transition of these mainland companies into modern corporations and sharpened their global competitiveness.

Hong Kong has also contributed to the mainland's economic development over the past 15 years, and the mainland's continued economic boom in the next few years will renew opportunities for Hong Kong. China promulgated its 12th Five-Year Plan (2011-15) last year and for the first time incorporated a chapter on the Hong Kong Special Administrative Region, which demonstrates its support for consolidating and enhancing Hong Kong's role as an international financial center and support for Hong Kong's development into an offshore yuan center and an international asset management center.

With the central government's support, Hong Kong will continue to facilitate the reform of mainland companies and serve the national "going out" strategy.

This strategy aims at, on the one hand, encouraging Chinese companies to expand their business overseas, and on the other hand, internationalizing the yuan. The 12th Five-Year Plan (2011-15) emphasizes expediting the implementation of the strategy, encouraging and guiding mainland companies to invest overseas.

The outbound direct investment made by mainland companies is thus expected to grow rapidly. Hong Kong remains a major center for overseas direct investment flows, and more than 60 percent of the mainland's overseas direct investment has gone to or through Hong Kong in recent years. The increasing ODI by mainland companies will generate great demand for finance and investment consultancy services, and Hong Kong is, and will remain, the strongest provider of such services.

Hong Kong has also played a key role in efforts to internationalize the yuan since it was established as an offshore yuan business center. The onset of the global financial crisis in 2008 and the ongoing European debt crisis have exposed the fundamental weaknesses of the current international monetary system and affected China's foreign trade and foreign exchange reserves. China is now the world's second largest economy and has good reasons to internationalize the yuan.

The current global economic landscape and China's immature financial system will continue to prevent the yuan from becoming a fully convertible currency any time soon. So the development of offshore yuan centers remains the ideal choice to orderly and gradually expand the international use of the currency. Hong Kong is now taking the lead in this, and the rapid growth in yuan-denominated business worldwide will continue to benefit Hong Kong.

Despite the aforementioned opportunities, concerns have arisen that Hong Kong's status as a global financial center is threatened by mainland cities especially Shanghai. However, their relationship is actually better defined as complementary and cooperative. China is a vast country with an economy large enough to accommodate two global financial centers.

The reality is, although Shanghai is the economic hub of the Chinese mainland with sound economic foundations and policy support, it still falls short of international standards in terms of institution building, especially legislative construction and financial liberalization. It is Hong Kong that serves as the bond connecting the Chinese mainland and the global economy, and its role cannot be replaced by Shanghai in the short term. Rather, its position as an international financial hub will be further consolidated and enhanced through its continued cooperation with mainland cities.

The author is dean of School of Business of the Hong Kong Baptist University.

(China Daily 06/29/2012 page11)