Abstract
Greater China has been separated and divided for over a century. The reunification of Hong Kong and Macao on the eve of the New Millennium has paved the way for Greater China to reunify as a single economy with a single internationalized currency. History shows that financial and monetary collaborations are essential to the future of Greater China in the global arena. We argue that collaboration might begin with a common board in Hong Kong, Shanghai and Taipei for Greater China enterprises to list and trade in one synchronized market. The common board would also facilitate public and private bonds in support of the infrastructural development and globalization of Greater China enterprises. Due to its established financial market, system and culture, Hong Kong would be the undisputed home of the Greater China Enterprises Board. Financial collaboration would advocate monetary alliance when the Chinese renminbi is fully convertible. When the time comes, the offshore renminbi based in Hong Kong would become the counterpart of the Eurodollar in London. The Asianyuan, as it might be called, would be the truly internationalized and globalized renminbi.
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Notes
The number includes Hong Kong and Taiwan enterprises. The latest (2012) figure is 81.
We define Greater China comprising the Mainland, Hong Kong, Macao and Taiwan, not including Singapore, because of historical reasons. However, as the proposed financial cooperation is mature, Singapore can join if and when it would like to do so.
Because Macao’s economy is comparatively small, it cannot afford to have a stock exchange, so it is not included in the stock markets synchronization proposal.
The yuan is the base unit of Chinese currency. The Asianyuan (or Chineseyuan) refers to the globalized renminbi domiciled in Hong Kong, like the Eurodollar domiciled in London. It is not the concept of “Asiancurrency” like the euro in Europe.
King William and Queen Mary co-ruled after the “Glorious Revolution” of 1688 and brought in the Dutch model to reform the British financial system. Capital markets flourished in London. The Industrial Revolution (1750–1850) would not have been possible without the support of a mature financial market in Britain.
Emperor Meiji (r.1868–1912) pursued political, social, economic and military reforms integrating Japanese traditions with Western values to build Japan as the first Asian industrialized country.
Banquet Royale issued legal tender to acquire the Mississippi Company, an overseas miner in Louisiana (then French territory). The bank went bankrupt when the company failed, crippling the French financial system.
The official CNY to USD rate at 9 August 2012 was 6.38.
The full title is An Ordinance for the Incorporation, Regulation, and Winding-up of Trading Companies and Other Association. The Mainland was 40 years behind (1904) in enacting a corresponding law.
The full title is An Ordinance to Amend the Law in Respect of the Sale of Shares in Companies Registered under the Companies Ordinance 1865–1886 and in Other Joint Stock Companies. Its intent was to protect investors from malpractice in shares trading like insider trading, manipulation and fraud.
The Companies (Sale of Shares) Regulations, 1915 was issued by the Foreign Office of the Great Britain.
The exchange rate was HKD16 to GBP1.
The statutory liquidity requirement is having qualified assets of 25 % of customer deposits repayable within 1 month. It allows foreign banks to borrow liquidity from their head office to meet the requirement.
The HKMA is the Office of Monetary Authority and not an institution.
It is a significant update, because arbitrage between the official HKD–USD rate and market rate with deposits with the “currency board” would more effectively maintain the official rate.
Like New York to the USD, Shanghai would be an onshore financial center and home of the CNY.
Third Plenum of the 11th Central Committee of the Communist Party held in December 1978.
The lease of the New Territories under the Second Convention of Peking 1898 would expire on 30 June 1997.
It lays down the arrangement of “one country, two systems” with a “high degree of autonomy” for Hong Kong for 50 years after reunification in 1997.
After corporatization, SOE may issue several classes of public shares: A-shares (denominated in CNY) traded on domestic exchanges and available to Chinese residents only; B-shares (denominated in USD) traded on domestic exchanges but available to foreign residents only; and H-shares (denominated in HKD) traded in Hong Kong or N-shares (denominated in USD) traded in New York.
The “three directs” between Hong Kong and the Mainland have been almost uninterrupted even during the Cultural Revolution (1965–72).
GDP to USD7298 billion. Per capita: USD5430.
The Qing court surrendered sovereignty to the Republic of China (ROC) under an Imperial Edict of Abdication on 12 January 1912. China separated in 1949 after civil war. Sovereignty was succeeded by the People’s Republic of China (PRC), and the Republic of China retreated to Taiwan.
The US suspended the convertibility of the dollar to gold in 1971, ending the fixed rate system under the gold exchange standard. The world has switched to a flexible rate system under the dollar exchange standard.
Taiwanese enterprises manufacture for global brands like Nike and Apple, and household brands like HTC and Acer.
There are two stock exchanges in mainland China, Shanghai and Shenzhen. As Shenzhen does not provide comprehensive financial services, it is not covered in this discussion. Moreover, the future relationship of these two exchanges would be a matter for the Mainland to resolve.
Parallel listing means listing status on both exchanges is primary with full privileges including fundraising. Secondary listing is trading of shares on the exchange only, without fundraising privileges.
Most debts were raised for military purposes, such as resistance against the Japanese invasion.
Conceptually, it is similar to the organization of the European Community. The Commission makes policies and rules. Member states ratify and legislate for execution.
The Western Allies of the US, Britain and France soon found the Soviet Union had a different agenda. Soviet-occupied territories including East Germany did not join the Marshall Plan. Germany was divided into two sovereign states. The West and the East waged a Cold War for 45 years until the reunification of Germany in 1990.
The EMU was a currency basket created as a unit of account (like the Special Drawing Rights of the IMF) for interstate settlements.
Reunification was realized in 1990 when West Germany offered to exchange the East German mark [commonly called the eastern mark] at par.
China needs a similar offshore site for the internationalized renminbi, and there is no better place than Hong Kong.
The recent incidents of malpractice in the panel of banks for setting LIBOR would bring in regular reviews of the quotation arrangement for better practice.
The exchange factor is insignificant for growth of 50 times.
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Acknowledgments
This paper is part of the Chiang Ching-kuo Foundation (Project Ref. No. RG012-P-10) and gratitude is given for its financial support. Thanks are also due to the anonymous reviewers for their valuable comments and to our research assistants, Ms Viola Cheung and Mr Chan Hing-fan, for their help in the gathering of data for drafting the paper.
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Zheng, V., Luk, R. Unity and Alliance: The Financial Future of Greater China. East Asia 30, 105–120 (2013). https://doi.org/10.1007/s12140-013-9189-4
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DOI: https://doi.org/10.1007/s12140-013-9189-4