Thread by @davidfickling

Tokyo is the forgotten financial capital of Asia. Could the troubles of Hong Kong give it a new lease of life? (thread):

bloomberg.com/graphics/2019-…

I've been working on a series of pieces about which cities in Asia could take on Hong Kong's mantle as a financial capital.

In brainstorming with colleagues, there was a weird omission.

Could it be Singapore? Shanghai? Mumbai? Seoul? Kuala Lumpur? Bangkok?

*No one suggested Tokyo*!

Which to me is bizarre.

World's biggest city.

Capital of its third-biggest economy.

Home to the third-biggest pool of pension assets, and the third-most traded currency.

This omission would have seemed very bizarre 20 years ago, when perceptions of Japan's decline were yet to set in.

Here's what YC Jao, an eminent Hong Kong finance professor, wrote in 1997: commons.ln.edu.hk/cgi/viewconten…

On a host of measures, Tokyo is still a huge player. Its equity market cap is bigger than Hong Kong. Pension assets vastly larger.

The claims that international bank branches have on foreign businesses -- one wonkish definition of "financial centre" -- are much bigger.

While FDI stock is smaller than either China or Hong Kong, that's largely I think because of the investment that China and Hong Kong do in each other.

Where you really notice the difference is not the *volume* of financial capital, but it's *pace*. IPOs and M&A are way down on Hong Kong, and it's *transactions* like these where bankers make their money. Tokyo is too high-cost & high-taxed to compensate for this sluggish income.

There's a lot of red tape, too. There have been serious efforts to reduce this and Tokyo is attracting more businesses gradually, but Japan is still, extraordinarily, at *number 106* in the World Bank rankings for ease of starting a new business, between Nigeria and Mexico.

On top of that you have a culture shock aspect. Having low taxes, live-in maids, and English as an official language is quite an important part of life for affluent Hong Kongers (not one I find very attractive, FWIW). You don't get any of those things in Tokyo.

And I think that highlights one of the real issues underlying this. What compromises do you have to make to attract a financial capital?

Hong Kong is one of the most unequal places on the planet. If you don't want that, then being "the next Hong Kong" maybe isn't for you.

All that said, the bankers would probably come back to Tokyo if the money was good enough. The problem is, Japan's capital is "old" and cautious. Overseas investment is mostly in other low-risk developed markets like Europe, North America, Australia.

The animal spirits that animate a place like Hong Kong have dissipated. With a third of the population over 60 and focused on getting a steady income from their investments, people aren't willing to take the risks that keep a place like Hong Kong thriving.

That's a worrying prospect not just for Japan, but for the world. Demographically, every rich country is heading the same way.

More worrying for Hong Kong, China itself is heading that way too -- and it probably won't be Japan-rich when it gets there. More on that another time!

Here's a link to a thread about Hong Kong, the first piece in this series:

https://twitter.com/davidfickling/status/1201341483518853121

Stories on Taipei and Singapore will be coming out over the next couple of days.

(ends)