The Financial Networks of Hong Kong

Brown University, Providence RI

Investigators

Abstract

Many of the world's most important financial firms choose Hong Kong as their Asian regional headquarters. However, the drama of Hong Kong's return to Chinese sovereignty in 1997 and subsequent threats to the city's future have led many observers to question the future of Hong Kong as the most important financial center of Asia and as China's window to global capital. This research project analyzes decision making and behavior of leading foreign financial firms and their financiers in commercial and investment banking, money management, and private equity, which operate in Hong Kong. The thesis is that foreign firms will, by and large, maintain their Asia-Pacific headquarters in Hong Kong, because it is the pivotal meeting place in Asia of the networks of capital, especially of the Chinese and foreign financiers. The research draws on related theoretical frameworks-knowledge communities, social networks, and communities-of-practice-to formulate the hypotheses about Hong Kong firms and their financiers. The study examines seventy leading firms covering the four financial sectors, and key financiers in each firm. Data from the firms and interviews with their senior financiers will provide evidence about the firms' approaches to financial networks and about financiers' behavior-their participation in knowledge communities, social networks, and communities-of-practice. Interviews will be digitally recorded and transcribed and analyzed using qualitative software. Supplementing these qualitative data, extensive evidence from Hong Kong sources and international business directories will provide data for a more comprehensive set of financial firms regarding their management bases in Asia. The international business press will be used to collect diverse anecdotal evidence about the behavior of financial firms and their strategies for operating in Asia, and it provides insights into prominent financiers. The objectives of this project are to develop generalizations about the decision making and behavior of leading foreign financial firms in Hong Kong and to determine the consequences for the city's status as a global financial center. Thus, this research will address important theoretical and policy questions about global city financial networks and the long-term viability of global financial centers. The interrelated theoretical frameworks-knowledge communities, social networks, and communities-of-practice-in conjunction with empirical findings, will be used to suggest a theory of global city financial networks. This study of foreign financial firms and their leading financiers in Hong Kong presents a unique opportunity to explain the operation of global financial centers and the business networks which underpin them. The drama of Hong Kong's return to Chinese sovereignty in 1997 and subsequent threats to the city's future represent substantial challenges to its functioning as a global financial center. Therefore, the results of this project will offer insights about the consequences of political-economic shocks on a global financial center. The timing of the study offers a unusual chance to personally interview key decision makers of firms and their top financiers who are making decisions which impact the future viability of a leading global financial center. While the Hong Kong case is unique, the research contains all of the elements impacting financial center networks more generally. The results have implications for public policy, because city and national governmental leaders are concerned about the viability of their global financial centers.