Not only China

Our contributor Oriol Caudevilla is informing periodically about big changes that, eventually, are going to influence decisively in our land use and in our daily lives. We have read in his last article the importance of the China-USA trade fight.

We see today the relevance of another actor: the Islamic world. Nowadays, the bigger and powerful metropolitan areas  are not in West countries, but in Asian territories. For instance, you can see below the top 10 containers ports of the world, 2001 and 2015 (measured by the number of container boxes being loaded and unloaded). I have underlined the last European and American representatives. In 2015 they have disappeared:

Top 10 container ports of the world, 2001 and 2015 (1):

2001 2015
1 Hong Kong Shangai
2 Singapore Singapore
3 Busan Shenzen
4 Kaohsiung Ningbo-Zhoushan
5 Shanghai Hong Kong
6 Rotterdam Busan
7 Los Angeles Guangzhou
8 Shenzen Qingdao
9 Hamburg Dubai
10 Long Beach Tianjin

The trend is every day more intense and we don’t note slowing perspectives. Of course, this is not a catastrophe and there will be a lot of opportunities for trade and wealth in the new scenario. But the cultural, legal and political mixing will be thrilling and vertiginous.

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Original source (Chinadaily): HK should aim to be hub for Islamic finance.

Friday, December 14, 2018, 11:39 

We respect the original text, but number divisions and bolds are ours.

HK should aim to be a hub for Islamic finance

By Oriol Caudevilla

1.-Islamic finance is a financial system which operates according to Islamic Law (sharia). Like the conventional financial system, Islamic finance features institutions such as banks, capital markets, investment firms, etc. A basic feature that differentiates Islamic finance from regular finance is the fact that interest charges (riba) are prohibited. Even though Islamic theories of economics have existed for more than a millennium, the modern Islamic finance industry made its debut only in the 1970s.

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…2-2.-There is now a clear recognition of the importance of Islamic finance in the global financial system, and not only in Muslim countries. According to the 2018 Islamic Financial Services Industry Stability Report by the Islamic Financial Services Board in Malaysia, the Islamic financial services industry’s total value has exceeded the US$2 trillion mark. The main growth drivers were sukuk (sharia-compliant bonds) issuances. The size of the Islamic finance industry has more than doubled since 2009.

While growth has slowed since the global financial crisis, the industry has plenty of scope to grow further. When it comes to top countries for Islamic banking penetration, the Islamic banking share of total banking assets is 100 percent in both Sudan and Iran, 57 percent in Brunei, 51 percent in Saudi Arabia, 27 percent in Qatar and 24 percent in Malaysia, to quote some examples. It is also worth noting that the market for Islamic sukuk bonds has become quite strong in several non-Muslim majority states, such as the United Kingdom.

In Asia, Malaysia remains a leader in Islamic finance. However, Singapore (a country whose Muslim population represents roughly 14 percent of its total population) is trying to become an Islamic finance hub. It has launched a new sharia-compliant index which will serve as a benchmark for sharia-compliant funds looking to invest there. Geographically, Singapore has an advantage, given its proximity to the most populous Muslim countries. However, there had been only 20 sukuk issuances in Singapore over the past 16 years.

The development of Islamic finance in Hong Kong is a natural extension of Hong Kong’s role as an international financial center

3.-But what about Hong Kong? Can it become a hub for Islamic finance? I have no doubt that this is feasible if Hong Kong can cleverly leverage its mature financial market. Indeed, it should not let this opportunity slip by. While Hong Kong profits from being “the gateway to China”, this role will admittedly diminish as the Chinese mainland keeps opening its economy and financial system to outside players. Thus it would be wise for Hong Kong to diversify its economy as much as possible. It must therefore grab hold of any opportunity to do so. And becoming an Islamic finance hub is just such an opportunity.

Hong Kong’s initial attempt to develop Islamic finance started in 2007 when the then chief executive Donald Tsang Yam-kuen mentioned in his Policy Address the possibility of developing an Islamic financial market and a sukuk market. To pave the way for this, the Legislative Council amended the Inland Revenue Ordinance (Cap 112) and the Stamp Duty Ordinance (Cap 117) to provide a taxation framework for sukuk issuances comparable to that for issuances of conventional bonds.

In 2014, the government offered its first sukuk under the Government Bond Programme (a second one was offered in 2015 and a third one in 2017). The 2014 sukuk, with an issuance size of US$1 billion and a tenor of 5 years, marks the world’s first US dollar-denominated sukuk originated by an AA-rated government. However, only three sukuk issuances have taken place in Hong Kong, and, none of them has been considered extremely successful yet. For example, at 3.132 percent, the yield of February 2017’s sukuk is less than that of most other AA-rated 10-year sukuk in the market.

Despite this, Hong Kong should not let up its efforts to become a hub for Islamic finance, because it has all the ingredients to succeed. Hong Kong has not had traditionally an array of Islamic financial products, so it takes time to create this array. Rome wasn’t built in a day. But it’s important to start with the right steps. The development of Islamic finance in Hong Kong is a natural extension of Hong Kong’s role as an international financial center. As a financial gateway to China, it is an ideal place to intermediate between Islamic finance investors and issuers. At the same time, Chinese mainland companies have increasing funding and investment needs (credit is hard to obtain in the Chinese mainland, hence the gradual growth of a shadow banking system there), so mainland issuers may consider the Islamic finance market as a potential source for funding and investment.

To sum up, the growing Islamic finance industry offers massive opportunities for Hong Kong as it has all the right conditions to facilitate its growth. It is an ideal place for sharia-compliant institutions to narrow the gap between the Islamic world and China, and other East Asian developing countries.

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The author has worked as a business analyst for a Hong Kong publicly listed company, and was appointed fellow in 2017 at the Centre for Financial Regulation and Economic Development, CUHK, where he studied the situation of Islamic finance in Hong Kong.

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(1)Robert GOTTLIEB and Simon NG, Global cities. Urban Environments in Los Angeles, Hong Kong and China, The MIT Press, 2017, p. 17.

Acerca de Joan Amenós Álamo

Professor de Dret Administratiu
Esta entrada fue publicada en Comercio internacional, Derecho bancario y etiquetada , . Guarda el enlace permanente.

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