Asia seen as next global financial hub

(SGI) - The current post-pandemic period and the ongoing Russia-Ukraine conflict has prompted many businesses around the world to look towards some countries in Asia as an alternative source to China. 
Illustrative photo.
Illustrative photo.

With the business world shifting its focus to newer locations with a view on efficiency and security, it is to be seen whether Vietnam will be a country of choice that will offer a strong macro-economic base and a stable political environment for global businesses.

Asia as key player

For decades we have been talking about the financial system as an intermediary for transferring money from savers to investors. Very few studies of geo-finance have been on a geopolitical-economic landscape, with the new regulations leading to funding decisions, capital allocation, and the development of markets and financial centers under spatial patterns and locations.

Now Asia is emerging as a key player in shaping the global financial network. Asia's growing importance in global finance has become even more pronounced after the 2008 financial crisis which led to a global recession. With investment banking activities shrinking in developed countries, investment banks in Japan and China are now experiencing significant growth. With the development of financial services and impressive growth in emerging economies, more and more Asian cities are entering the fray for financial center status. Financial hubs such as Singapore, Hong Kong, and Shanghai play an increasingly important role in shaping the global financial geography.

Most notable is China's Belt and Road Initiative (BRI). The banks or institutions involved like the Asian Infrastructure Investment Bank (AIIB), Silk Road Fund, and various forms of Public-Private Partnership (PPP) investments have brought enormous opportunities as well as geopolitical challenges to Asian countries. Launched in 2018, the Nur-Sultan International Financial Center of Kazakhstan immediately became an extremely important gateway for BRI financial resources, which flow into Central Asian countries and spread globally.

Interestingly, while the markets and regulations governing the financial sector in Asian countries have retained their own identities, the financial systems are becoming more closely linked with the developed economies. In recent decades, the development of technology in the financial sector (Fintech) has virtually reshaped many new financial services, leading to new business networks in Asian countries.

The Hong Kong, Singapore, and Shanghai International Financial Centers are consistently among the top global Fintech companies. Fintech initially developed very quickly in the financial centers of Singapore and Hong Kong, and then gradually spread to many cities in China, India, Korea, and Japan. Fintech presents potential for financial innovation and change in the regional geo-economic landscape.

Brexit and Asian markets

London's role as the leading international financial center in Europe in the long term could be threatened by the consequences of Brexit. As London plays a central role in the global financial network in many Asian financial hubs, such as Hong Kong and Singapore, so Brexit has the potential to dramatically alter the region's geo-financial status. On the other hand, the reaction to Brexit in Hong Kong, Singapore, and most importantly in China, will also create a push which can lead to the formation and development of many regional financial centers.

Many analyses show that China can be a game-changer in global geo-finance because China has deep economic ties with Britain. Brexit has the potential to reshape such relationships. Among European countries, the U.K. has the largest number of investments from China, and the largest number of bank branches. After Brexit, Chinese companies will probably think twice about positioning strategies when entering the European market.

The impact of Brexit on Hong Kong is more direct. As a leading regional financial center, Hong Kong has long been an important gateway for foreign companies investing in China as well as Chinese companies going overseas.

Given Hong Kong's unique position in connecting the Chinese economy to London, Brexit uncertainties could negatively impact Hong Kong's gateway status if many global financial giants leave London for other European cities. In addition, the strong development of China's financial markets also threatens the role of Hong Kong's financial markets. Brexit is thus helping to accelerate the reconfiguration of banking and financial services activities in East Asia. This is creating opportunities for many emerging financial markets in the region.

Choices for Vietnam

The post-pandemic situation along with the ongoing Russia-Ukraine conflict has made the global business community look towards a few Asian countries as an alternative source to China. Although China's BRI initiative is causing security concerns for many countries in the region, the US and the West's initiative to Build Back Better World (B3W) for the region is also showing increasing ambiguity. In not being able to choose a side with stable political and macro-economic institutions, we are in a new strategic position to attract global financial resources for our strategy to shift focus on efficiency and security, not only for foreign investors but also for Vietnam.

In the current geo-financial context, it is appropriate to focus on the topic that is receiving a lot of attention today about forming a regional financial center in Vietnam. Almost every debate currently revolves around defining the shape of the international financial center with key pillars such as banking, stock market, Fintech, and derivatives exchange. Hardly any attention has been paid to the regional and international geo-finance aspects of the need for the birth of an international financial center, to take advantage of the new geopolitical situation from Japan and some of its initiatives.

Japan's net overseas assets amount to 365,000 billion yen, the largest in the world. Japan has held this position for the past three decades. In addition, the data shows that Japanese companies have rapidly expanded their global value chain, with more than half of their sales being received outside of Japan. Japan is currently holding a huge amount of liquidity nearing 1.008.000 billion yen or USD 9.250 billion. Japanese households hold 54% of their assets in cash, compared with only 14% by US households or 35% by Eurozone households.

Even so, these huge savings are being circulated globally by financial institutions based in Tokyo, rather than left at home. This is because Japan has the highest tax rate in the world, and high earners pay nearly 60% of their income towards taxes. Furthermore, inheritance is taxed at a rate as high as 55%, which discourages investors from staying long, and even the Japanese have no incentive to save at home. In the context that it is increasingly difficult for international investors to access the Chinese financial market, Japan, Australia, and India have jointly launched the Supply Chain Resilience Initiative (SCRI), giving more impetus for their companies to move production facilities out of China.

If Vietnam were to form a regional financial center or special economic administrative region with low marginal income tax incentives, there would be no taxes on inheritance, capital income, and shares. This will be an opportunity to absorb huge savings from countries like Japan, as well as attract leading multinational companies looking for a way out of China.

At a ceremony in Hanoi to welcome the Japanese Prime Minister Kishida Fumio recently, Prime Minister Phạm Minh Chính affirmed his personal close relationship with Vietnam and hoped that this relationship would turn into geo-political and financial ties between the two countries in the future.