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This chapter argues that Hong Kong will gain stature as an international financial center when China is more open financially and Shanghai returns as a competing center. The analysis is in three parts. Section 1.2 builds on the analysis of 1900 to 1980 in Reed (1981) to demonstrate that Hong Kong ranked higher among international banking centers in the twentieth century when China was financially open, that is, before and just after the Second World War. Section 1.3 emphasizes the current gap between Hong Kong and Shanghai, especially in the trading of foreign exchange and derivatives. The value of Hong Kong's legal and regulatory institutions is discussed by reference to the gap between the valuations of firms listed on the Hong Kong and Shanghai stock exchanges. Section 1.4 draws on Lane (2000) and Cheung et al. (2006) to fit a Kuznets curve relating international banking assets and liabilities to real income and openness in order to assess the potential growth of China's international banking activity. A final section concludes that China's financial opening and Shanghai's consequent reemergence as an international financial center promise to raise Hong Kong's standing vis-à-vis London and New York.

Hong Kong was recognized as a political anachronism that was often found to be at risk. The economic strategy imposed by this British-style system was reminiscent of that from the nineteenth century as it was characterized by free trade, a lack of restrictions on currency and imports, small government and low taxes, budget surpluses, negligible state borrowing, minimal government interference, and no subsidies and incentives for development and investment respectively. However, it is important to note that the country has a history of economic success. Also, in spite of how it lacks political sovereignty, Hong Kong stayed standing with its ability to serve as an autonomous international financial center. This chapter looks into how Hong Kong was able to learn from its banking history, and how laissez-faire doctrines had to be given up to achieve financial stability.

The introductory chapter provides a historical perspective to the discussion of international centres after the Global Financial Crisis and Brexit. It addresses three sets of questions. The first concerns the definition and ranking of international financial centres; the second concerns the effects, over the long run, of global financial crises on international financial centres, in terms of rise, decline, recovery, and reconfiguration; and the third concerns the ability of international financial centres to reinvent themselves in the face of new adverse conditions. The last set of questions is relevant to the likely effects of Brexit, and takes into account the fact that, historically, leading economic powers have always given rise to a major financial centre. The final part of the introduction is devoted to a presentation, against this historical background, of the eight core chapters of the book.

This chapter considers the resurgence of the City of London as an international financial centre in the late twentieth century. It highlights the role played by a campaign to promote the revival of the City as a post-sterling international financial centre. The Committee on Invisible Exports campaigned for the recognition of the City’s contribution to Britain’s balance of payments through its ‘invisible earnings’, and argued that this could be increased by reducing impediments on its activities. The invisibles campaign was a distinct product of the post-war preoccupation with the balance of payments, which challenged the fundamental belief, embedded in economic policy since the war, that the route to national prosperity was in expanding industrial production. The campaign sought to reconceptualize Britain as a historic commercial and financial, rather than industrial, economy. In doing so it undercut a core principle on which the social democratic political–economic project was based.