Finbarr Bermingham reports on the mood from the GTR Asia Trade & Supply Chain Finance Conference in Hong Kong.
It’s a difficult time to talk about trade finance in Hong Kong, because there is – anecdotally at least – very little of it being done.
Deal flow has picked up slightly on the nadir of last year, but many bankers are still craving pipeline. Lawyers are busy with restructurings and defaults, so it seems natural enough that the entire industry would want to talk about something completely different.
Thanks, then, to technology for providing such a viable alternative. Fintech continues to dominate the conversation among the Asia trade finance community, and thankfully the conversation has moved beyond the opening gambits of: “What is a blockchain?”
Now, banks are invested in finding out how they can use the technology to streamline and protect trade finance transactions. Even if the tangible developments are incremental, at least the intention seems genuine.
Conventional logic has it that in Singapore, the fintech scene is more developed. Some of the major developments in blockchain for trade finance have occurred there, such as DBS and Standard Chartered’s TradeSafe solution, which was launched last year in response to both banks being stung by the warehouse receipts fraud at Qingdao three years ago.
Further ammunition for the Singapore lobby was provided by a Deloitte-authored report which found that London and Singapore are the world’s leading hubs for fintech development, followed by New York and Silicon Valley. Hong Kong was found to be the sixth most competitive jurisdiction for producing fintech companies and solutions.
But at the GTR Asia conference, those from the Special Administrative Region of China were pitching Hong Kong as an equivalent and peer to Singapore for fintech development, rather than a place trailing in its wake.
“If Singapore is so great for fintech, then why is Hong Kong full of people from Singapore trying to set up here?” one consultant told GTR over a coffee in the wake of the event. “Singapore makes it easier to set up. There are more grants and support available, but if a fintech company is successful in Hong Kong, you know it’s a good company.”
Across the course of the day, many speakers and attendees praised Hong Kong’s development in the field of trade finance fintech.
“I think the fact that Hong Kong and Singapore are such trade hubs makes them natural locations for fintech and blockchain development. There are banks, shippers and corporates here, so it’s natural that the development here would grow quickly,” Connie Leung, senior financial services director for Asia at Microsoft, told GTR at the event.
Leung manages Microsoft’s blockchain business around the world and has been working with a number of banks and their clients to accelerate their development in the sector. A comprehensive blockchain solution is not too far away, she says, and it is likely that it will be developed in Asia – most likely in one of the aforementioned hubs.
“I think Asia being an emerging market is interesting for new technologies because it’s still emerging – a lot of things are broken. There are so many different currencies, pan-Asia and there’s a lot of intra-Asia trade across the markets. There’s a lot of demand and momentum and with government assistance in Hong Kong driving those initiatives, discussing how to scope the blockchain can help with the technology and underlying infrastructure; that helps shape the market,” she added.
The work of the Hong Kong Monetary Authority (HKMA) has been appreciated. The authority launched a white paper on the blockchain last year, and then in March, launched a blockchain-based trade platform solution.
Despite this, major developments on the ground seem hard to find. Is t his a Hong Kong-specific problem, or an issue with the industry at large?
One entrepreneur espoused the latter view. The candid founder of Distributed Lab – a Ukrainian cryptocurrency and blockchain consultancy that provides blockchain-based digital banking suites for traditional financial houses – called into question the validity of every blockchain platform in existence today. “It will be five years before there’s a proper solution that does everything people want,” Pavel Krachenko told GTR.
That sentiment did not stop some people appearing impressed by the Chained Finance vendor financing solution launched earlier this year by Dianrong, a Chinese P2P lender, and a subsidiary of technology manufacturer Foxconn. The Hyperledger-based tool was developed and launched in Shanghai, but Hong Kong may have a part to play in its future.
Given the intricacy of tech supply chains, Hong Kong is naturally an important hub for the likes of Foxconn and so, says Charles d’Haussy, head of fintech at Invest HK, Chained Finance will flow through the city.
“It’s a competitive market,” he says. “Everybody sees the opportunity and needs to grab it.” As is often the case, Hong Kong will use its status as a trade hub to piggyback on developments elsewhere.
Zach Piester is the co-founder of blockchain consultancy Intrepid Ventures, and divides his time between Hong Kong and Singapore. He’s in a good position, then, to compare the two when it comes to their competitiveness for fintech companies.
“Looking at trade finance, shipping and logistics, four of the largest ports in the world are within a train ride or plane ride from Hong Kong. If we look at how blockchain will emerge, it will likely happen here and in Singapore. From a pure blockchain perspective, there’s entrepreneurs in both places building things. It’s not an ‘either-or’ equation, it’s who will accelerate regulatory reforms faster to get the edge,” he tells GTR.
Hong Kong to benefit from outward-looking China?
But the underlying story here was an invisible one: trade is suffering and so the trade finance industry suffers in tandem. Nicholas Kwan, the director of research at the Hong Kong Trade Development Council, said that he expects zero growth in Hong Kong this year, a sobering admission from a respected economist.
However, Kwan did speculate that amid growing protectionism elsewhere in the world, China will help “reglobalise global trade” through its One Belt One Road (OBOR) initiative, the launch of the Beijing-backed Asian Infrastructure Investment Bank (AIIB) and the pro-trade rhetoric of its leaders.
With the retreat of the US from its role as bastion of free trade, is China ready to take the lead? It’s been a popular question in recent months, particularly after Chinese President Xi Jinping extolled the virtues of free trade at a speech to the World Economic Forum in Davos earlier this year.
How bizarre that the leader of the world’s only communist power would be viewed as the saviour of the capitalist system. Is it desperation? Kwan thinks not.
OBOR is a massive spending spree by China on pan-Eurasian infrastructure projects. It will run into hundreds of billions of dollars, and will allow Chinese companies and banks to push out, as per the instructions of Xi.
Kwan says that rather than enriching only China, it will stimulate growth and benefit countries around the world, particularly those who choose to participate in projects. It’s the model of infrastructure stimulus that propelled China to double-digit economic growth in recent decades, exported.
“This is not a trade agenda. This is China’s way of reglobalisation – connecting the world on a social and economic basis. It does not have a military focus, which is different from the United States,” Kwan said.
He added that no single country can enforce this change alone, and that China should rely on international collaboration and market forces to help dictate its policies regarding OBOR and AIIB lending. In this respect, he regards Hong Kong as being crucial to the plans.
“If you want the international network to support OBOR, you have to come to Hong Kong,” he said, adding that Hong Kong has the highest number of international chambers from countries around the world.
In recent years, Kwan’s views have been rather bearish on global trade. Surprisingly, his tone now is more upbeat. He says that global trade growth will be a battle between the momentum achieved by the recovery from the commodity crash and the disastrous policies implemented by many governments in reaction to the global financial crisis.
Many turned to austerity when stimulus was required, subduing demand and setting global growth back. Now, with slight recoveries in the likes of Japan, Russia and Brazil, the picture is a little rosier – although the trading system is still vulnerable to political shocks, as proven by Brexit and the election of President Donald Trump in the US.
Contrary to many, Kwan says the greatest risks for Asian trade come from Europe rather than the US. In recent days, Trump has made a dramatic shift in his views on China. Throughout his electoral campaign, he promised to class the country as a currency manipulator and to pursue requisite economic sanctions.
Now, reportedly under duress from US corporate interests, he has backtracked. This, according to Kwan, shows that Trump’s unpredictability may not be as great as initially feared: he will represent those who support him, namely the military, the energy sector and certain other industries, none of whom would wish for a trade war with China.
“With so many elections and breakaways, the biggest issues are in Europe. Brexit could be just the beginning – we just don’t know,” he added.
One thing for certain is that Hong Kong, one of the premier hubs for trade finance in Asia, stands to either win or lose disproportionately, whichever way the cookie crumbles.