Hong Kong played host to the GTR Asia Tradetech Forum this week – an event which discussed and debated the influence of technology on the trade finance sector. Here are the five key takeaways from the forum.
- Geopolitics trumps the rest
Despite the fact that technology promises so much that is new, the event was a reminder that in trade finance, people matter most. As speakers took to the stage, 1,609 miles away in Singapore, preparations were underway for the meeting of the century, between North Korean leader Kim Jong Un and US President Donald Trump. While the summit was largely dominated by the north’s nuclear weapons programme, Trump’s name came up time and time again at the forum, mostly because of the uncertainty he has instilled in the global trade system.
In this special administrative region of China, the trade war remains a hot topic. Alan Wong, the founder of Global Trade and Supply Chain Finance Advisory, spoke of the potential drag the ongoing dispute could have on global trade. “The potential trade war could cost US$470bn if it causes the full level of damage,” Wong said. That would be 0.5% of GDP, or the equivalent of removing one of the UAE, Algeria, Vietnam or Bangladesh from the global economy.
Many expect the trade war to wreak most destruction in the tech sphere. Wong pointed out that of the world’s top 11 semiconductor producers, only one is in China. Rectifying this situation is high on the Chinese government’s agenda and will form a crucial part of its Made in China 2025 initiative, through which the government will pour resources into high tech engineering. This is China’s Industrial Revolution 4.0 and is expected to see the same sort of subsidies that helped it power through its heavy industry phase over the past couple of decades.
- What is Hong Kong’s identity?
Recently in Hong Kong, the chief economist at Allianz, Ludovic Sabran, bemoaned the lack of innovation in Hong Kong and Singapore, its regional rival. 20 years ago, he said, trade bankers were sent to Hong Kong to learn how to structure. Now, such expertise appears to be lost and there’s a sense that Hong Kong is resting on its laurels, just as mainland cities such as Shenzhen and Hangzhou are emerging as the real hubs of innovation in the region (they are the founding places of TenCent and Alibaba, respectively).
Perhaps fearing this, the PR machine in Hong Kong has been in overdrive in recent months. It champions its chops as a fintech hub, but in reality, Hong Kong doesn’t provide anywhere near the levels of support that Singapore does to companies there. The one area where it has a distinct advantage over rivals is as a potential clearing centre for transactions and projects as part of the Belt and Road Initiative (BRI) – something that was discussed at this forum.
According to Wong, the BRI will add US$10tn to regional trade over the next 10 years. As well as providing the deal-making environment required to assuage international investments, Hong Kong can also look to be a major exporter on the BRI route. The city’s MTR system is world famous and its operator, the MTR Corporation is seeking to export its model around the world. Electrical utility CLP Power, meanwhile, is co-sponsor of the Vung Ang 2 power plant in Vietnam, a BRI project.
Wong also discussed the Greater Bay Area, a Chinese government initiative to build “a world-class city cluster across the Guangdong-Hong Kong-Macau region”, and another key “selling point” of Hong Kong’s. Described as “the next big thing”, the Greater Bay Area will have a population of 56 million and a combined GDP of US$3.6tn within three years (up from US$1.36tn today).
Many Hong Kongers fear the concept of being absorbed into the mainland. On the face of it, this appears to be the logical conclusion of both the BRI and the Greater Bay Area Initiative. If it is to retain its identity, Hong Kong should do more to encourage innovation among its companies and people.
- Does fintech mean too much choice?
With fintech, comes more choice – but is there too much choice? In trade finance, we’re seeing a constant stream of new entrants to the fintech scene. In the invoice financing space, there are dozens of players emerging with platforms in Asia. In blockchain, various consortia compete for space, seemingly at odds with the original concepts behind the technology, of openness and collaboration.
“Choice is great, but there’s too much choice,” said Jolyon Ellwood-Russell, trade finance partner at Simmons & Simmons. “Platforms need to speak to each other. We need uniformity and standardisation, but standardisation is difficult to achieve. It’s difficult to know where to allocate resources: do we need to pick a winner? Will one giant emerge?”
Consider the situation with blockchain and the three competing technologies of Hyperledger, Corda from R3 and Ethereum. Many banks are members of or users of all three. Many banks are also developing on their own solutions, outside of the official collaborative work, without any idea which of these will emerge as the dominant force.
In recent weeks, the battleground has heated up further still. HSBC and ING ran a first transaction on Corda in May, while the banks behind the we.trade blockchain platform for trade finance will be making their product live this month, on Hyperledger Fabric. Stories emerged last week of a cash shortage at R3 (these have been vehemently denied to GTR by well-placed sources within the organisation), but it feels as though the knives are being sharpened and rather than collaboration, we’re entering a more viciously competitive environment.
- What does the future hold for traditional trade finance?
In an event geared towards tradetech, this was an almost existentialist question posed to one panel of mainly orthodox bankers. The conclusion drawn was that yes, digitisation is coming, but the pace of change is slow. Traditional tools will be around for a long time yet, but when change comes, practitioners must be ready to make that leap.
“I don’t think we’re looking immediately for a new world. It’s not just one step and we’re there. It’s a long and exhausting journey,” said Holger Frank, head of financial institutions and transaction banking at UniCredit in Hong Kong. He said that the bank had exited the R3 consortium because they “got the impression it was a blockchain provider needing to find problems”.
Meanwhile, Jenny Chan, senior treasury manager at commodity house RGE Group, said that while the company is keeping on top of technological advancements, what they do is dictated by moving markets and their banks play a key role in supporting that.
“Markets us tell us where we should go and banks tell us what the opportunities are when we get there. We rely on the bank knowledge, it’s not just transactional. It’s a business partnership,” she said.
Tommy Chan, head of trade product management for Asia Pacific corporates at Bank of America Merrill Lynch said that the bank’s role has evolved. “We hear loud and clear from companies and what they want from banks are: digitisation, transparency, risk management,” he said.
- Gender issues with local nuances
As part of this event, GTR extended the Women in Trade Finance programme, having previously hosted such fora in Dubai, London and New York. Some of the speakers have worked in trade finance around the world and described Hong Kong as having more female leaders than some western hubs. Others spoke very warmly of having supportive male allies, but overall, it was clear that the industry has plenty of work to do.
For both sexes, one of the major issues discussed was lack of communication. Often, females in Asia will not put themselves forward for a new role or promotion, even if they have the requisite skills and experience. On the other hand, the traditional male-centric culture means that men often won’t ask for time off to help support their partners’ careers: fewer men in Asia take paternity leave or become stay-at-home fathers, meaning it’s often the woman’s career which is made to suffer.
Of course, the issues vary between institutions and cities. Ginnie Chin, the CEO and co-founder of Culum Capital, says that in a former role as a trade banker, she was transferred to an office in Mainland China and spent the entire time trying to convince her sceptical colleagues and bosses that she was up to the task. Inwha Huh, global head of structured trade solutions at HSBC, recalled starting off her career on Wall Street, where gender issues were laughed off. However, that changed over time and the workplace evolved to allow flexible working and to have day-care on-site – issues on which Hong Kong is still lagging behind in many cases.
The conclusion was that if you’re a global bank or company, having a one-size-fits-all global strategy to gender equality is unlikely to work. Different societies have different requirements and nuances, and planning should take place on a local level but with the same goal: retaining women in senior roles.