Norman Chan, CEO of Hong Kong’s de facto central bank, is planning to retire on October 1, exactly a decade after he took the job.
Paul Chan, the financial secretary, has set up a five-man committee to search for a replacement. The committee includes Victor Fung, chairman of Li & Fung, and Joseph Yam, who ran the HKMA for 16 years before Chan took over.
They will be competing against another iconic central bank on the lookout for new talent. In the United Kingdom, a search is on to replace Mark Carney, the Canadian national who has run the Bank of England since 2013.
Will the HKMA be looking at the same candidates the BoE is considering? That seems unlikely. The BoE’s clear willingness to hire a foreigner for the top job has led to rampant speculation in the British press about who will replace Carney, with suggestions ranging from Raghuram Rajan, former governor of the Reserve Bank of India, to Christine Lagarde, managing director of the International Monetary Fund. At the HKMA, expect a company man to be given the job.
The HKMA is both more complex and simpler than most central banks. Its room to manoeuvre in monetary policy is practically nil since a peg to the US dollar ensures it must follow the Federal Reserve’s interest rate decisions. But its role as the regulator for Hong Kong’s banking system forces it to make crucial, and delicate, decisions. Another key function is managing the Exchange Fund, the HK$4.06tr ($517bn) vehicle the government uses to help keep its currency in line with the US dollar.
HKMA’s independence is also questionable. Section 10 of Hong Kong’s banking ordinance gives the CEO of the city the power to “give such directions as he thinks fit”, adding that HKMA “shall comply with any directions given”. This would rule out some foreign economists, for whom central bank independence is sacrosanct. Those with experience at the HKMA are less likely to be phased, in part because they know politicians tend not to interfere in practice.
This may suggest Zhou Xiaochuan, former governor of the People’s Bank of China. He certainly has experience of keeping one eye on his political paymasters. But he may feel the job is a step down from his former throne at China’s central bank. In any case, Carrie Lam, Hong Kong’s CEO, would likely feel wary about adding more fuel to the fire of anti-China protesters in the city.
This all makes it likely the HKMA will look within for its new CEO, as indeed it did when Chan was chosen a decade ago. That means anyone trying to guess the next boss of the HKMA should look first to his three deputy CEOs — Eddie Yue, Arthur Yuen and Howard Lee.
It is hard to pick between them. Yue and Yuen have both previously been made acting CEO during Chan’s absence. They have also been deputies longer than Lee, who only got promoted to the position in January 2018. But Lee has a crucial brief, taking charge of monetary management and financial infrastructure.
The latter portfolio gives him oversight over fintech and digital payments, an important area of development that can help Hong Kong make the most out of its links with China. That may be a strong enough trump card to ensure Lee wins a promotion, although it is certainly too early to take anything for granted.
The selection committee will no doubt pay lip service to casting a wide net in their search for the next CEO. But Hong Kong’s financial system works remarkably well. The selection committee will be doing their best to ensure that, after Chan leaves, it remains business as usual.