The social risks of Hong Kong's fintech automation
David C. Donald - The Chinese University of Hong Kong
-- The rise of fintech business models employing robotic process automation (RPA) based on data analytics bring particular social challenges to an international financial center (IFC) with limited economic breadth. Using the example of the Hong Kong Special Administrative Region (HKSAR), I examine this cluster of issues in my recent paper, "Hong Kong's Fintech Automation: Economic Benefits and Social Risks," forthcoming as a chapter in Regulating FinTech in Asia: Global Context, Local Perspectives, edited by Mark Fenwick, Steven Van Uytsel and Bi Ying (expected from Springer in 2020).
My paper examines the promotion of fintech, choices as to its regulation, and the particular challenges these present for an IFC. Such challenges multiply in an IFC with limited economic breadth, where beyond finance, jobs are generally only available in logistics, tourism and related professional services. Fintech offers automation opportunities for financial institutions, and such automation will in many cases both replace human labor and provide services at a speed and quality that human labor cannot. Studies of such automation show a hollowing out of mid-level employment resulting from the reorganization of tasks and processes it brings. Financial institutions competing globally will not be able to ignore the competitive advantages of fintech automation, but a large portion of their savings will come from cutting staff, and thus have direct, negative consequences for current employees.
In its customary laissez faire spirit, the HKSAR has actively embraced fintech while ignoring social consequences. Moreover, its regulation generally tracks leading international positions on such questions as cryptocurrency, ICOs and electronic payment, but largely overlooks local impact. While the HKSAR regulators have done a good job of positioning Hong Kong as a respectable global player among IFCs in fintech regulation, they have also neglected promotion of activities that would stimulate the local economy, such as SME finance through equity crowdfunding (beyond share placements with institutional investors). As such, the regulatory portfolio will stimulate job-reducing fintech in major firms while missing opportunities to alleviate the local employment woes automation will trigger.
Automation will unquestionably create some new, highly skilled positions in finance, but it will also translate broadly into a reduction of necessary employees. This is particularly true for the internationally active banks that employ a large number of people to perform the routine tasks with digital information that are susceptible to RPA and cognitive robotic process automation (CRPA). In a large and varied economy, persons who lose their positions at banks may seek engagement in other sectors of the economy. This would be the case in New York, Frankfurt and even London. In an IFC with limited economic breadth, such mobility is significantly restricted.
Hong Kong is a special administrative region of China, a country with a very large and growing economy, but it presents the highly unusual case of an IFC in which much of the population is culturally alienated from its own country. Thus, displaced workers may refuse to seek new positions in the larger workplace for cultural or political reasons. The protests and riots of 2019 have shown that the HKSAR population does not hesitate to express violently its dissatisfaction with perceived social ills. This should be taken as a portent of possible futures by the HKSAR government, which has blithely followed a “market leads, government facilitates” philosophy of laissez faire for decades.
Together with its active encouragement of fintech, the HKSAR should seek out the best, viable programs to assist persons who will be displaced through fintech automation. While such preparation does smack of the type of social planning that the HKSAR has so assiduously avoided, circumstances dictate that it now begin to act socially, rather than merely as facilitative for the largest and most active international firms operating in Hong Kong.