HKEX's New Big Boss Will Face Hong Kong's Uncertain Future

 HKEX's New Big Boss Will Face Hong Kong's Uncertain Future

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By most measures, Charles Li has done a good job as the chief executive of HKEX.

By most measures, Charles Li has done a good job as the chief executive of HKEX.

Photo: tyrone siu/Reuters

In an uncanny metaphor for Hong Kong’s uncertain future, the city’s bourse has yet to find a new boss after longtime Chief Executive

Charles Li
retired Thursday. His successor will inherit one of the world’s largest stock exchanges. But Beijing’s tightening control on the financial hub will add new challenges.

By most measures, Mr. Li has done a good job as the chief executive of
HKEX,
the operator of Hong Kong’s only stock exchange, for more than a decade. HKEX’s share price has almost tripled during his stint. The number of listed companies in Hong Kong has almost doubled, while their combined market value has grown from $2.3 trillion to $5.9 trillion.

Mr. Li’s background—he was born in Beijing and worked for more than a decade at international investment banks including JPMorgan Chase—epitomized HKEX’s role as the bridge between China and the West.

He has further cemented that role thanks to the launch of Stock Connect, a trading link between Hong Kong and the mainland exchanges, in 2014. The trading link has dramatically broadened foreign investors’ access to mainland markets, leading index compilers such as MSCI to include A shares in their indexes. Since its launch, foreign investors have accumulated $184 billion in stocks in Shanghai and Shenzhen through Stock Connect, while mainland investors have bought around $222 billion in Hong Kong stocks.

But diversification outside China has remained elusive. Mainland Chinese companies make up 80% of Hong Kong’s market capitalization. HKEX’s only overseas acquisition—the $2.2 billion purchase of London Metal Exchange in 2012—hasn’t worked out as expected. Its proposed $37 billion takeover of the
London Stock Exchange
last year was scrapped before it even got off the ground.

Beijing’s increasing political influence in Hong Kong complicates the prospect of Mr. Li’s successor pursuing another foreign exchange acquisition. Even deals venturing into other industries, such as the LSE’s $15 billion proposed acquisition of data vendor Refinitiv, would be under strict scrutiny by other governments.

Beijing’s tightened grip on Hong Kong has also undermined the city’s rule of law, its crucial edge over mainland cities. That is especially important when China is opening up its financial industry and mainland exchanges are competing to attract Chinese companies to list.

Deepening integration with mainland China under Mr. Li has fueled the Hong Kong bourse’s rise. Maintaining an edge as something other than just a funnel for foreign cash into China may prove more challenging—especially if concerns about the independence of the city’s legal system continue to grow.

Write to Jacky Wong at JACKY.WONG@wsj.com