Wells Fargo plans to shift Asian hub from Hong Kong to Singapore Wells Fargo, America's fourth-largest bank by assets, has been quietly working on a plan to move its Asian regional hub from Hong Kong to Singapore as part of wider restructuring efforts. The plan is motivated by saving money from reducing Wells Fargo's exposure to Hong Kong's expensive real estate market, and by geopolitical uncertainty in the city and fears over whether this will lead to more onerous compliance issues, according to two of the people with knowledge of the plan. Singapore, a growing centre for start-ups and technology companies, has been seen as a beneficiary of the tensions arising from the new security law, due to its relative political stability and proximity to Hong Kong.

Questions

Suppose that the status of international finance centre can be viewed as a major exporter of financial service, and Hong Kong is now dominating the production of financial service due to a lower average production cost and other historical reasons while Singapore has a negligible scale. Suppose that the "expensive real estate market" and "geopolitical uncertainty" increase the production cost of financial service. 1. Given that the "expensive real estate market" and "geopolitical uncertainty" affects the production cost of financial service more than other business (i.e. financial service is more sensitive to rental expenditure and geopolitical uncertainty). How would this affect the status of Hong Kong as an international financial centre according to the theories based on comparative advantage such as Ricardian Model? (2 marks)

2. Ignoring the discussion in question 1. Suppose that the financial service has a strong external economies of scale. Explain why the increase in production cost of financial service in HK may not affect its leading role as an international financial centre (e.g. losing its leading role to Singapore)? You may support your arguments with a graph. (2 marks)