Is China threatening Asia's financial center? | CNBC Explains

CNBC's Uptin Saiidi explains how Hong Kong's significance is coming under pressure as China pushes to become more open to the world.

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The face of one of the world's biggest

financial centers is changing fast.

The banking scene here in Hong Kong has

traditionally been populated by locals and expats.

Now, mainland Chinese are

coming for those same jobs.

And succeeding.

In the past decade, investment banks saw the

largest increase in Chinese staff,

compared to other sectors.

80% of firms saw at least a 20% increase in staff

coming from the mainland.

Even a typical expat pay package is changing.

It used to include expensive perks like free housing,

private school for kids and extensive time off.

On average, Hong Kong expat packages are

the 4th highest in Asia-Pacific after Japan,

mainland China and India.

But those expat pay packages are getting less cushy,

with Hong Kong recently falling to a 5-year low.

Hong Kong is known to be the

investment banking capital of Asia.

But slow growth has triggered a number of

layoffs at global banks.

And this is partially contributing to the exodus

of expats here in the city.

Just in the past year HSBC, Goldman Sachs,

Deutsche Bank and Standard Chartered have

announced a number of layoffs

in their Hong Kong operations.

All Western banks.

And as mainland China positions itself

to be more open to the world, it's actually putting

Hong Kong's significance into question.

After all, the population here of just about 7 million

is minuscule compared to China's population

of 1.3 billion.

Western companies used to see Hong Kong as

an entry point into the world's

most populous country.

But the question is increasingly being asked:

Why set up your company right outside

of mainland China, when instead you can

just, maybe go into China?

Of course, China has a number of restrictions

on the amount of business foreign banks are

allowed to do inside the mainland.

And consequently, the rules are good for China's

homegrown banks, like Bank of China which

is expanding not only in Hong Kong, but aggressively

abroad as well.

Let's look at the signs pointing to this shift in

Hong Kong's banking landscape.

China's government is easing up on its regulations.

It recently removed license requirements for foreign

and joint-venture lenders in a number

of financial services.

And in January, China said it would

open the country to foreign investment, including

easing limits on investment in

banks and other financial institutions.

The moves are taking place as President Xi Jinping

hopes to place China as the world leader

in defending globalization and saying repeatedly

he will keep the country wide open.

Last year, the Shenzhen-Hong Kong Connect

was launched which allow institutional investors

to buy Shenzhen-listed stocks, which

includes many prominent tech

and consumer names.

And in return, Chinese investors

will have access to shares listed in Hong Kong.

A similar model, the Shanghai-Hong Kong Stock

Connect was launched in late 2014.

Foreign investors are finding it easier than ever

before to invest in the mainland.

There's also been newly established free

trade zones identified in both Shanghai and

Shenzhen, which allows unprecedented economic

freedoms, similar to what can happen in Hong Kong.

The global financial system is starting to take China,

not necessarily, Hong Kong, more seriously.

Last year, China's currency, the Yuan, was added

to the IMF's global basket of currencies,

which are currencies deemed safe and reliable,

joining the dollar, euro, yen and the pound.

China has impacted many global assets lately

ranging from Manhattan real estate to

Australia's power grid.

And now, the expansion by China's mainland

banks could have a far greater impact

than just Hong Kong.