In this issue, we have invited two experts for an in-depth analysis of the current Middle East situation: Tse Yung-hoi, the Chamber’s Life Honorary Chairman and Chairman of BOCI-Prudential Asset Management Limited; and Tse Kwok-leung, Honorary Senior Research Fellow at the Lau Chor Tak Institute of Global Economics and Finance, CUHK. They will discuss topics ranging from capital agglomeration to Hong Kong’s advantages, and further look ahead to the direction of the 15th Five-Year Plan that aligns with the country’s development strategy.
On capital flows: Hong Kong as the preferred destination for asset allocation
In the past, Middle Eastern capital mostly focused on European and American markets. However, the frequent changes in the market environment of Europe and the United States in recent years have driven local consortia and family offices to seek more stable investment destinations. Both experts agree that Hong Kong is the preferred foothold for Middle Eastern capital to preserve assets.
From a financial perspective, Hong Kong, with its advantages of free capital flow, simple tax system and sound rule of law, is continuously attracting high-end capital from the Middle East. Moreover, the Hong Kong market combines liquidity, investment value and institutional stability, providing an ideal platform for both sides to expand cooperation in the fields of finance, trade and professional services.
The strategic deployment of Middle Eastern capital in Hong Kong is essentially to leverage Hong Kong as a springboard to enter the Chinese Mainland market, and accurately connect with the strong economic growth and strong scientific and technological innovation potential of the Chinese Mainland. Many Middle Eastern private equity capital use Hong Kong as the entry point to invest in the Chinese Mainland, making Hong Kong a global safe haven for capital amid geopolitical turmoil.
Tse Kwok-leung
In recent years, driven by global investors’ demand for diversified investment to reduce risks, a large amount of “hot money” from countries and regions including the Middle East has flowed into Hong Kong. Hong Kong has a mature financial platform, abundant liquidity in the banking system, and unrestricted free inflow and outflow of capital, which can fully meet the core demands of Middle Eastern capital.
As the world’s largest offshore RMB hub, Hong Kong’s mature clearing system is highly liquid, and coupled with diversified RMB products, it can provide Middle Eastern investors with one-stop services such as trade settlement and asset pricing. This meets the local capital’s demand for allocation of high-quality Chinese assets, and further strengthens the status of RMB in international trade and investment.
The “Connect” mechanisms between Hong Kong and the Chinese Mainland market allow Middle Eastern capital to easily participate in China’s growth opportunities through channels such as the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. In recent years, the HKSAR Government has also actively launched tax incentives for family offices, investment immigration schemes and supporting measures for professional talents, reducing the settlement costs for Middle Eastern capital.
On Hong Kong’s value: Taking root in the new global landscape and acting as a connecting bridge
The current geopolitical situation in the Middle East continues to change, and the international economic, trade and capital landscape is undergoing restructuring. The two experts conducted analysis from the perspectives of hub positioning and financial cooperation respectively, explaining how Hong Kong can connect the Chinese Mainland and the Middle East by relying on its comprehensive advantages.
Tse Yung-hoi
Faced with the continuous escalation of external geopolitics and trade frictions, Hong Kong has long taken the initiative to promote a market diversification strategy and actively expand its global business footprint beyond Europe and the United States. After the fluctuations in the Middle East situation, Hong Kong enterprises quickly adjusted their international logistics routes, abandoned high-risk routes, maintained the stability of cargo transportation and commerce and trade, and at the same time undertook entrepot trade by virtue of the advantages of the free port, giving full play to the function of an international shipping hub at a high level.
At the same time, in response to the declining global dependence on oil, Middle Eastern countries are vigorously developing new energy and scientific and technological innovation industries. Middle Eastern countries have abundant capital but lack mature international financing and supporting professional services. Hong Kong can give play to its advantage as a super connector and act as a bridge for economic, trade and investment exchanges between the Chinese Mainland and the Middle East. For example, the new energy industries such as photovoltaics and hydrogen energy in the Middle East are experiencing explosive growth. Hong Kong can, with its leading advantages in green finance, link up with the mature technologies, equipment and complete industrial chain of the Chinese Mainland, and export high-end professional services such as Environmental, Social and Governance (ESG) certification, project management and cross-border green financing to the Middle East.
Tse Kwok-leung
As the geopolitical situation in the Middle East continues to escalate, Hong Kong has become a new safe haven for them. Middle Eastern capital has always preferred European and American markets, but the significant changes in these markets in recent years have prompted them to seek a more stable third destination. Hong Kong is not only far from the core of the Middle East conflict, but also has a stable rule of law, free capital flow and a linked exchange rate system, which exactly meet the core demand of family offices for asset preservation.
The HKSAR Government successfully issued Sukuk under the Government Bond Programme three times between 2014 and 2017, and last year, the world’s first Sukuk ETF listed in Hong Kong, which is the first ETF outside Saudi Arabia to invest in Saudi Riyal-denominated Sukuk. Over the years, Hong Kong has continuously deepened financial cooperation with the Middle East and resolved potential policy pain points.
With its unique advantages, Hong Kong is well-positioned to fully reap the benefits. The situation in the Middle East remains volatile, and the demand for daily supplies, infrastructure projects and financial services is increasingly urgent. As an important global trade hub, Hong Kong can provide infrastructure and engineering services to assist the Middle East in promoting urban reconstruction projects. Hong Kong’s free capital flow, sound rule of law, and limited exposure to geopolitical conflicts are all conditions sufficient to attract Middle Eastern capital to settle here.
Five-year plan: Implementing the development blueprint and expanding cooperation space
Hong Kong’s first five-year plan is currently under formulation. Combining market characteristics, the two experts provide business and risk control suggestions for Hong Kong merchants going global, clarify Hong Kong’s strategic role, and put forward suggestions for the direction of the five-year plan.
Tse Yung-hoi
香港企业开拓中东市场机遇虽大，惟不乏风险，故需兼顾经营深耕与风险可控。我建议港商在坚持本地化策略的同时，宜尊重当地宗教文化、民俗及商业规则，严守用工标準和產品认证，组建“国际化+本地化”团队，建立长期信任。
至於风险管理，则可多管齐下，包括构建系统化风控体系，鑑别地缘风险，避开战乱区域;熟悉当地法律，依重合约条款，优先选用香港仲裁机制处理纠纷;以及贸易结算宜採用信用证模式等，以稳健之姿、万全之策应对可能发生的突发场景，全方位确保及保障跨境贸易的安全稳定。
随着香港首个五年规划的落地推进，全面对接国家重大发展战略，其中“一带一路”沿綫的中东市场处於欧亚非叁大洲枢纽，是“一带一路”建设的核心节点与关键通道。香港可发挥并承担四大关键角色，包括提供跨境投融资服务、输出高端专业及法律仲裁服务、发展伊斯兰金融，以及依托北部都会区打造產业与投资平台，為中东资本落地大湾区提供新载体。
Tse Kwok-leung
The situation in the Middle East is volatile, so Hong Kong merchants must not be too eager for quick success. They should pay more attention to and respect the local religious culture, and conduct in-depth observation of market pain points to avoid possible cultural and cognitive conflicts. It is recommended that enterprises conduct market research in advance, set up a localized operation team, reduce communication and operation risks from details, and achieve steady development.
Expanding the Middle East market is a strategic development direction for Hong Kong during the five-year plan period. Hong Kong has the advantages to carry out comprehensive cooperation with Middle Eastern countries in high-end financial professional services and high-tech industries, assist in the urban reconstruction of Middle Eastern cities, and promote the application of financial technology in the region.
Carrying out comprehensive cooperation with the Middle East is also an important practice for Hong Kong to connect with the markets along the “Belt and Road” Initiative. Through in-depth linkage with the Middle East, Hong Kong will expand its overseas business footprint and further promote the diversified development of its economy and market.
