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2021 August
Hong Kong’s Financial Sector Posed for Post-COVID Development

Where there is a crisis, there is an opportunity. Transformation is possible after every challenge; the next golden age may also be underway. Proper assessment of the circumstances could help Hong Kong further grow its financial sector after the pandemic.

 

 

 

Although the Hong Kong economy has been facing quite many difficulties for some time, and there are lots of uncertainties in the global setup, Hong Kong’s financial sector is still performing well, according to Christopher Hui, Secretary for Financial Services and the Treasury.

 

Significant advantages: stable market and robust system

Hong Kong’s role in the global economy is increasingly important. As revealed by Hui, both the total market capitalization of listed companies and the volume of asset management in Hong Kong have been soaring since 2017, despite the many challenges in recent years. Therefore, the government is actively promoting businesses in private equity funds and family offices to respond to the trends of global development.

 

Hui elaborated that there are two new trends in global asset allocation. Firstly, following to rise of the middle class in the Mainland, there is a surging demand to for international asset allocation. Secondly, with China becoming an independent investment asset category, many international investors are riding on the bandwagon of China’s economic development by investing in Mainland stocks and bonds. The close connectivity between Hong Kong and the Mainland market, has made Hong Kong an ideal channel for international funds to flow into the Mainland.

 

Hui pointed out that Hong Kong does not only possess a stable financial market, but also a sound regulatory system. The “14th Five Year” Plan is backing Hong Kong to cement and lift its position as an international financial hub. Strengthening Hong Kong as a global asset management center and a risk management center would help fortify the development edge of Hong Kong’s finance market.

 

Constructing a private equity fund market and taking part in risk management

Hui also revealed that the HKSAR government is taking three active steps to foster Hong Kong’s development into a hub for private equity funds. The first step is to introduce new fund structures that allow private equity funds to set up in Hong Kong as limited partnerships. The second step is to provide tax concession for carried interest distributed by PE funds operating in Hong Kong. The third is to consider rolling out measures to attract more funds that have already been set up overseas to land in Hong Kong.

 

Hui added that Hong Kong has an edge in professional services and should function as a risk management center. He revealed that by providing risk management solutions such as insurance, insurance-linked securities, etc., Hong Kong’s participation in the “Belt and Road” Initiative can be further deepened. He believed that by radiating the scope of Hong Kong’s financial services to the Greater Bay Area or even around the world, the future will be filled with even brighter prospects.

 

Grooming talents to serve the world

As noted by Hui, the efficiency of our financial service is enhanced following the inevitable trend of expedited fintech development. He shared that the HKSAR government has recently consulted the public regarding the regulation of virtual asset service providers. He thought that the market impact of virtual assets is yet to be observed. He quoted an example that when the licensing system is first implemented, virtual asset exchanges should only be approved for serving professional investors. He hoped that the government can balance regulation and the need for development, as well as provide the necessary protection to investors.

 

Big data has been widely used in recent years. As a result, internet users can now more easily receive their preferred information. Hui opined that this has led to challenges in the government’s work in policy guidance. Therefore, he hoped that the industry could make use of the internet and help the government explain the policies and to introduce Hong Kong’s situation to the market. He also mentioned that the longterm development of Hong Kong’s financial sector must be supported by the nurturing of industrial and cross-disciplinary talents; we must also explore in-depth about how to leverage on the strengths of Hong Kong to serve the country and the world.