22 Jan 2019
Tapping the Bay Area’s Financial Service Opportunities
By CGCC Vision
As Hong Kong’s financial services are second to none in the world and an important engine for its economic development, the many opportunities for financial services arising from the Guangdong-Hong Kong-Macao Bay Area (Bay Area) are set to enable Hong Kong to become more entrenched as a national and international financial centre.
Financial services are the mainstay of the Hong Kong economy, accounting for as much as 18% of the local GDP, providing a large number of high valueadded jobs and employing over 250,000 people. In the Global Financial Centers Index announced this March, Hong Kong came in third globally and first in Asia. Joseph Chan, Acting Secretary for Financial Services and the Treasury, believes that Hong Kong, as a national and global financial centre, has unique advantages in connecting the Mainland market with international markets. He explained that Hong Kong has the advantages of a highly open and international market, professional talents, and sound infrastructure and regulatory systems. Mainland companies have accounted for over 60% of the Hong Kong stock market’s capitalization since the first listing of a Mainland company on the local bourse in 1993, and Hong Kong was ranked top globally by IPO proceeds for five consecutive years since 2009. With the support of national policies, Hong Kong has developed into the world’s largest offshore RMB hub, which is a testament to its advantage of having the strong backing of the motherland, coupled with its own international outlook.
Gearing to Bay Area’s needs for financial services
Chan pointed out that the Bay Area, with a population of 69 million and a total economic output of nearly USD1.5 trillion, is one of the most affluent areas in the country. Therefore, residents in the area will have a strong demand for financial services. At the same time, the many innovation and technology (I&T) companies and advanced manufacturing production facilities in the Bay Area will need comprehensive financial services such as financing, risk management, and financial management. As the country deepens reforms and comprehensively promotes bi-directional liberalization, Mainland enterprises must expand their ties with the rest of the world, and Hong Kong can provide professional and financial services in this regard.
In order to tie in with the Bay Area’s development, Chan stressed that in recent years, the HKSAR Government has made great efforts to remove barriers for the financial services industry, acting as a “facilitator” and “promoter” to enable the industry to keep pace with the times and capture the opportunities arising from Mainland enterprises going global. Earlier, the Government changed the Listing Rules to permit emerging and innovation industry companies to list shares with different voting rights and yet-to-be-profitable biotech companies to list on the bourse’s main board. He explained that the purpose of the change is to attract new economy enterprises to list in Hong Kong under the premise of protecting investors. They include a number of “unicorn” enterprises in the Bay Area. He is confident that Hong Kong will become these enterprises’ preferred listing platform.
The Government is also committed to developing Hong Kong as an international treasury centre, with the Bay Area enterprises the main targets. The Inland Revenue (Amendment) Ordinance 2016 permits corporate treasury centers to deduct interest expenses when calculating profits tax and provides tax concessions to eligible companies. According to Chan, 140 companies benefited in the financial year following the rule change, and subsequently, over 50 companies indicated to the HKMA that they intended to or had already set up a corporate treasury centre in Hong Kong, fully demonstrating Hong Kong’s appeal to domestic and overseas companies.
Various countries are striving to develop green financial markets and the Mainland tops the list in this respect. Chan said that the HKSAR Government is driving Hong Kong to become a green financial hub in Asia. In addition to issuing offshore green financial instruments for companies at home and abroad, including those in the Bay Area, it is also assisting the local business community through certification and funding schemes.
Ideal financing platform for fintech enterprises
In Chan’s view, Hong Kong enjoys a unique advantage in financial technology (fintech) development. He said that Hong Kong’s many M&A talents can provide relevant services for fintech companies, while the numerous banks operating in Hong Kong will likely be the customers or partners of these companies. This will enable Hong Kong to leverage its network to assist fintech companies in the Bay Area and Shenzhen to go global. When the fintech companies in the Bay Area grow to a certain size, they can raise funds through Hong Kong’s venture capital and private equity funds. In the past four years, Hong Kong’s fintech companies received a total investment of USD940 million, which is twice as much as those of Singapore. Meanwhile, many internationally renowned research institutes and institutions of higher learning have chosen to set up fintech-related laboratories, incubators or accelerators in Hong Kong, targeting precisely the financial service opportunities in the Bay Area and throughout Asia.
Chan said that the Government, from now on, will actively capitalize on the historical opportunities arising from the Bay Area and leverage Hong Kong’s mature capital markets and strengths under the “One Country, Two Systems” principle to serve the country. It will continue to play its role as a hub to attract foreign investments and help Mainland enterprises go global in addition to connecting with the international markets.
This article was first published in the magazine CGCC Vision. Please click to read the full article.