In a video speech, the Financial Secretary of the HKSAR Government stated that the government is now well into devising the 2022-23 Budget, which will be delivered next month. Hong Kong’s economic growth in 2021 is expected to have reached a cheering 6.4%. Indeed, the region’s financial system remains stable and remarkably resilient. In 2020, the sector contributed 23% of our GDP (gross domestic product), making the financial sector the undisputed engine of the Hong Kong economy. In September, Hong Kong reclaimed third place in the Global Financial Centres Index, just behind New York and London.
The official noted that he is confident that financial services and the local economy will continue to flourish owing to the National 14th Five-Year Plan, which supports continuing growth as an international financial centre and Hong Kong’s ambition to become an international innovation and technology hub.
The Hong Kong Special Administrative Region Government is intent on boosting Hong Kong’s status as an international asset and wealth management centre. They are working to enhance Hong Kong’s strengths as Asia’s private equity hub in three discrete ways. Central to the overall strategy is bridging capital markets and the real economy, especially innovation and technology start-ups.
The first step was the modernisation of Hong Kong’s fund structure regime. The latest move was the introduction of the limited partnership fund structure in August 2020. It has been well received by the sector. In the past year or so, more than 400 funds have been established. The second step was offering attractive tax concessions. The recent one is exempting carried interest payable by private equity funds operating in Hong Kong. This, coupled with the fund-level tax exemption regime rolled out in 2019, provides a competitive tax environment with clarity and certainty for private equity funds. The third step was the establishment, in November, of the fund re-domicile regime. It was designed to attract foreign funds to Hong Kong, taking good advantage of on-shoring of funds from traditional offshore hubs.
The government is working to further enhance the legal and regulatory environment conducive to the development of the private equity industry in Hong Kong. For example, reforms were introduced in 2018 that allowed the listing of companies with weighted voting rights and pre-revenue biotech companies. Starting this year, special purpose acquisition companies, or SPACs, can be listed on Hong Kong’s stock exchange, further broadening the exit channels for private equity investors in Hong Kong.
Hong Kong’s status as the largest and most important global offshore renminbi business hub has continuously been strengthened over the years, and this is reflected by various renminbi business indicators. Hong Kong counts the largest pool of renminbi liquidity in the world outside the Mainland, amounting to over RMB800 billion. As the most important offshore renminbi clearing hub, Hong Kong’s banks handle about 70% of offshore renminbi payments.
Hong Kong is also an important renminbi financing centre, hosting the largest offshore renminbi bond market. The rising issuance of offshore renminbi bonds in Hong Kong underlines our role as the Mainland’s major capital-raising gateway. Last year, the Ministry of Finance issued renminbi sovereign bonds totalling RMB20 billion in Hong Kong.
Last October, the Shenzhen Government also issued offshore renminbi municipal government bonds here. This further enriches the offshore renminbi product range and showcases Hong Kong as the premier platform facilitating the Mainland to go global.
Going forward, the region will undertake several initiatives to develop an even more vibrant offshore renminbi ecosystem in Hong Kong, including further building up the offshore renminbi liquidity pool, enriching the related foreign exchange and interest rate derivatives market, increasing the utilisation of renminbi in bonds, loans, equities and other securities products, as well as strengthening our depository service by developing the Central Moneymarkets Unit into an international central securities depository in the long term.
