As the world transitions to the post-pandemic era, Hong Kong is positioning itself to play a pivotal role in the global economic recovery. It is therefore crucial that the Special Administrative Region (SAR) enhances its resilience and vibrancy, seizing opportunities as they arise.
‘Hong Kong already possesses numerous advantages as a traditional international financial hub and leads in various aspects in Asia,’ said Joseph Chan, JP, Under Secretary for Financial Services and the Treasury of the Hong Kong SAR Government, speaking at the ACCA Hong Kong annual conference in September.
Chan described how the government regularly formulates and implements comprehensive policies to remain up-to-date and foster industrial development, capitalising on opportunities across different sectors.
‘Our biggest advantage lies in the “one country, two systems” framework’
Hong Kong’s role as an international financial centre stems from several institutional advantages. ‘Our biggest advantage lies in the “one country, two systems” framework,’ said Chan. ‘Under this framework, we enjoy preferential access to the mainland market.’ This includes initiatives such as the various ‘Connect’ schemes, including Stock Connect and Bond Connect.
Chan pointed to an independent judiciary and a common law system as being among Hong Kong’s best traditions. The SAR also boasts a business-friendly environment and regulatory systems aligned with major international markets. Additionally, Hong Kong facilitates the free flow of funds and information.
‘Hong Kong’s foreign exchange reserves have reached US$424bn, equivalent to about 1.8 times Hong Kong’s monetary base,’ Chan said.
Data suggests that Hong Kong’s financial market stands out in Asia as highly attractive. The SAR’s active stock market raised US$13.4bn from IPOs in 2022, securing the fourth position globally, and it has been the largest market for arranging Asian international bond issuances for seven consecutive years.
‘Approximately 75% of the world’s offshore RMB payments are processed through Hong Kong’
‘As the world’s largest RMB liquidity pool, Hong Kong held around RMB1,037bn in deposits and certificates of deposits as of May 2023. Additionally, approximately 75% of the world’s offshore RMB payments are processed through Hong Kong (January to June 2023),’ Chan said.
Hong Kong is one of the world’s most open insurance hubs, with the insurance density of its market reaching US$9,159, ranking first in Asia and second globally. The 2022 insurance penetration rate stood at 19%: second in Asia and third worldwide. Moreover, the asset and wealth management industry witnessed a 27% growth between 2018 and 2022, with assets under management (AUM) reaching HK$30.5 trillion by the end of 2022.
New growth areas
Apart from its established strengths, Hong Kong actively seeks opportunities in emerging areas such as green and sustainable finance and virtual assets. ‘Hong Kong already leads in this area,’ said Chan, highlighting that green and sustainable debt issuance in Hong Kong is projected to reach US$80.5bn by 2022: a 42.5% year-on-year increase. Moreover, the total amount of green and sustainable bonds arranged in Hong Kong account for 35% of the Asian market in this sector.
Regarding the buy side, as of the end of June 2023, the number of environmental, social and governance funds authorised by the Securities and Futures Commission reached 195, with AUM of US$156.5bn. Hong Kong has actively promoted green finance, having issued nearly US$22bn in government green bonds by June 2023. The SAR is also enhancing climate-related disclosure requirements.
‘Fintech companies thrive on a robust client base; Hong Kong’s traditional strengths are advantageous’
Fintech is another area of growth, with more than 800 companies, including eight virtual banks and four virtual insurance companies, already established, according to Chan. The SAR has also taken various measures such as enhancing financial infrastructure, including continuous optimisation of the fast payment system.
Chan highlighted that Hong Kong offers appealing prospects for fintech companies to establish their presence. ‘Fintech companies thrive on a robust client base, and this is where Hong Kong’s traditional strengths become advantageous,’ he said. ‘Furthermore, if these companies are seeking investors, our significant AUM provide ample opportunities to attract investment.’
The Hong Kong Monetary Authority and the People’s Bank of China have initiated the second phase of technical tests on the use of the ‘Digital RMB’ for crossborder payments in Hong Kong. The licensing regime for virtual asset service providers was formally implemented in June to promote the industry’s development in a properly regulated environment.
‘We recognise that virtual assets and Web3 represent an inevitable shift in the financial landscape. However, while the industry is developing rapidly, we need to safeguard the interests of investors and maintain financial stability,’ Chan said, adding that the regulatory system is being reviewed.
Hong Kong continues to optimise its listing regime, too. For instance, in March the listing regime for specialist technology companies was implemented.
Boosting the profession
Chan acknowledged the significant contribution of the accounting profession to Hong Kong’s financial development. ‘Global investors have confidence in our data, reporting accuracy and integrity, which would not be possible without the accounting profession. Accounting is the cornerstone of the finance industry,’ Chan said.
The government has consistently prioritised the profession’s development and has undertaken reform measures to ensure its continuous improvement. Under the profession’s new regulatory regime, in operation since 1 October 2022, the Financial Reporting Council has been renamed the Accounting and Financial Reporting Council and has become a fully independent regulatory and oversight body.
Chan said that the government will review existing measures when necessary to continue to promote the development of the accounting profession.