Growing regulatory complexity, economic headwinds and the global energy transition pose steep challenges for Hong Kong SAR businesses.
That was the view of experts at the recent ACCA Hong Kong virtual tax conference, where a panel on fostering resilience in Hong Kong’s business landscape considered these escalating hurdles. Solutions offered included leveraging green technology and financing and strategising public spending.
Challenging environment
‘The economy and taxation are interrelated,’ said Charles Chan, co-chairman of ACCA Hong Kong’s tax subcommittee and tax partner at PwC. ‘Hong Kong faces challenges including an unstable outlook, slow pandemic recovery, intense regional competition, geopolitical conflicts and budget deficits.’
Enterprises must navigate a precarious landscape at a pivotal time. Wing Chu, principal economist of Greater China at the Hong Kong Trade Development Council pointed out: ‘Hong Kong’s export-oriented economy is highly sensitive to external factors beyond our control, like global trade conflicts and financial volatility.’
‘Strategically reducing expenditures by leveraging technology could boost efficiency’
Danny Po FCCA, chairman of ACCA Hong Kong and senior adviser at Deloitte China, highlighted dampening consumer demand from Europe and the US. He said: ‘With high interest rates globally, if international resources continue draining away, it will add pressure to Hong Kong’s economy and competitiveness over the long run.’
Reaching goals
Reaching carbon-neutral goals through green transition is another hurdle. Asia alone is estimated to need US$66 trillion for this in the coming three decades, said Olivia To, senior vice president at Invest Hong Kong. ‘China aims to peak its carbon emissions by 2030, while Hong Kong is required to halve its carbon emissions by 2035. With these goals just a few years away, time is of the essence.’
And even though Hong Kong currently faces a budget deficit, hastily slashing expenditures could backfire, warned Kelvin Mak FCCA, associate professor at the Hong Kong University of Science and Technology. ‘We need time to properly address this complex issue,’ he said. ‘Budget deficits are nothing new. Projections indicate there will be surpluses again by 2027 and 2028.’
Po suggested that ‘strategically reducing expenditures by leveraging technology could boost efficiency’. For example, digitally transforming civil service operations could increase productivity.
‘Corporations are diversifying beyond China through strategies to transform supply chains’
Pathway to growth
Panellists identified opportunities for Hong Kong through venturing into new markets and industries.
Po pointed to new growth avenues in countries that are part of the Belt and Road initiative, along with the Middle East. Chu was also excited by the new emerging markets. ‘They are sizable in their own right, and corporations are also diversifying beyond China through strategies such as China Plus One to transform supply chains,’ he said.
‘Our vision is to establish Hong Kong as a pre-eminent hub for green tech and green finance’
Recent attempts to attract wealthy family offices to set up in Hong Kong could bear fruit, Po said, adding: ‘The younger generation is more interested in emerging areas and transforming traditional industries. The government can incentivise a new class of investors seeking to deploy their assets in a rising rate environment while also backing developments that can keep its economy thriving for the future.’
The allocation of HK$3bn to leverage AI will also help local businesses to enter high-growth sectors, said Chu, while cooperation throughout the Greater Bay Area would allow the leveraging of respective strengths.
Green hub
One sector presenting Hong Kong with abundant opportunities is the burgeoning green economy.
‘Our vision is to establish Hong Kong as a pre-eminent hub for green tech and green finance, recognising the tremendous opportunities presented by the emergence of the green innovation and technology industry,’ To said. ‘InvestHK is actively collaborating with key industry players to support the development of the ecosystem, and we are witnessing positive growth in this area.’
‘We need to nurture our domestic talent pipeline and attract foreign talent’
She added that initiatives such as the Northern Metropolis and the planned Hong Kong-Shenzhen Innovation and Technology Park could ‘facilitate capital flows and innovation in sectors such as new energy, advanced manufacturing, life and health technologies’.
Bottlenecks to progress
There are bottlenecks, however. Mak said the green economy requires talent that some industries struggle to find. ‘I am seeing many jobs disappearing due to a mismatch between workers’ skills and the demands of their professions,’ he warned.
Chu agreed. ‘Hong Kong is facing an aging population. We need to nurture our domestic talent pipeline and attract foreign talent.’
Po said that while the small size of the Hong Kong market poses challenges for scaling, start-ups could take comfort in the legal protection for their ideas and innovations and use Hong Kong as a springboard to bigger markets.
To said the key question was how best to leverage Hong Kong’s strong ties with mainland China while connecting with the wider world. ‘How can technological advancement keep the pace of our green transition? How can companies upgrade the entire supply chain and decarbonise from its sources by leveraging China’s manufacturing capabilities while capitalising Hong Kong’s strengths and uniqueness?’
To believes it is this kind of collaboration that can help Hong Kong play a leading role in green innovation. ‘The talent, research, capital and policy here will allow cutting-edge ideas to be developed and scaled up for meaningful impact on reducing carbon emissions in Greater China.’
More information
Read our article from ACCA Hong Kong’s tax conference: Hong Kong set for growth
