Public Consultation on the 2024 Policy Address
Release Date: 2024-09-01
Hong Kong Government Headquarters
2 Tim Mei Avenue, Tamar
West Wing, 26th Floor
Email Submission: policyaddress@cepu.gov.hk
Chief Executive's Policy Unit
Policy Report Team
September 1, 2024
To: Chief Executive Mr. John Lee
Public Consultation on the 2024 Policy Address
Dear Chief Executive Mr. John Lee,
As a pivotal international financial hub, Hong Kong is distinguished by its strategic geographical position and robust economic foundation. The city is celebrated for its multicultural landscape and global ambiance, drawing businesses and investors from all corners of the world. Despite facing various challenges from shifts in the global economy in recent years, Hong Kong has shown remarkable resilience and innovative capacity.
In the face of global economic uncertainties, it is imperative for Hong Kong to proactively adapt to evolving policy and regulatory landscapes, enhancing market dynamism through technological advancements. This initiative encompasses bolstering the utilization of fintech, fostering the growth of innovative enterprises, and refining relevant legislation to cultivate a more conducive business environment. Furthermore, Hong Kong should reinforce its collaboration with the mainland and the international community, not just in economic transactions but also in cultural and technological exchanges, thereby facilitating capital influx and strengthening its competitive edge in the global financial arena.
With the impetus of new urbanization and national development policies, Hong Kong stands to benefit from expansive growth opportunities. Particularly, within the purview of the "Belt and Road" initiative and the development of the Guangdong-Hong Kong-Macao Greater Bay Area, Hong Kong can capitalize on its position as a financial, trade, and logistics nexus to support sustainable economic advancement. Engaging in these national strategies is expected to bolster Hong Kong's global standing and unlock further economic advantages.
In sectors such as securities, commodity futures, and asset management, Hong Kong can entice more international investors through a series of policy enhancements. These should include minimizing trading costs, broadening the spectrum of financial products, and elevating market transparency and liquidity. Such measures will enhance the market's allure, positioning Hong Kong as a global capital hub.
Through the execution of these strategies, Hong Kong is poised for substantial economic growth and can secure a more significant role within the global financial system. It is vital for Hong Kong to maintain an open and inclusive mindset while confronting challenges, actively embracing change to preserve its influence and competitiveness on the international stage. This not only fosters Hong Kong's prosperity but also contributes positively to the economic development of the broader Asia-Pacific region.
We anticipate your attention and support in collaboratively advancing Hong Kong's prosperity and development.
Challenges and Opportunities in Policy and Compliance Systems
With rapid advancements in the global economy and technology, Hong Kong's importance in national development strategies has become more pronounced. In this context, the region encounters various regulatory challenges and opportunities, with its adaptability in compliance systems emerging as a crucial factor.
1. Key Focus Areas for Future National Development
In recent years, the Chinese government has rolled out several strategic development initiatives and policy measures that significantly impact Hong Kong's trajectory, while simultaneously presenting numerous opportunities. For instance, the "14th Five-Year Plan" and objectives set for 2035 explicitly outline key priorities such as fostering high-quality development, achieving technological self-sufficiency, embracing a dual-circulation economic model, and promoting regional collaboration. In this framework, Hong Kong is tasked with reinforcing its position as an international financial, shipping, and trade center, while also enhancing its roles in global offshore renminbi operations, international asset management, and risk management functions.
Moreover, initiatives such as the "Belt and Road" endeavor offer Hong Kong a fresh avenue for development. As an international financial center, Hong Kong can utilize its advantageous location and financial infrastructure to provide funding and services for infrastructural projects and trade activities of countries participating in the "Belt and Road." Additionally, regional development strategies, including the coordinated development of the Beijing-Tianjin-Hebei area, the Yangtze River Economic Belt, and the Guangdong-Hong Kong-Macao Greater Bay Area, afford further opportunities for Hong Kong to enhance resource allocation and stimulate economic growth. These policies aim not only to bolster local economic development but also to facilitate collaboration across various regions.
The drive towards new urbanization also presents both challenges and opportunities for Hong Kong's growth. This strategy promotes a people-centered approach to urbanization and fosters urban-rural integration, providing new insights for Hong Kong's urban planning and social services. Furthermore, Hong Kong's strong educational institutions and research capabilities are expected to contribute significantly to the nation's technological self-reliance.
2. Hong Kong's Crucial Role in National Development Aims
In the context of the aforementioned national development strategies, Hong Kong's role is of paramount significance. As a special administrative region, Hong Kong is not only expected to contribute to the "Belt and Road" construction but should also actively engage in the development of the Guangdong-Hong Kong-Macao Greater Bay Area. Hong Kong's established status as an international financial, shipping, and trading center equips it to provide substantial support for advancing the "Belt and Road" initiative. Moreover, the "14th Five-Year Plan" emphasizes the need for Hong Kong to strengthen its global offshore renminbi business and international asset management capabilities, thereby enhancing its competitiveness and providing stable support for the national financial system.
Collaboration among Hong Kong, the mainland, and Macao will be crucial in fostering high-quality development within the Guangdong-Hong Kong-Macao Greater Bay Area. Hong Kong is anticipated to evolve into a center for innovation technology, international legal arbitration, and cultural exchange within the region, thereby advancing the service sector towards high-end and high-value offerings. This evolution is expected to contribute to Hong Kong's own economic prosperity while also solidifying economic linkages across the Greater Bay Area.
Furthermore, Hong Kong's leadership in technological innovation is a key asset. With its robust higher education and research ecosystem, Hong Kong plays a vital role in the nation’s technological innovation strategy, which manifests not only in the transformation and application of research outputs but also in promoting the commercialization and globalization of technological advancements. The supportive environment for innovation, combined with governmental backing, will collectively drive forward technological progress and establish a strong foundation for future economic growth.
3. Regulatory Opportunities and Challenges
Despite its critical role in national development strategies, Hong Kong must comprehensively enhance its regulatory framework to meet future developmental demands. As an international financial center, Hong Kong must navigate the regulatory requirements set forth by both the mainland and international standards, leading to a complex and dynamic regulatory environment. The presence of a multi-tiered regulatory system complicates compliance and elevates operational expectations for financial institutions.
Additionally, the rapid evolution of fintech and virtual assets often outpaces the development of relevant regulatory policies, posing significant challenges for governance. The ongoing quest is how to foster technological innovation while ensuring the stability of financial markets. Furthermore, cross-border regulatory coordination has emerged as a complex issue, given the increasing frequency of international transactions in financial markets. Effectively aligning regulatory policies across various nations and regions will remain a critical focus for Hong Kong in the foreseeable future.
In terms of combating money laundering and tax evasion, the intricate patterns of cross-border transactions heighten the challenges in addressing these issues. Consequently, Hong Kong must not only bolster oversight of financial institutions but also enhance transparency and adherence to regulations concerning cross-border dealings.
Nevertheless, challenges also present a variety of opportunities. With ongoing technological advancements, enhancing regulatory capabilities through technology is a vital direction for the future. By harnessing big data, artificial intelligence, and other cutting-edge technologies, Hong Kong can achieve intelligent and precise regulation, thereby elevating the effectiveness and accuracy of regulatory oversight. Additionally, reinforcing collaboration with both mainland and international regulatory bodies to improve cross-border regulatory coordination is likely to be a future trend.
Continually refining the legal and regulatory framework to support financial innovation will also be paramount in Hong Kong's regulatory reform efforts. This approach can enhance market transparency and stability while achieving effective risk management and mitigating potential risks. Embracing fintech developments and advancing regulatory methodologies will enable Hong Kong to maintain its competitive edge in the global financial market.
In conclusion, Hong Kong plays a vital role in national development strategies. Although it faces intricate challenges in regulatory environments, with proactive optimization of policies, regulations, regulatory mechanisms, and technological applications, along with clear long-term objectives for the financial sector, Hong Kong can align with the national development trajectory and contribute significantly to the country's economic prosperity.
Recommendations for the Securities Market
1. Review of Stock Stamp Duty
While the stock stamp duty has been reduced to 0.1% for both buyers and sellers, this rate remains higher than that of other major stock markets, rendering trading costs in Hong Kong relatively steep and lacking a significant fee advantage. The stamp duty constitutes the principal transaction cost of Hong Kong's stock market. Despite last year's decrease, Hong Kong retains the distinction of being the most expensive market among major global securities markets. To boost the competitiveness of Hong Kong's stock market and lower high-frequency trading costs, we recommend further reducing or even abolishing this tax, leveraging lower trading costs to attract more foreign capital.
2. Expansion of Weekly Stock Options
We have noted that the upcoming weekly stock options, set to launch on November 4, 2024, will only encompass ten Hong Kong stocks. Stock options are a mature product category and can benefit from existing market structures, drawing on successful practices from the US. We propose expanding the scope of weekly stock options to include all blue-chip stocks, which will not only provide increased liquidity opportunities for substantial financial institutions but also invigorate Hong Kong's options market, attracting more options investors and enhancing overall market activity.
3. Adjustment of Stock Price Tables
The Hong Kong Stock Exchange has recently suggested modifying the stock price table by adjusting the minimum price fluctuation range of the securities market. Presently, the trading system allows for a ±24 price level fluctuation range from the best bid. We recommend directly increasing this fluctuation range for affected securities to ±48, which will simplify operations, improve trading efficiency, and stimulate market activity.
Optimization of Listing Regulations
1. Continued Listing System Enhancement
We advocate for further optimization of the listing system to attract more high-quality enterprises, particularly those from high-growth sectors already listed on other significant exchanges, including hard technology and biotechnology. A more streamlined dual-listing mechanism should be established to facilitate these enterprises' entry into the Hong Kong Stock Exchange.
2. Improvement of Investor Structure
To draw more qualified mainland investors into the Hong Kong stock market, we should enhance the interconnection mechanism between the two markets (e.g., optimizing the Stock Connect program) to lower participation thresholds and costs for mainland investors.
3. Promotion and Education
An intensified promotional effort for the Hong Kong stock market is essential, particularly focusing on educating domestic and foreign investment institutions to attract more long-term value investors, such as pension and sovereign wealth funds, thereby stabilizing market sentiment and enhancing recognition and confidence in the Hong Kong stock market.
4. Enhancement of Market Liquidity
Capitalize on anticipated fund inflows following the cessation of the US interest rate hike cycle to increase liquidity in the Hong Kong market and elevate market valuation. Removing entry barriers and introducing a market maker system analogous to that of the US will help attract younger clients.
5. Strengthening International Cooperation
To bolster the international competitiveness of the Hong Kong market, efforts should be made to develop cooperation and exchanges with international markets, fostering the growth of Hong Kong's new stock market and helping to reclaim its former leading status.
6. Temporary Reduction of Minimum Market Capitalization Requirement for Main Board Listings
Currently, new stocks listed on the Hong Kong main board are required to meet a minimum market capitalization of HKD 500 million, alongside achieving a minimum profit of HKD 35 million for the most recent year. Given the current market downturn and the low price-to-earnings ratios in many sectors, we recommend reviewing the minimum market capitalization requirement for applicants who meet profit criteria to invigorate the new stock market in Hong Kong.
7. Relaxation of Listing Regulations for Asset Injections into Listed Companies
The existing anti-takeover rules delineate two specific forms of anti-takeover actions involving changes in the control of listed companies. If asset injections occur within 36 months before or after a control change, they will be subject to anti-takeover rules. Relaxing these regulations can enhance the value of Hong Kong's listed status and revitalize the worth of Hong Kong-listed companies.
Recommendations for the Development of Commodity Futures
Hong Kong should aspire to become a leading commodity futures center in Asia. Currently, the city's financial development primarily centers on equity securities, including initial public offerings (IPOs), financing, and the secondary securities market. However, recent years have seen relatively weak trading volumes and IPO activity in the Hong Kong stock market, raising concerns about its status as an Asian financial center. To further diversify and solidify Hong Kong's financial landscape, it is crucial to promote the development of the commodities market and commodity futures derivatives, positioning Hong Kong as an Asian commodity futures center.
This initiative can not only elevate Hong Kong's role as an international financial center but also create a time zone-centered trading platform for Asian investors. It can cater to the significant commodity demand from the mainland, and if Hong Kong integrates with the mainland's rapid economic growth, the futures market will undoubtedly flourish.
In comparison to Singapore, New York, and London, Hong Kong's commodity futures development is relatively underwhelming. For example, after the acquisition of the London Metal Exchange (LME) by the Hong Kong Stock Exchange, futures contracts for various metals were launched, yet trading remains subdued, with low market participation and awareness. Hong Kong has yet to establish an effective trading platform for commodity investment, hedging, and arbitrage.
Hong Kong harbors the potential to evolve into a global commodity futures center in Asia. As an international financial hub, it possesses numerous favorable conditions to distinguish itself in the region, making it an ideal trading center for commodities. Firstly, Hong Kong's financial market is highly internationalized, featuring numerous multinational financial institutions with considerable trading experience and expertise. Secondly, the city boasts comprehensive financial infrastructure, encompassing exchanges, clearinghouses, and information systems that can effectively support commodity derivatives trading. Moreover, Hong Kong's freely convertible currency, the Hong Kong dollar, and its open financial market with unobstructed capital flow create a conducive monetary environment for commodity futures trading.
As the world's largest offshore renminbi center, Hong Kong holds unique advantages in renminbi trading. The city can utilize its renminbi market foundation to actively promote commodity futures products priced in renminbi, catering to the needs of mainland enterprises and investors. Additionally, leveraging the growth of the offshore renminbi market can enhance the prominence of renminbi pricing in commodities and bolster Hong Kong's international standing.
By optimizing the functions of the LME, the Hong Kong Stock Exchange, which ranks as the second-largest commodity exchange globally following the acquisition, should consider establishing a spot trading venue in Hong Kong. The mainland has emerged as a major consumer and supplier of commodities, precious metals, and other raw materials, yet its commodity futures market remains insulated from international markets. Hong Kong should capitalize on its strengths in tandem with the mainland to establish a commodity futures trading center in the region.
The LME's product feature entails generating a new contract each trading day, maturing three months later on the same day. When a client opens a position and subsequently closes it on the same day, they can hedge using a contract with the same maturity date but in the opposite direction, thus avoiding a swap. However, if an investor opens a position and reverses the transaction after a day or more, they need to adjust the position. This adjustment process, which aligns two contracts with different maturity dates to the same maturity date, incurs an adjustment fee that is influenced by market spreads and supply-demand factors.
The results of adjustments are related to market spreads as follows:
- Long Position: In a contango, closing is unfavorable; in backwardation, closing is favorable.
- Short Position: In a contango, closing is favorable; in backwardation, closing is unfavorable.
This mechanism facilitates the development of hedging and arbitrage activities. Furthermore, establishing a spot delivery facility and warehouse for LME products in Hong Kong can leverage the advantages of the city's financial services industry, supported by a wealth of professional financial, legal, and logistics service organizations facilitating commodity trading. Hong Kong's strategic geographical position at the heart of Asia enhances trade with mainland China and other Asian nations, coupled with a well-developed transportation network and logistics infrastructure conducive to the movement and distribution of goods. As a major global financial center, Hong Kong possesses a mature financial market, robust legal framework, and efficient settlement system, thereby providing favorable conditions for financing and settling commodity transactions.
Backed by the Prominent Advantages of the Mainland:
In recent years, the mainland's rapid economic growth has generated significant demand for commodities, particularly in the context of the national policy-driven "Belt and Road" initiative, where the supply and demand for base and black metals are particularly noteworthy. The close economic ties between Hong Kong and the mainland serve as a solid foundation for establishing a regional commodity futures center. The mainland represents the world's largest market for production and consumption of commodities, and Hong Kong can leverage its internationalization advantages to provide risk management and pricing services to mainland enterprises. Conversely, Hong Kong can absorb abundant commodity resources and markets from the mainland to attract both domestic and foreign investors. Although the mainland currently hosts three commodity futures exchanges, it lacks the conditions to cultivate a global commodity futures market, largely due to the absence of free capital flow in the mainland currency and the predominance of dollar-denominated pricing and settlements in international commodities. Hong Kong can establish connectivity mechanisms with mainland futures exchanges to promote the integration of the mainland's commodity futures market with international standards.
At present, the mainland's legal and financial services in aligning with international markets still fall short of global standards. Therefore, we recommend that Hong Kong leverage its highly international financial market and its advantages in integrating with the mainland's rich commodity resources and market support to develop into Asia's global commodity futures center.
Finally, to achieve the goal of becoming a commodity futures center, the Hong Kong Stock Exchange and futures exchanges should diversify the commodity futures product supply chain. In addition to the existing metal futures products, they should also consider launching futures and options related to emerging metals and battery raw materials to meet market demands. Concurrently, they should harness technological innovation, utilizing big data, artificial intelligence, and other technologies to optimize trading systems, thereby enhancing trading efficiency and risk management capabilities, thus fortifying the competitive advantages of commodity futures.
The Hong Kong government must also enhance policy support and industry promotion: the government should explicitly express its endorsement for Hong Kong's development as a commodity futures center in policy reports and budget plans. The Securities and Futures Commission should refine regulatory policies to grant the industry greater developmental space and flexibility, while also enhancing Hong Kong's regulatory framework and legal system to ensure fairness and order in commodity futures trading.
Recommendations for Asset Management:
Enhance the 5% upper limit on ancillary transactions in the DIPN 61 Unified Fund Tax Exemption Ordinance to adapt to the current high-interest environment. Moreover, it is recommended that the tax authority consider including interest income from holding debt-type securities as qualified transactions, thus enhancing the attractiveness of the Unified Fund Tax Exemption Ordinance and encouraging more fixed-income, credit, and debt-type funds to settle in Hong Kong, thereby solidifying the city's position as an international asset management hub.
Since June 2020, the Hong Kong tax authority has released the "Interpretation and Practice Notes No. 61" (DIPN 61), providing detailed explanations of the "2019 Tax (Exemption Fund Payment Profits Tax) (Amendment) Ordinance" (Unified Exemption Ordinance). This ordinance, effective from April 1, 2019, extends Hong Kong's tax exemption to all funds, regardless of whether they are centrally managed and controlled in Hong Kong, provided they meet specific conditions.
According to the Unified Exemption Ordinance, funds must meet the following three criteria to qualify for the tax exemption: first, the entity must conform to the definition of a "fund"; second, profits generated must stem from qualified transactions or ancillary transactions, with profits from ancillary transactions not exceeding 5%; and third, qualified transactions must be conducted or arranged by "designated persons" in Hong Kong, which includes companies licensed by the Hong Kong Securities and Futures Commission. If the above conditions are unmet, the fund must satisfy the definition of a "qualified investment fund."
Industry experts have indicated that the government lacks a comprehensive understanding of fund operations, undermining the efficacy of the relief measures, particularly concerning restrictions on ancillary transactions. The tax authority posits that holding debt to generate interest income does not qualify as a securities transaction because such transactions do not involve buying and selling parties; conversely, holding securities to collect interest is classified as an ancillary transaction and thus subject to the 5% threshold. We recommend that the Hong Kong government revisit and elevate this 5% limit on ancillary transactions to align with the current high-interest environment. Simultaneously, we suggest that the tax authority consider treating interest income from holding debt-type securities as qualified transactions to enhance the Unified Fund Tax Exemption Ordinance's appeal, thereby promoting more fixed-income, credit, and debt-type funds to register in Hong Kong, thus reinforcing the city's status as an international asset management center and elevating its attractiveness as a jurisdiction for private funds.
Recommendations for Family Office Development:
As global wealth management demands rise, family offices—providing comprehensive wealth management services for ultra-high-net-worth families—are becoming increasingly prominent. Earlier this year, Deloitte released a report indicating that the number of family offices in Hong Kong had reached 2,703 as of last year, significantly surpassing the number in Singapore. However, this figure raises concerns about the quality of family offices in Hong Kong, suggesting that quantity does not equate to quality.
In recent years, family offices have flourished in the Asian region, with many affluent Asian families weighing the benefits of establishing family offices in Hong Kong versus Singapore. In this competitive landscape, regional advantages, supporting infrastructure, and tax rates have emerged as critical considerations. Hong Kong boasts exceptional talent, a robust legal framework, a mature financial sector, and tax incentives. The government has also implemented a series of policies in recent years to attract more families to establish offices in the city. With these advantages, Hong Kong's competitiveness is expected to rival or surpass that of Singapore.
As the Asian economy expands rapidly, the wealth management market is poised for growth, particularly in Hong Kong, where a proliferation of institutions claiming to be family offices has emerged. This phenomenon largely stems from the fact that establishing a family office in Hong Kong does not necessitate approval, while Singapore mandates a lengthy approval process of 9 to 12 months. It is undeniable that the Hong Kong SAR government has prioritized increasing the number of family offices. However, while this strategy creates opportunities for rapid establishment, it has also led to the emergence of numerous insubstantial "pseudo-family offices" that misrepresent their operational intent, often selling products or providing consulting services without legitimate family backing.
According to Deloitte's data, the number of single-family offices in Hong Kong has significantly surpassed that in Singapore, and it is unlikely to catch up in the short term. The promotion of family offices aims to position Hong Kong as a global wealth management hub and enhance local investment market liquidity. However, if the reported number of family offices exceeds USD 10 million has indeed reached 2,703, why does the local investment market remain sluggish and liquidity unenhanced? This suggests that the government's strategy may have merely facilitated the establishment of family offices without systematically encouraging their actual investment in the local market. If family offices cannot provide substantial support to the local investment sector, the government may need to consider adjusting its strategy to attract high-quality family offices to settle in Hong Kong.
Singapore and Hong Kong have adopted contrasting strategies, and both can progress simultaneously while learning from one another. Singapore pursues high-quality family offices, requiring applicants to be approved by the Monetary Authority of Singapore and to meet specific asset management scale requirements to qualify for tax exemption. The asset management scale requirements are SGD 20 million for the 13O scheme and SGD 50 million for the 13U scheme, with applicants needing to demonstrate a certain scale of local investment, at least 10% of their asset management scale or SGD 1 million (whichever is lower). These elevated thresholds ensure the quality of family offices sought by Singapore. Although these thresholds are relatively high, they are not subject to the restrictions imposed by the Ministry of Manpower, thus providing investors an opportunity to obtain a "Singapore Employment Pass" and facilitating their potential to apply for "Singapore Permanent Residency" and "Singapore Citizenship." Thus, Singapore's strategy not only prioritizes family office quality but also integrates personal identity planning and immigration policies, enhancing its appeal.
The Hong Kong SAR government has set a KPI to increase family offices by 200 by the end of 2025, expecting to exceed this target. However, the government must keep in mind the original intent behind promoting family office development and utilize public consultation opportunities to recommend the following: (1) Establish approval criteria to prevent the misuse of the family office label and ensure the establishment of quality family offices; (2) Enhance the attractiveness of family offices setting up in Hong Kong through immigration policies; (3) Develop specific initiatives to encourage the investment of already established family offices in the local market, systematically boosting local financial market liquidity.
Regarding Virtual Assets
With the ongoing evolution of global fintech, virtual assets have become an integral facet of the financial landscape, especially in Hong Kong, which serves as an international financial hub. This report aims to provide recommendations regarding the existing regulatory framework, regulatory resources, and banking challenges faced by virtual asset institutions to foster the healthy development of the virtual asset industry in Hong Kong.
1. Unification of the Regulatory Framework
Current Market Situation
Presently, the regulation of virtual assets in Hong Kong is overseen by multiple agencies. The Securities and Futures Commission (SFC) primarily regulates virtual asset trading platforms, while the Monetary Authority governs stablecoins, and customs oversee over-the-counter trading. This fragmented regulatory structure may lead to inconsistencies, inefficiencies, and enforcement challenges.
Proposed Measures
- Establish a Supreme Cross-Departmental Regulatory Decision-Making Body for Virtual Assets: We recommend the government consider establishing a supreme cross-departmental regulatory decision-making body for virtual assets. This body would resolve disputes or uncertainties regarding regulatory responsibilities among the SFC, the Monetary Authority, and customs, thereby ensuring final functional decisions are made. The rationale for this approach is that the SFC oversees trading platforms (exchange models), the Monetary Authority governs stablecoins (monetary banking principles), and customs manage over-the-counter trading (street-level operations). A tripartite regulatory approach is warranted due to the distinct economic models represented. Such a model would not create confusion for virtual asset service providers (VASPs) and virtual asset trading platforms (VATPs) but would instead foster an adaptable environment for the industry, emphasizing support for legitimate operators while preventing fraud.
- Develop Comprehensive Regulatory Policies: Further development and refinement of laws and regulations related to virtual assets are essential to ensure regulatory measures align with international standards, promoting compliance and transparency. Comprehensive regulatory policies should encompass the three independent economic entities, including exchanges, stablecoin issuance and operations, and over-the-counter operations.
To ensure the effective operation of the newly established regulatory body, systematic planning and implementation are required across several dimensions to guarantee operational effectiveness, transparency, and rationality. Key proposed strategies include:
- Clear legislative and regulatory frameworks, emphasizing that all establishments must be based on distinct economic models.
- Establishing specialized laws: Ensuring a complete legal framework for the regulation of virtual assets, clarifying the authorities, responsibilities, and operational norms of institutions.
- Formulating detailed implementation rules: Specifically detailing the regulatory scope, standards, and procedures, which include asset custody, transaction supervision, internal controls, and risk management.
- Developing clear anti-money laundering (AML) and anti-terrorism financing guidelines: While any economic system shares a common direction in AML and anti-terrorism financing, specific indicators may differ. Given the immutable nature of blockchain, unique analytical and tracking tools can rapidly identify suspicious transactions and criminal records. Tracking and apprehending a criminal wallet on the blockchain may be more efficient than traditional methods. Therefore, setting appropriate standards and guidelines that allow for industry survival is essential. Just as currency that has circulated through illicit hands is not destroyed or re-minted before reintroduction into circulation, virtual currencies are unlikely to be re-minted or destroyed, as this would disrupt supply and artificially alter the entire capital pool. Thus, allowing the market to determine supply and demand is a more appropriate approach that minimally impacts the ecosystem. Regulation can propose that transactions exceeding a certain threshold of illicit funds must be proactively reported to the regulatory body, rather than attempting to block all previously utilized coins.
2. Ensuring Professionalism in Human Resources
- Professional Training: Provide necessary professional training for regulatory personnel, encompassing the latest developments in the virtual asset industry, technical tool usage, and risk assessment.
- Recruitment of Industry Experts: Attract industry experts with experience in the virtual asset market to analyze and identify vulnerabilities in this sector. The unique nature of the virtual asset market necessitates genuine operational experience to accurately assess the pros and cons of each product and process. Currently, licensed institutions often appoint individuals lacking relevant experience as heads of virtual asset institutions, which not only undermines the fairness of the system but also leads to misallocation of human resources, forcing institutions to seek scapegoats. Regulatory bodies and operational entities must clarify appropriate selections and establish true definitions and standards regarding industry experience and knowledge.
3. Strengthening Transparency and Credibility
- Regular Reporting: Regulatory bodies should regularly publish the outcomes of their regulatory actions to the public, including license issuance, handling of violations, and enforcement activities.
- Establishing Feedback Mechanisms: Create channels that enable industry and the public to provide feedback on regulatory policies, including an appeals mechanism to ensure alignment of regulatory measures with market needs.
4. Technological Support and Data Analysis
- Utilizing Advanced Technological Tools: Leverage cutting-edge tools such as blockchain, big data, and artificial intelligence to enhance the efficiency and accuracy of regulatory oversight. Many tracking and analytical tools are continuously updated, highlighting the importance of supporting domestic innovative tech enterprises in developing and applying such tools.
- Data-Driven Decision-Making: Ensure decisions are grounded in comprehensive data analysis, employing scientific methods to assess market dynamics and risks. All indicators and guidelines must account for providing the industry with a viable space for survival; if the entire industry collapses, regulation would be rendered moot.
5. International Cooperation
- Collaborating with Regulatory Agencies in Other Countries: Given the global nature of virtual assets, fostering collaboration with international regulatory bodies will facilitate information sharing, coordinated regulatory policies, and the combatting of transnational crime.
6. Continuous Evaluation and Improvement
- Regularly Reviewing and Adjusting Policies: Regulatory policies and measures should proactively undergo regular reviews and necessary adjustments based on market developments and technological advancements.
- Establishing Crisis Response Mechanisms: Both regulatory bodies and operational entities should develop effective emergency plans to address potential market turbulence, risk management issues, and technical challenges.
Through these proposed measures, the newly established regulatory body can enhance its oversight of the industry, allowing it to excel on a global scale and achieve better development outcomes.
7. Strengthening Regulatory Resources
Existing Issues
The virtual asset industry is evolving rapidly, necessitating enhanced resources for regulatory bodies to expedite the approval of licensed virtual asset providers, new products, and cryptocurrencies. Reports indicate that the SFC maintains high approval standards for virtual asset trading platforms, posing challenges for many applicants and reflecting bottlenecks in regulatory efficiency.
Proposed Measures
- Increase Professional Personnel and Technical Resources: To meet stringent approval standards, it is advisable to invest in human and technological resources to bolster approval efficiency and quality.
- Regularly Evaluate and Adjust Policies: Establish an independent specialized team responsible for regularly evaluating the effectiveness of current policies and making necessary adjustments according to market and technological changes.
Further measures to enhance regulatory resources should encompass human, financial, and technical support to elevate the overall performance and efficiency of regulatory agencies. Specific recommendations include:
1. Strengthening Human Resources:
- Increase Professional Talent Recruitment: The government must lead the charge in recruiting professionals with expertise in fintech, law, information technology, and cybersecurity, particularly those with hands-on experience in emerging technologies and virtual assets.
- Ongoing Professional Training: Regularly provide staff with the latest industry knowledge and technical training, covering international best practices, regulatory technology applications, and updates to relevant laws and regulations.
2. Increasing Financial Resources:
- Enhance Financial Budget Investment: The government should amplify financial support for regulatory agencies to ensure adequate funding for technological upgrades, talent training, and daily operations.
- Seek External Funding: Explore cooperative opportunities with international organizations to secure additional funding, though traditional sources may express concern over potential disruptions to the fiat currency system.
3. Enhancing Technology and Facilities:
- Invest in Advanced Technology: Allocate resources toward the latest technologies, such as blockchain, artificial intelligence, and big data solutions, to support data analysis, risk assessment, and trading oversight.
- Establish Efficient Data Centers: Develop dedicated data centers and assemble specialized teams of data scientists to facilitate large-scale data processing and analysis, improving regulatory efficiency and accuracy.
4. Improving Internal Management and Processes:
- Optimize Workflows: Regularly assess and optimize internal processes to eliminate redundancies and enhance efficiency, preventing communication barriers between departments.
- Strengthen Risk Management: Establish a comprehensive internal risk management framework to identify and promptly respond to operational and regulatory risks.
5. Enhancing Public and International Cooperation:
- Establish Cooperation Networks: Develop cooperative mechanisms with regulatory agencies in other nations to share information, experiences, and resources, particularly regarding cross-border regulatory issues.
- Participate in International Discussions and Standard Setting: Actively engage in international regulatory forums and organizations, contributing to the formulation of international standards to bolster the agency's global influence and professional image.
Through these measures, the internal capabilities of regulatory agencies can be enhanced, along with a greater level of external cooperation and international participation, enabling more effective responses to the dynamic regulatory demands of the virtual asset market.
8. Banking Issues for Virtual Asset Institutions
Current Issues
Currently, many licensed virtual asset traders encounter significant obstacles from banks regarding account opening, deposits, and withdrawals. The reluctance of banks to engage with virtual asset products often stems from a lack of understanding and technology, leading to a general refusal to accommodate the normal deposit and withdrawal requirements of licensed virtual asset traders and their clients.
To foster the technological ecosystem, banks in Hong Kong must meet the legitimate business needs of licensed virtual asset service providers and extend necessary banking services similarly to other regulated entities. The Monetary Authority's guidance for banks serving corporate clients, including virtual asset service providers, advocates for a balanced approach that offers inclusive banking services while effectively managing money laundering and terrorism financing risks.
Proposed Measures
- Enhance Banks' Understanding and Training on Virtual Assets: The government should collaborate with the Monetary Authority to facilitate training and educational programs aimed at enhancing bankers' understanding of the virtual asset industry and improving their risk management capabilities.
- Establish Risk Assessment and Management Mechanisms: Encourage banks to develop rational risk assessment and management frameworks for virtual asset businesses, allowing them to support the sector's growth while remaining compliant with regulations.
- Encourage Local Banks to Learn from and Emulate Foreign Banks' Mechanisms: Local banks should be incentivized to engage in virtual asset custody services. Familiarity and sufficient knowledge within banks will naturally alleviate fears and concerns.
Integration of Virtual Assets with Traditional Finance
The integration of virtual assets with traditional finance is a complex and ongoing process that involves myriad regulatory, technological, market, and cultural challenges. To promote this integration effectively, the following strategies can be adopted:
1. Improve the Regulatory Framework:
- Establish Clear Regulations: Develop specific laws and rules governing interactions between virtual assets and traditional financial products, including custody, trading, and tax treatment.
- Promote Regulatory Consistency: Align local regulations with international standards to create a stable investment environment for international investors and businesses.
2. Enhance Education and Training:
- Increase Industry Understanding: Provide traditional financial institutions’ employees with education and training on virtual assets, blockchain, and related technologies.
- Public Education: Conduct seminars, online courses, and media campaigns to enhance public awareness of virtual assets and their potential advantages.
3. Establish Collaborative Platforms:
- Promote Cross-Industry Collaboration: Create industry alliances or platforms enabling virtual asset companies and traditional financial institutions to collaboratively explore, develop, and promote new financial products and services.
- Collaborate Across Industries: Work with governments, universities, think tanks, consultants, and other relevant organizations to drive technology and policy development collectively.
4. Encourage the Application of Regulatory Technology:
- Utilize RegTech: Encourage financial institutions and virtual asset service providers to adopt regulatory technology tools that facilitate regulatory analysis and management, improving the efficiency of regulation.
- Transparency and Compliance: Increase transaction and operational transparency through technology, enhancing trust among investors and regulatory bodies.
5. Create a Risk Management Framework:
- Comprehensive Risk Assessment: Establish a credible risk management framework for virtual asset investments covering market, credit, operational, counterparty, volatility, and project feasibility risks.
- Regularly Audit and Evaluate: Conduct periodic audits and evaluations of existing risk management strategies to ensure adaptability to market and technological changes.
By implementing these strategies, the effective integration of virtual assets with traditional finance can be fostered, creating a broader, safer, and more innovative financial ecosystem.
9. Public Perception Issues Regarding Virtual Assets
Current Issues
Despite the Hong Kong government's policy launch in October 2022 to position the region as a hub for Web 3.0, there remains a general lack of public understanding regarding the virtual asset industry and its products, which leaves individuals vulnerable to scams masquerading as virtual assets. Enhancing public awareness of virtual assets and Web 3.0 necessitates education and outreach. Specific measures include:
1. Education and Publicity:
- Offer Educational Courses and Seminars: Conduct courses and seminars in schools, universities, and community centers to enhance public understanding of virtual assets and blockchain technology.
- Utilize Media and Social Platforms: Disseminate accessible information through mass media, television, radio, newspapers, and social networks to clarify the basic concepts, potential benefits, and risks associated with virtual assets.
II. Increase Transparency and Trust
- Strengthen Transparency Requirements: Mandate virtual asset service providers to obtain and publicly display licenses, and disclose their operational models, fee structures, and other relevant information to foster investor confidence.
- Case Studies and Success Stories: Highlight successful applications of virtual assets, such as in international remittances and asset management, to emphasize their practical benefits.
- Promote and Publicize Knowledge Resources: Actively disseminate knowledge repositories focused on financial literacy.
III. Enhance Regulatory and Protective Measures
- Establish a Robust Regulatory Framework: Develop clear laws and regulations aimed at safeguarding investor interests and combating fraud and misconduct.
- Investor Protection Policies: Implement complaint and compensation mechanisms to provide essential legal support and protective measures for investors.
IV. Promote Industry Standards and Best Practices
- Encourage Industry Associations and Standardization: Inspire the virtual asset industry to form professional associations and develop industry standards, codes of conduct, and best practice guidelines.
- Certification and Training Programs: Introduce professional certification and training initiatives to elevate the professionalism and ethical standards of practitioners, thereby enhancing public trust in the industry.
V. Promote Technological Innovation and Security
- Support Technological Innovation: Allocate funding and policy support for technological advancements related to blockchain and virtual assets to encourage maturation and application of these technologies.
- Strengthen Security Measures: Enhance security protocols for virtual asset platforms to safeguard users’ funds and data, thereby preventing hacking and theft.
VI. Actively Engage in International Cooperation
- International Regulatory Cooperation: Collaborate with regulatory bodies in other countries to jointly formulate cross-border regulatory frameworks and standards, addressing regulatory challenges associated with transnational virtual asset activities.
- International Standard Setting: Participate in the establishment of international standards to ensure that local policies align with global markets, fostering the healthy growth of the global virtual asset market.
Through these initiatives, public understanding and acceptance of virtual assets can be significantly improved, creating a safe, transparent, and dynamic market environment.
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Conclusion
As a prominent international financial center, Hong Kong should strategically leverage red ocean strategies to enlarge its cryptocurrency market and seize market share while simultaneously encouraging the industry to adopt blue ocean strategies to explore new market avenues. With its potential, capabilities, and talent pool, Hong Kong is well-positioned to emerge as a leading global center for virtual asset trading and management, making it imperative to capitalize on this opportunity. By enhancing the regulatory framework, increasing regulatory resources, and addressing banking challenges, we aim to catalyze the swift development of the virtual asset industry and bolster Hong Kong's competitiveness in the global fintech landscape.
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On ESG
Recommendations for Hong Kong to Become a Global Leader in Green Finance
A. Background and Importance
Hong Kong has established itself as a major global financial hub, bolstered by its exceptional financial infrastructure, solid legal and tax frameworks, and robust support from the mainland Chinese economy. However, with the growing global focus on environmental, social, and governance (ESG) standards, the transition to green and sustainable finance is an unavoidable trend. According to the Global Green Finance Index 2024 (GGFI 13), Hong Kong currently ranks 37th among global green finance cities and 7th in Asia, falling behind cities such as Singapore, Seoul, Shenzhen, Shanghai, Beijing, and Busan. As the fourth-largest financial center globally, Hong Kong's performance in green finance is lagging, necessitating a thorough reassessment of its future development trajectory.
In light of these challenges, Hong Kong should harness its financial and economic strengths to proactively advance green finance development. The aim over the next decade is to position Hong Kong among the top three green finance cities worldwide and establish it as the leading green finance hub in Asia. Achieving this goal will not only enhance Hong Kong's status as an international financial center but also attract more international investors, support sustainable growth in the local economy, and positively contribute to global climate change initiatives.
B1. HKIC Green and Sustainability Match Fund Framework:
Direction and Objectives:
Establish the "HKIC Green and Sustainability Match Fund," modeled after Mubadala's green fund design. This fund will adhere to strict selection criteria, focusing on supporting projects in the following five green sectors:
1. Green Buildings
2. Energy Efficiency
3. Renewable Energy
4. Pollution Prevention and Control
5. Clean Transportation
These focus areas align with global trends in green finance and aim to promote urban sustainability and reduce carbon footprints. The fund will provide up to 30% investment for eligible projects, with the remaining 70% sourced from private capital. This public-private partnership model not only mitigates investment risks but also serves as a demonstration effect, attracting more private and international capital into Hong Kong's green finance market, particularly in sectors such as wind, solar, and hydrogen.
Specific Measures:
- Establish a dedicated green investment assessment team to select and monitor investments that align with green finance standards.
- Promote green building and renewable energy initiatives, particularly those achieving global benchmarks in energy efficiency, carbon reduction, and clean energy advancement.
- Provide technical support and training to participating projects to assist in meeting required green standards.
Expected Effects:
- Three-Year Goal: Attract at least HKD 50 billion in private capital into Hong Kong's green equity investment market and nurture at least 10 internationally influential enterprises in green technology and energy sectors.
- Long-Term Impact: Enhance Hong Kong's competitiveness in the global green finance market, positioning it as a center for green technology innovation in the Asia-Pacific region, and increasing the quantity and quality of green equity projects in the city.
B2. HKIC Sustainable Investment Framework:
Direction and Objectives:
By leveraging the GIC's sustainable investment framework, HKIC should fully align its investment standards with the TCFD (Task Force on Climate-related Financial Disclosures) and sustainable development requirements. This includes conducting thorough sustainability assessments of all investment targets and integrating sustainability considerations into due diligence, risk assessments, and monitoring processes. The GIC framework has demonstrated its capability to identify and capitalize on new investment opportunities arising from climate change and other sustainable development trends.
Specific Measures:
- Thematic Investments: Focus investments on opportunities related to climate change and sustainable development trends, such as low-carbon energy technologies, energy efficiency improvements, and renewable energy infrastructure.
- Integrate Sustainability: Weave sustainability considerations into all investment decision-making processes, including conducting carbon emission stress tests on high-carbon-emission enterprises and incorporating climate response strategies into investment portfolios.
- Protect Investment Portfolios: Regularly assess sustainability risks within existing investment portfolios, conducting additional due diligence on companies and assets exposed to heightened sustainability risks and adjusting long-term valuations and risk models accordingly.
Expected Effects:
- Three-Year Goal: Ensure that all companies invested in by HKIC comply with TCFD requirements, placing sustainability at the forefront of all investment decisions.
- Long-Term Impact: Enhance the transparency and accountability of Hong Kong's financial market through comprehensive sustainability integration strategies, attracting more global capital, particularly from ESG investors.
Establishing the "HKIC Green and Sustainability Match Fund" is highly feasible and effective, primarily due to the existing structure and operational foundation of the Hong Kong Investment Company (HKIC). By making appropriate adjustments to HKIC's internal investment processes and establishing this dedicated green investment fund, rapid implementation of this policy can be achieved at relatively low execution costs. This adaptable operational model will allow Hong Kong to respond swiftly to global demands for green finance and maintain a leading position in international competition.
C. Mandatory Compliance with TCFD Requirements and Provision of Support
With its world-class financial infrastructure, robust legal system, and strong backing from the mainland market, Hong Kong is poised to become a leader in global green finance. To further solidify its position, we recommend that the Hong Kong government adopt the latest TCFD requirements released in July 2024 in London, promoting adherence to the TCFD framework for climate-related financial disclosures among companies and providing necessary funding and technical support. These initiatives will enhance corporate transparency and competitiveness in addressing climate change risks and opportunities, fostering the long-term sustainable development of Hong Kong.
Direction and Objectives:
1. Mandatory TCFD Compliance Requirements: The Hong Kong government should mandate that all companies operating in the region, particularly listed entities, adhere to the TCFD framework for climate-related disclosures. By drawing on London’s recent policies, Hong Kong can devise a three-year transition plan to gradually implement disclosure requirements for businesses, ensuring ample time for necessary adaptations.
2. Establish Specialized Regulatory Framework: A dedicated regulatory body should be created to oversee and enforce TCFD compliance, ensuring all institutions and enterprises comply with the requirements. This framework should work alongside the Hong Kong Stock Exchange and other financial regulatory bodies to formulate compliance standards and execution plans, while providing relevant training and support.
3. Funding and Support Programs: Offer technical assistance, training, and financial subsidies for businesses, especially small and medium-sized enterprises, that may struggle to meet TCFD requirements immediately. These funding programs should provide tiered support based on business scale and compliance needs, including financial aid, professional development, and technical guidance to facilitate gradual compliance.
Specific Measures:
- Three-Year Transition Plan: Similar to London's phased approach for TCFD compliance, Hong Kong should implement a three-year transition plan. The first year (2024-2025) will involve requiring all large enterprises and listed companies to conduct preliminary climate risk disclosures and receive foundational training. The second year (2025-2026) will expand requirements to medium-sized enterprises, further refining disclosure obligations. In the third year (2026-2027), all businesses, including small and medium-sized enterprises, will be required to fully comply and submit corresponding compliance reports.
- Establish a Specialized Regulatory Framework: Similar to London’s TCFD policies, a specialized regulatory department should be established to formulate and enforce TCFD compliance standards, ensuring all enterprises adhere to regulations. This department should regularly review compliance processes and adjust policies as necessary.
- Funding and Technical Support: Implement specialized funding programs for small and medium-sized enterprises, including direct subsidies, training initiatives, and technical assistance, particularly targeting businesses lacking internal resources and expertise to facilitate compliance with TCFD requirements.
Reasons and Benefits:
- Reasons: As global investors increasingly prioritize climate risk considerations, compliance with the TCFD framework will enable companies to bolster their international reputation and investment appeal. The TCFD disclosure framework is recognized as one of the most effective for analyzing and communicating climate-related financial information globally. By mandating compliance, Hong Kong can attract greater international investments, particularly in the ESG sector.
- Benefits: Strengthening investor trust in the Hong Kong market and promoting sustainable development within the capital market. Compliance with TCFD requirements will allow companies to better manage climate risks, enhancing their competitive positioning and drawing more global capital into the Hong Kong market, thereby supporting long-term sustainable economic growth.
Expected Effects of Goals within Three Years:
By the end of the three-year transition period, ensure that all listed companies in Hong Kong adopt the TCFD framework for disclosures, with over 50% of small and medium-sized enterprises achieving compliance with TCFD standards. The specialized regulatory body will continuously monitor compliance processes to ensure adherence to regulations.
Long-Term Impact:
Establish a more transparent and accountable market environment, boosting Hong Kong's standing in global green finance rankings and solidifying its status as Asia’s leading green finance center. By implementing these measures, Hong Kong will enhance its position in the rankings of global green finance cities, becoming the preferred destination for green finance investors.
Implementing mandatory TCFD compliance requirements and establishing a specialized regulatory framework are critical steps for Hong Kong to realize its ambition of becoming a global leader in green finance. These policies not only have high feasibility and effectiveness but also leverage the existing framework and resources of the Hong Kong Investment Company (HKIC), resulting in relatively low implementation costs. The establishment of a three-year transition period and specialized funding programs will facilitate a smooth adjustment process for all businesses, minimizing market disruptions.
These measures are essential for Hong Kong's long-term development, enhancing its position in the global green finance landscape, promoting sustainable economic growth, and strengthening its image as an international financial center. The government should recognize the significance of these policies and actively support their implementation to ensure that Hong Kong retains its leading role in the global green finance sector. This will enable the city to attract more global investment, enhance market competitiveness and sustainability, and lay a solid foundation for future progress.
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Analysis of the Conflicts Between the Talent Scheme and Investment Immigration Policy
As globalization progresses, countries are instituting various immigration policies to attract talent and investment. Hong Kong, as an international financial center, is no exception. This approach is beneficial for our economy, and our organization has consistently expressed support for it. The Talent Scheme and the Investment Immigration Plan are two primary immigration channels in Hong Kong, yet they present contradictions in application qualifications, quotas, and implementation effects. This analysis will explore the conflicts and challenges posed by these policies. The public consultation for the Chief Executive's policy report is currently active, and I hope the Chief Executive takes these issues into consideration.
Overview of the Talent Scheme
The Talent Scheme aims to attract high-quality talent to Hong Kong, with three categories of application qualifications: Category A necessitates an annual salary exceeding HKD 2.5 million; Category B requires qualified university graduates with three years of work experience; and Category C targets qualified graduates with less than three years of experience, limited to an annual quota of 10,000 individuals. While Categories A and B are exempt from quotas, the limited quota for Category C imposes a threshold for talent acquisition.
However, the Talent Scheme encounters several challenges in its implementation. Firstly, the approval process for qualifications is relatively lenient, raising the risk of fraudulent applications. Market feedback indicates that the Talent Scheme has sparked considerable discussion, with some applicants reportedly establishing shell companies to fulfill its requirements. This undermines the policy's credibility and may lead to the entry of unqualified individuals. Secondly, the absence of a deadline for approved applicants to work in Hong Kong allows some to remain overseas even after securing visas, failing to effectively enhance the region's competitiveness.
Overview of the Investment Immigration Plan
The Investment Immigration Plan seeks to attract foreign capital. Qualified applicants must invest over HKD 30 million in Hong Kong, comprising HKD 27 million in financial assets and non-residential real estate, and HKD 3 million in projects supporting innovation and technology. The plan is set to accept applications in mid-2024 and does not require tax proof or educational qualifications, offering a relatively flexible option for candidates.
To increase the Investment Immigration Plan's attractiveness, it may be beneficial to relax the investment scope, allowing for a limited amount of residential real estate for personal use in designated new development areas, especially given the current decline in property prices. Nevertheless, the high investment threshold remains a significant barrier. Additionally, the inherent risks associated with technology investments may deter some investors, and even if conditions are met, the likelihood of obtaining permanent residency after seven years is low, further undermining the plan's appeal.
Conflicts Between the Talent Scheme and Investment Immigration Policy
A comparison of the Talent Scheme and the Investment Immigration Policy reveals notable contradictions. The Talent Scheme features a lower threshold, particularly for high-income individuals earning HKD 2.5 million or more annually, many of whom opt for immigration through the Talent Scheme rather than the high-investment option. For those unable to meet the HKD 30 million requirement, the Talent Scheme provides a more straightforward pathway, undoubtedly diminishing the Investment Immigration Plan's attractiveness. Moreover, the stronger appeal of the Talent Scheme has resulted in eligible financial institutions in Hong Kong not benefiting from the Investment Immigration Plan.
The Talent Scheme aims to stimulate economic growth in Hong Kong and attract high-quality talent. To enhance this mechanism, it has been suggested that certificate holders receive salary payments through their established shell companies. To verify the contributions of Talent Scheme certificate holders, the government should consider requiring proof of high-value property ownership when they apply for permanent residency.
Conversely, the high investment demands of the Investment Immigration Plan lead many potential high-quality talents to pursue immigration options in other countries. For instance, some EU nations have lower citizenship thresholds, requiring around HKD 2 million and five years, while US investment immigration necessitates about HKD 6.4 million with a minimum two-year investment duration. Furthermore, the Hong Kong Investment Immigration Plan requires a seven-year investment period before applying for permanent residency, which is longer than the US requirement, thereby diminishing Hong Kong's global competitive edge.
A director has previously noted that previous plans averaged around 4,000 applications annually. However, according to recent data, only 251 applications were received from March to the end of June this year, with merely three completing the investment review. Projections indicate that a minimum of 300 applications per month is necessary to meet targets. By year-end, how many applications are anticipated? Is the government overly optimistic? Or do the contradictions and conflicts between the policies contribute to fewer investment immigration applications than expected? An overseas immigration consultant noted that the negative reception of the Investment Immigration Plan is primarily due to the protracted application process and insufficient support from the investment promotion agency, resulting in consultants favoring the Talent Scheme for immigration recommendations.
Conclusion
In summary, while both the Talent Scheme and the Investment Immigration Plan have distinct characteristics aimed at attracting talent and capital, the conflicts between them are evident. The Talent Scheme's lower threshold and lenient approval standards can quickly draw talent but may not effectively enhance Hong Kong's overall competitiveness. In contrast, despite its higher funding requirements, the Investment Immigration Plan's complexity and uncertainty pose challenges in attracting foreign capital. Therefore, Hong Kong must balance the interests of both policies in future immigration strategies to cultivate a more appealing immigration environment.
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Measures to Stimulate Hong Kong's Retail Market
To further invigorate Hong Kong's retail market, taxpayers demonstrating sufficient local consumption will be eligible for additional tax benefits. This policy aims to incentivize consumers to increase their shopping expenditures, thereby revitalizing the market economy and enhancing business vitality.
This tax incentive model mirrors point reward schemes employed by numerous retail establishments. Malls entice customers to spend more by tracking their consumption behaviors and offering benefits based on spending amounts. This strategy not only stimulates consumer enthusiasm for shopping but also fosters overall growth in the retail sector, ultimately contributing to Hong Kong's economic recovery.
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Summary
In conclusion, Hong Kong's status as an international financial center hinges not only on its distinctive geographical and economic advantages but also on its capacity to exhibit flexibility and innovation amidst global economic challenges. Moving forward, Hong Kong must actively respond to shifts in policy and regulatory frameworks, leverage technological innovations to enhance market vitality, and strengthen both mainland and international collaborations to encourage capital inflow, thereby reinforcing its competitiveness within the global financial arena.
As Hong Kong navigates the demands of new urbanization and national development strategies, it must seize opportunities and engage actively in regional coordinated development, particularly within the framework of the "Belt and Road" initiative and the Guangdong-Hong Kong-Macao Greater Bay Area, capitalizing on its strengths in finance, trade, and logistics to drive sustainable economic growth.
Furthermore, optimizing policies across the securities market, commodities futures, and asset management sectors will help attract increased international investment and enhance market liquidity and vitality. Ultimately, through the execution of these strategies, Hong Kong is positioned to achieve robust economic development in the future and secure a more prominent role in the global financial landscape.
For any inquiries regarding this letter, please feel free to contact me at (phone:/ email: ).
Best regards,
Mofiz Chan
Hong Kong Securities and Futures Professionals Association