The Encounter: 800 days @ the Financial Services and the Treasury Bureau
With the 25th anniversary of Hong Kong’s return to the Motherland just around the corner, I am eagerly looking forward to celebrating the big day with members of the public. Looking back, it has been more than two years (about 800 days) since I first came to the Central Government Offices to take office. Back then, Hong Kong was hit by the second wave of the COVID-19 epidemic and most people were trying their best to cope with the anti-epidemic measures, such as closure of scheduled premises and prohibition on group gatherings. During the time when a virus from nature was threatening the world, Hong Kong was persistently being ravaged by violence instigated by black-clad rioters, who barricaded carriageways, set fires, assaulted police officers, vandalised public facilities and harrassed law-abiding citizens. Even explosive devices were discovered, suggesting signs of terrorism. A mere recollection of the days when Hong Kong was trapped between violence and the epidemic makes us shudder.
Seeing light at the end of darkness
The implementation of the National Security Law (NSL) in mid-2020 has eventually restored security and stability in Hong Kong after more than a year of political disputes and confrontations, and opened a new chapter featuring Hong Kong’s transition from chaos to order. There have been comments smearing the NSL, alleging that it would undermine Hong Kong’s business environment or even its status as an international financial centre. I have spared no effort in explaining the scope and actual implementation of the NSL to the financial industry players, with a view to making them understand that “security” and “stability” are both essential to the conduct of economic activities. I have also made it clear through some foreign media that the implementation of the NSL would only bring Hong Kong back on track under “One Country, Two Systems” and make it more resilient.
At the legal forum entitled “Thrive with Security”, organised by the Department of Justice at the end of last month, I shared with participants some strategies to safeguard national financial security, which include introducing amendments to the tax guide for charitable institutions to prevent organisations from engaging in activities which are contrary to the interests of national security, and conducting a public consultation exercise this year on the enactment of appropriate and dedicated legislation for regulating crowd-funding, with the focus on preventing and combating acts of raising funds through crowd-funding for planning activities that endanger national security. This is to ensure that while facilitating the flow of capital “living water” into our economy, the “flood wall” that safeguards financial security will not be undermined.
I have witnessed the implementation of “patriots administering Hong Kong” in the city through an improved electoral system. Following the passage of the Decision on improving the electoral system of the Hong Kong Special Administrative Region (HKSAR) by the National People’s Congress last year, I have held a series of briefings for representatives of the financial services and insurance sectors to explain how the improved electoral system could protect the overall interests of society and enhance the governance of the HKSAR. Eventually, members of these sectors are all glad to see that, with the implementation of the NSL and the improved electoral system, Hong Kong can better integrate into our country’s overall development.
Seizing the enormous opportunities lying ahead
In the national 14th Five-Year Plan, which sets out the role and positioning of Hong Kong in our country’s overall development, substantial coverage is given to enhancing Hong Kong’s status as an international financial centre. Over the past two years or so, remarkable progress has been made in relevant aspects, including the following:
- An international asset management and risk management centre:
We have been promoting the private equity industry for several years using a multi-pronged strategy, which includes the introduction of a limited partnership fund regime for private equity funds. The regime has been well received by the sector, with over 500 funds registered since its introduction more than a year ago. Furthermore, to attract more foreign funds to Hong Kong, we have put in place a legal framework for the re-domiciliation mechanism for foreign funds to facilitate their domiciliation and operation in Hong Kong. A more favourable tax environment has been provided to the funds industry, thus adding much vibrancy to the private equity ecosystem.
The Financial Services and the Treasury Bureau (FSTB) has provided financial resources to the Invest Hong Kong for setting up a dedicated FamilyOfficeHK team in mid-2021, which offers one-stop support services to attract clients across the globe to set up family offices in Hong Kong. The dedicated team, which actively promotes Hong Kong’s unique advantages as a hub for family offices, is processing over 50 cases and has successfully assisted at least 14 family offices (including Mainland, ASEAN, European and North American family offices) in setting up or expanding their business in Hong Kong. We are planning to provide profits tax exemption for assessable profits earned from qualifying transactions through family-owned investment holding vehicles, with a view to generating greater demand for investment management and related professional services.
Following the implementation of a new regulatory regime for insurance-linked securities (ILS) business and the launch of a two-year Pilot ILS Grant Scheme in the first half of 2021, the first issuance of ILS in the form of a catastrophe bond took place in October 2021, raising a sum of US$30 million. We were pleased to see earlier this month the second issuance of ILS in Hong Kong. The issuance of this catastrophe bond, amounting to US$150 million, covers industry losses inflicted by typhoons in Japan. Such catastrophe bonds, which serve as a financial risk management tool, showcase the opportunities brought by the “dual circulation” strategy of our country.
- Mutual access between the Mainland and Hong Kong’s capital markets:
The Legislative Council (LegCo) has recently passed the legislative amendment to include the Central People’s Government, the People’s Bank of China and three Mainland policy banks in the list of “exempt authority”. The legislative amendment was made to facilitate Mandatory Provident Fund (MPF) investment in debt securities issued by these institutions, thereby providing MPF scheme members with more diversified options of investment and enabling them to leverage the opportunities brought by the development of the Mainland bond market.
The China Securities Regulatory Commission and the Securities and Futures Commission in Hong Kong announced on May 27 an in-principle agreement to include eligible exchange-traded funds (ETF) in the Stock Connect. The two regulators issued a joint announcement yesterday on the launch of ETF Connect, and the relevant trading will commence on July 4. The ETF Connect further deepens the integration of the two capital markets, and offers more diverse asset allocation choices to Mainland and overseas investors while consolidating Hong Kong’s role as the bridge for flows of international and Mainland capital.
As regards the Cross-boundary Wealth Management Connect (WMC), 24 eligible Hong Kong banks have offered WMC services together with their respective Mainland partner banks. As at end-May 2022, over 29 000 individual investors participated in WMC and over 10 600 cross-boundary remittances (including Hong Kong and Macao) were recorded. The total amount of cross-boundary remittances (including Hong Kong and Macao) was about RMB 1 030 million.
- Identifying new areas of development in financial services - green and sustainable finance, fintech and the Hong Kong Growth Portfolio:
Last year, the Shenzhen Municipal People’s Government issued offshore Renminbi (RMB) municipal government bonds (including green bonds) totalling RMB 5 billion in Hong Kong. This was the first time a Municipal People’s Government issued bonds in Hong Kong, testifying to the strength of Hong Kong as a platform for issuing RMB bonds, including green bonds.
The HKSAR Government has successfully issued a total of nearly US$10 billion equivalent of government green bonds under the Government Green Bond Programme since May 2019 with oversubscription repeatedly recorded. Among them was the inaugural issuance of retail green bond amounting to HK$20 billion in May this year, the largest retail green bond issuance across the globe so far. In addition to offering the public a green investment choice with a steady return, the introduction of the retail green bond has also broadened the variety of green and sustainable financial products in Hong Kong and hence further enriched the local retail bond market.
To enable green finance to flourish further in Hong Kong, we launched the Green and Sustainable Finance Grant Scheme in May 2021 to provide subsidy for eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services, with a view to encouraging them to use Hong Kong’s fundraising platform and related professional services. The scheme has been well received by the industry with about 110 applications approved so far.
To build a thriving fintech ecosystem, the Government allocated $10 million last year for launching the Fintech Proof-of-Concept Subsidy Scheme to incentivise the industry to conduct more research on and develop innovative financial services and products, having regard to the pain points of the market. Most of the 90-plus projects approved under the scheme have been completed and in about 70% of them, the financial institutions concerned have indicated that they would apply the project deliverables to their product lines or business solutions. We will inject another $10 million to roll out a new round of the subsidy scheme this year to further promote continuous innovation across the industry.
The Government deployed part of the Future Fund to establish the Hong Kong Growth Portfolio (HKGP) in February 2020 for making strategic investments in projects with a Hong Kong nexus. The HKGP was set up with the aim of enabling the financial sector to serve the real economy, so as to reinforce Hong Kong’s status as a financial, commercial and innovation and technology centre and raise Hong Kong’s productivity and competitiveness while seeking reasonable risk-adjusted returns. We have so far appointed eight general partners, all of which possess extensive experience in investing in projects with a Hong Kong nexus across a wide spectrum of industries. As announced in the 2022-23 Budget, the Government will increase the funding allocated to the HKGP by $10 billion, of which $5 billion will be used to set up a Greater Bay Area (GBA) Investment Fund to capture investment opportunities in the GBA. The Fund will focus on projects in the GBA that can benefit Hong Kong, including those undertaken by Hong Kong-based companies or companies with investment in the GBA, so as to facilitate the development of Hong Kong industries in the Mainland cities in the GBA.
Apart from attending to official duties, I often spend time interacting with youngsters who aspire to build a better society. Last month, I met with members of specified government advisory committees appointed through the Member Self-recommendation Scheme for Youth and listened to their stories and feelings about promoting policy development. I am happy to see that these youngsters, who have brought new ideas to the Government, have learned from working in the committees the importance of balancing the views of different stakeholders.
Last year, the FSTB and the Greater Bay Area Homeland Youth Community Foundation jointly launched the Set Sail for GBA – Scheme for Financial Leaders of Tomorrow, under which business leaders shared with more than 100 Hong Kong youngsters their career journey and experience in the GBA and other mainland cities with the aim of helping them seize the opportunities arising from the GBA development. At the kick-off ceremony, participating students were eager to ask me questions about my experience in working in Beijing and Shanghai in the past. I have great confidence in these young people who are keen to join the financial industry in the GBA.
Though Hong Kong is still under the shadow of the epidemic, the number of severe cases and the pressure on our healthcare system have substantially reduced. With the gradual relaxation of the social distancing measures, our daily life has generally resumed normal. Nonetheless, the Government has not lessened its anti-epidemic efforts, as can be seen from the packing of over 3 million anti-epidemic service bags within three days in end-March. I, together with colleagues in the FSTB and its departments, shared some of the packing work and helped distribute the service bags to grass-roots families living in transitional housing and “three-nil” buildings in Kowloon City, giving full play to the spirit of fighting the epidemic together in an effective and meaningful way.
Starting a new chapter for Hong Kong together
Throughout my tenure as Secretary for Financial Services and the Treasury in the fifth term of the HKSAR Government for the past 800 days or so, I have been lucky enough to receive support and encouragement from Members of the LegCo, players in the financial industry, colleagues in the civil service and people in different sectors of society, to whom I would like to extend my heartfelt gratitude. While the world is undergoing profound changes, it is my firm belief that, with the care of the Central Government and our concerted efforts, we will be able to embrace the historical trend of progressing from good governance to prosperity and start a new chapter for Hong Kong together by capitalising on the unique advantages under “One Country, Two Systems” and seizing every opportunity for integration into our country’s overall development.
29 June 2022