Hong Kong to constantly benchmark itself against London and New York, finance chief vows

Hong Kong will constantly benchmark itself against London and New York in its aim to remain as a top international financial centre with Western countries having a substantial stake in it, the city’s financial chief has said. Speaking at a South China Morning Post conference on Monday, Financial Secretary Paul Chan Mo-po also further explained the new capital immigration scheme he introduced in his budget last week, saying it was aimed at enticing some of the world’s wealthiest 5 per cent to support the city’s top industries. Chan was asked how he viewed Hong Kong’s traditional role as an international financial centre when other southern Chinese cities that made up the Greater Bay Area were also aggressively stepping their efforts to grow in new directions. “Where do we bench ourselves?” I am benchmarking ourselves against London and New York,” he said, touting Hong Kong’s common law system, free flow of capital and independent judiciary. “This will be a financial market [where] the Western countries have a substantial stake.” As an example, the minister noted American banks’ business interests in Hong Kong remained “significant”. The New York Stock Exchange, the largest in the world, has a market capitalisation of US$42.8 trillion, while the figure for the London Stock Exchange is US$3.03 trillion, as of Monday. Hong Kong’s stands at about US$5.25 trillion. As tensions between Beijing and Washington intensified over a range of issues from Taiwan to the Russian war in Ukraine, Hong Kong’s ties with the United States have grown more complicated, leading the government to shift its focus bolstering relations with countries in Southeast Asia and the Middle East. Is finance chief making right bets for Hong Kong and passing buck on higher taxes? At the same time as Hong Kong strove to preserve its standing in the international financial community, it could “collaborate with neighbouring cities” in areas where it was weak, he added, a reference to the Greater Bay Area, Beijing’s ambitious drive to turn Hong Kong and Macau into an innovation hub with nine other cities, including neighbouring Shenzhen and Guangzhou. One of the leading initiatives to attract talent announced in last Wednesday’s spending blueprint was the Capital Investment Entrant Scheme. The minister had previously said he planned to raise the investment threshold from HK$10 million (US$1.27 million), which was introduced in a similar plan in 2013 but scrapped the subsequent year. A significant increase would make Hong Kong’s scheme more costly to join than the one offered by Singapore. The city state requires eligible candidates to possess at least a three-year business or entrepreneurial track record and invest a minimum of S$2.5 million (US$1.85 million) in a new business or into expanding an existing operation. Applicants can also receive residency by investing in an approved fund that supports Singapore-based companies. Chan said his initiative was not for everyone and rather the city hoped to entice the “top 5 per cent wealthy people”. Hong Kong had set up a dedicated task force to come up with requirements for potential applicants to “set aside some of their money to invest into sectors that we want to promote”, Chan said, citing the city’s innovation and technology start-ups as an example. While concrete details for the scheme have yet to be announced, Chan last week ruled out investment in properties as an option. The pathway was allowed under the scheme’s previous iteration. “This time around, we specifically say that the investments in properties would not be included so that this money probably will go to other financial assets,” he said. By comparison, regional rival Singapore offers permanent residency to those interested in starting a business or investing in the city state under its Global Investor Programme. When asked why he decided not to broaden Hong Kong tax base – one of the narrowest in the world – he cited the inability of the government to introduce a goods and services tax in 2007. “Within a very short period of time that was withdrawn. So the timing indeed needs to be careful,” he said. Hong Kong’s Paul Chan dismisses fiscal discipline fears over infrastructure bonds The same prudence is to apply to any decision to bring in an inheritance tax as Hong Kong also is home to many trust funds of wealthy clients. At the forum, titled Redefining Hong Kong, Chan said the government was looking at other ways to diversify the city’s economy by backing a wide variety of investment projects, as well as issuing different bond types. The financial secretary explained the government had taken measures such as capping the civil service’s headcount due to fiscal pressure and external economic uncertainties. “But we are also conscious of the obligation of the government, that is to strive for the well-being of the people in managing our public finance,” he said. Chan was also asked whether the new financial blueprint was “tightening the purse strings or investing in the future”. “Yes and no,” he said, explaining the budget was mildly expansionary even in the face of a large deficit because this was what people needed and at the same time, the bulk of its attention was on creating future growth areas.