From resilience to resurgence, Hong Kong is paving the way forward with confidence and vision

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Hong Kong, 20 September 2023 – In the past year, Hong Kong has demonstrated economic and social resilience at large and continued its steady path to recovery, scoring positive year-on-year real GDP growth in the first and second quarter of 2023. However, the HKSAR government faces strong headwinds in the form of global economic slowdown, looming climate emergency, slower-than-expected recovery of the Chinese Mainland economy, let alone home-bound issues such as weak retail consumption and the ongoing talent shortage.

Raymund Chao, PwC Asia Pacific and China Chairman, said, “In the face of unprecedented new changes and competition, the HKSAR government needs to demonstrate confidence and resilience. Under the ‘One Country, Two Systems’, Hong Kong has the distinctive advantages of enjoying strong support of the Motherland and being closely connected to the world. Hong Kong must give full play to its strengths as an international financial hub, and its innate advantages such as financial stability brought by the Linked Exchange Rate System (LERS), world-class legal system and professional services, while fostering strong regional cooperations. By tapping into a comprehensive strategy toolbox, the HKSAR government will be able not only to inject new impetus into our economy but also to create the conditions for it to upgrade and transform its economic structures in the long run.”

PwC Hong Kong believes that implementing these measures will elevate Hong Kong’s overall competitiveness both regionally and internationally, cementing its place as an international financial centre, Asia’s sustainable finance hub for ESG transformation, and a trusted data hub with a competitive tax system, as well as a vibrant metropolis attracting regional and international talent.

PwC’s recommendations

1. Cementing Hong Kong’s status as an international financial centre

As the global economy races to resume normalcy and invigorate economic activities, Hong Kong has found itself in a whole new race for growth, capital and talent, particularly stemming from fierce competition with other Asian cities in recent years as a major finance hub in Asia Pacific. It is important for Hong Kong to consolidate its position and solidify its reputation as the go-to financial centre in the region by continuously developing its capital markets, further advancing its financial services, and making Hong Kong a leading hub for family offices in the Greater Bay Area (GBA).

Eddie Wong, PwC Hong Kong Capital Markets Services Partner, said, “In order to revitalise Hong Kong’s capital markets, we recommend strengthening collaboration with global stock exchanges, especially those in the Middle East and Southeast Asia, through exploring dual listing opportunities. This can enhance the attractiveness of listing in Hong Kong as dual listing has the advantage of expanding the geographical base of investors and issuers.

We recommend the implementation of the Primary Equity Connect (PEC) initiative as it holds significant potential to enhance connectivity and promote companies to list in Hong Kong by raising funds in RMB. Additionally, it would allow Mainland Chinese investors to participate in Hong Kong IPOs using RMB while Hong Kong investors can subscribe to Mainland IPOs using HKD or RMB. Expanding the Stock Connect scheme from secondary markets to IPOs can significantly enhance liquidity of both markets.”

Chris Chan, PwC Financial Services Markets Leader, GBA Services, said, “In the eye of a growing demand of Hong Kong’s medical services within the GBA, it is advisable that the government acts as the facilitator to advocate for an integrated proposition of medical services and health insurance development in the GBA by encouraging Hong Kong insurers and reinsurers to expand their presence in the Chinese Mainland market, while proliferating medical service facilities in the n the Northern Metropolis to cope with growing South bound demand.

With the necessary building blocks in place and a track record of nearly two years, it is now the perfect time to envision the future roles of the Wealth Management Connect (WMC) initiative to ensure it is fit-for-purpose for years to come. This is essential considering the rapid growth of Hong Kong's wealth management industry, which is largely driven by evolving investor preferences. We suggest expanding beyond the retail investor channel to include other investor groups, such as institutions, high net worth individuals, and family offices. Additionally, introducing a broader range of products, particularly alternative asset classes like private funds and infrastructure opportunities, will offer investors greater exposure and opportunities for diversification.”

2. Fostering a robust sustainability ecosystem in Hong Kong

The increasing severity of the climate crisis has led to a global push for more sustainable corporate practices. Governments and the public are demanding greener standards, prompting the private sector to invest heavily in Environmental, Social, and Governance (ESG) initiatives.

Lit Ping Low, PwC Asia Pacific Sustainability, Climate Change Partner, said, “We welcome and encourage the adoption of the localised ISSB standards and the HKEX proposal of mandating climate-related disclosures in issuers’ ESG reports that are aligned with the ISSB Climate-related Disclosure Standard. To maintain international leadership, the government should continue to monitor and enhance the ESG regulatory framework, ensuring it is robust and clear to issuers and provide the relevant information to investors to aid them in decision making. Going forward, this includes aligning it with ongoing international developments, for example incorporating nature-related disclosure making reference to the TNFD framework.

To achieve carbon neutrality by 2050, we recommend that the government adopts a data-driven approach to monitor progress including on energy efficiency and consumption. The government can serve as a role model for the private sector, encouraging them to follow suit in their own sustainability efforts. Climate tech is a fast-growing area attracting substantial investments in recent years. In addition to technology solutions, we should promote and incubate innovative financial products or measures, such as the development of insurance products that cover commercial losses caused by extreme weather events, green and sustainable financing, and the formation of an ESG data repository. This will help foster a green finance and technology ecosystem in Hong Kong and attract new entrepreneurs to set up their operations in the city.”

3. Unlocking the next phase of growth with innovation and technology

The government has long prioritised the promotion of Innovation and Technology (I&T) as a key driver of economic growth. According to the notice issued on the “Development Plan for Shenzhen Park of Hetao Shenzhen-Hong Kong Science and Technology Innovation Co-operation Zone”, the Hong Kong-Shenzhen Innovation and Technology Park (HSITP) will jointly develop with the Shenzhen side to act as a pioneering zone for innovation and technology cooperation amongst Shenzhen and Hong Kong, as well as a pilot production cluster in the GBA.

Thomas Leung, PwC China Managing Partner - Markets, said, “Considering Hong Kong’s I&T development, PwC suggests the HSITP to speed up the land allocation process to adapt to the ever-changing market, such as adopting a flexible mixed model that includes the self-user model and the investor model to encourage commercialisation of I&T findings at the HSITP. To cultivate a vibrant and diverse I&T ecosystem, we suggest the HSITP to implement exclusive support policies for enterprises and talents as soon as possible. This would effectively attract talents, enterprises, and investors, providing cross-border flow for the convenience of enterprises through the ‘four flows’ - talent, capital, data and logistics flow, as well as offering companies the same benefits as Mainland companies. In addition, efforts should be channelled towards attracting leading international and national companies, investors, private equity funds, Contract Research Organisations (CROs), and professional certification bodies. It is also crucial to implement industrial and supporting facilities such as enterprise accelerators, joint incubation programmes, one-stop service windows, and talent accommodation facilities, in order to fulfil the needs of the enterprises and talents at the HSITP.

The increasing adoption of generative artificial intelligence (GAI) is poised to bring disruptive changes to existing business processes and has the potential to greatly enhance work efficiency. To position Hong Kong as a regional GAI hub, it is crucial to establish close collaboration with stakeholders in the GBA in building a regional large language model (LLM) designed to cater to social and business applications and developing GAI use cases specific to the region, having due consideration of a variety of languages used in the daily living and business context of the GBA.

To support the growth of a vibrant digital and metaverse ecosystem, we recommend clarifying tax provisions for digital activities, introducing tax incentives for specified qualifying expenditures, expediting the implementation of the patent box regime outlined in the 2023-2024 Budget, aligning IP-related tax deduction rules with the proposed patent box regime, and allowing tax deductions for R&D activities in the GBA to encourage collaboration.”

4. Providing more support and flexibility for attracting and retaining talents in Hong Kong

In recent years, Hong Kong has been grappling with a significant labour shortage resulting from the surge in emigration and rising global competition for talent, compounded by demographic shifts.

Wise Lam, PwC Hong Kong Private Client Services Partner, said, “The boundaryless nature of talent means that Hong Kong needs to constantly benchmark its talent policies against those of Mainland cities and Southeast Asian countries to identify competitive advantages and areas to enhance. By offering attractive incentives such as tax benefits, industry-specific subsidies, training and upskilling, and educational support, Hong Kong can re-establish itself as an attractive destination for both local and international talent.

To enhance international cooperation, promote cross-border talent mobility, and provide favourable tax arrangements for businesses and individuals, the government could accelerate the expansion of Hong Kong's tax treaty network, particularly with key trading partners and jurisdictions along the Belt and Road. New tax incentives and other measures should be explored to attract and retain talent of specific industries, for instance family office professionals. These include tax measures such as granting tax deductions for children's education and non-fiscal incentives like housing subsidies. Investments in capacity building for ESG talents and attracting overseas professionals in green finance are also important. Initiatives, such as the enhancement of the GSF Capacity Building Funding Scheme, will strengthen expertise in sustainable finance and Hong Kong's leading position in green finance.”

5. Establishing Hong Kong as a regional data hub for frictionless flow and exchange of data

Effective and efficient data flow is the pre-requisite for a vibrant digital economy, and equally importantly, an essential cornerstone for the seamless movement of people, goods and capital in any modern economy. Hong Kong’s status of both an international financial hub and a gateway to the Chinese Mainland can make data transfer challenging due to the diverse nature of the many stakeholders involved.

Albert Wong, PwC Hong Kong Public Sector Consulting Partner, said, “Hong Kong has the potential to become a prominent hub for cross-boundary data exchange, connecting the city, the Chinese Mainland, and the rest of the world. The government must take the lead in executing the memorandum signed between the Cyberspace Administration of China and - the Innovation, Technology and Industry Bureau in Hong Kong. This involves introducing measures to enhance trust amongst different parties, reducing compliance costs and streamlining regulatory approval processes. At a regional level, this would require working closely with the governments of the main jurisdictions in the GBA as well as regulators, industry associations, and financial institutions with an aim to establish a harmonised legal and regulatory frameworks and common mechanisms.

PwC supports the government’s vision of becoming a digital-first, data-driven organisation. It is imperative for the government to develop and implement measures as it seeks to digitalise its various public services leveraging its wealth of data. For example, it should build upon the government's e-Gov audits to continue piloting and adopting innovative I&T solutions aimed at enhancing public services. Besides, it is recommended that the government develop a unified, comprehensive catalogue of data that the government holds to facilitate data exploration and sharing within and beyond the public sector. This would promote the collection and interoperability of big data among government departments. With respect to digital infrastructure, it should formulate a roadmap for the growth of new Green Data Centres, including a comprehensive review of the current regulatory regime governing data centre development projects.”

6. Optimising infrastructure development to bolster long-term growth and competitiveness

Infrastructure serves as a fundamental element to bolster competitiveness. Value-creation and comprehensive infrastructure projects not only pave the way for future growth but also instil investor confidence in Hong Kong's potential.

Roy Chan, PwC Hong Kong Public Sector Consulting Partner, said, “One way to restore investor confidence the future of Hong Kong is to establish a robust, transparent pipeline of infrastructure projects. This long-term pipeline will provide clarity to investors and demonstrate a commitment to engaging the private sector in infrastructure delivery. Creating this pipeline, potentially through the Office for Attracting Strategic Enterprises (OASES), is highly recommended. It should be periodically updated and publicised to the local and international business community. The effective management of such pipeline would require the government to assign responsibility for oversight to a central agency for infrastructure procurement. To promote social cohesion and foster collaboration with the private sector, it is recommended to integrate affordable housing within private housing developments.

To expedite the development and management of significant projects, Hong Kong should explore various Private Public Partnership (‘PPP’) mechanisms to leverage diverse funding approaches. Additionally, establishing a dedicated infrastructure fund can provide financing and investment opportunities for infrastructure and I&T projects, supporting long-term economic growth and competitiveness. It is clear that coordinated efforts and ongoing communication with the Chinese Mainland authorities (particularly Shenzhen) are crucial to accelerate the development of the Northern Metropolis. This collaborative approach will harness the synergies between Hong Kong and the GBA for shared growth and prosperity.”

Notes to Editors

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