Time to switch up Hong Kong’s international financial centre playbook in the Year of the Loong

Hong Kong has a well-established playbook of why it’s a leading international finance centre. We have competitive and low tax structures, free flow of capital, access to the Greater Bay Area (GBA), fair and effective markets. It is a list many of us are familiar with and the reason why we have a thriving ecosystem of around 1,000 fintech companies.

Yet we are also witnessing a critical mass of market forces that are shaping the future of finance. The shift to Web3, the rapid development of frontier technologies, bifurcation, the demand for green finance and the formation of new economic partnerships, to name a few. As we step into the year of the Dragon, it is an opportune moment to review our playbook and concentrate on the key factors that will drive our city's future competitiveness.

Hong Kong FinTech Week two years ago became a pivotal moment for the city, serving as a clear indication that we were reopening as pandemic restrictions eased. It was a strategic move, much like a chess game, which shaped the future of our status as an international finance and fintech hub.

The conference commenced with the Financial Secretary introducing the virtual assets policy statement for the first time, followed by commitments from regulators to foster the development of this sector. However, a week later, the collapse of the crypto exchange FTX triggered a negative domino effect across the industry. Investors reacted by pulling back as they assessed the loss, and regulators in major markets intensified their enforcement efforts. At a time when trust in Web3 and virtual assets were at a low, Hong Kong held firm in its long-term resolve to step up and develop this space, as others immediately stepped back. Through the long-held principles of developing stable and orderly growth, Hong Kong’s progressive stance towards virtual assets became a signal to the world that it is prepared to make the necessary steps to be a pioneer and maintain its status as an international financial hub. 

Since the FinTech Week announcements, Hong Kong has become a magnet for Web3 and virtual asset companies as well as renowned industry events. Financial institutions have accelerated their exploration in applications of Central Bank Digital Currencies as well as tokenisation of real-world assets. Banks are providing services to virtual asset companies, and we have also seen new funds emerge to invest in the development of Web3. Aligned with the city’s commitment, the Government has not only established a Task Force in June 2023 to promote Web3 development, but also actively engaged with prominent international conferences, aiming to transform Hong Kong into a buzzing hub for the Web3 and blockchain community. These initiatives represent a significant stride in the city’s pursuit to establish itself as the premier Asian Web3 Hub.

Several projects are already bearing fruit. These include the HKSAR Government’s successful offering of around HK$6 billion worth of digital green bonds (Digital Green Bonds) denominated in HK dollars, Renminbi, US dollars and euro under the Government Green Bond Programme; Arta Techfin, which is pioneering tokenised funds supported by Chainlink’s cross-chain interoperable infrastructure; HashKey, which is creating a Web3 renewable data energy network to support green finance, as well as OSL who has recently announced the first investment-grade tokenised warrant jointly with UBS AG, demonstrating a vibrant development in the Web3 ecosystem.

Beyond Hong Kong, the GBA presents one of the fastest growing economic opportunities in Asia. However, it is also important to recognise that Hong Kong’s long-held strategic position as a route to scale into the GBA is being extended further into high potential markets particularly the Middle East We are seeing a new Golden Age emerge where Hong Kong is not only the city where East meets West but is a natural convergence point where East meets Middle East. In a world where new economic alliances and partnerships are forming, we must make this an important part of our playbook.

Delegations to the Middle East to drum up business opportunities and investment are delivering tangible results. Start-ups are signing deals to scale into the region, the Hong Kong Stock Exchange secured an agreement with the Saudi Tadawul Group to cooperate in bringing the two financial markets closer and a flagship Saudi-China entrepreneurs guild will be established in the city. Only recently, InvestHK also entered into a Memorandum of Understanding with the Ministry of Investment of Saudi Arabia (MISA) to foster cooperation in investment promotion.

To navigate the future of finance and the global economy, we must embrace frontier technologies such as artificial intelligence and blockchain. Proximity to their development is crucial for our financial and fintech sectors to stay ahead.

Hong Kong's innovation and technology sector has witnessed remarkable growth. The government's InnoHK scheme has attracted top talent from around the world, driving collaboration with local universities in cutting-edge fields. Initiatives like GSBN, utilising blockchain to transform the shipping industry, further solidify Hong Kong's position as a global hub for innovation and trade.

We must recognise that the core innovation coming from entities like the Hong Kong Science and Technology Parks and the growing venture capital community is critical to the success of our finance sector. It is time to integrate these two pillars and unlock the full potential of Hong Kong's financial ecosystem.

Today the world is changing, merging and shaping at every turn. New forces are shaping the way we know financial services and fintech today. Hong Kong is in the heart of where this redefinition of fintech is happening. Where new models are being created, rules for a new world are being shaped and in which frontier technologies are generating new opportunities. This is an opportunity for Hong Kong to bring back its core identity of standing out for its true pioneering and entrepreneurial spirit. This is the playbook for Hong Kong’s future as an international finance and fintech centre.