The positive approach adopted by the Policy Address that values the “13th Five-Year Plan” and the “One Belt and One Road”Initiative is going the right way. Yet, to achieve mutual benefits and shared success, it must be aligned with development of the local financial sector. There is much room for the Hong Kong Government to improve in the bond market and on the laws and regulations for the financial technology sector.

Last month, I mentioned in this column that this year’s Policy Address has set a right direction to value the “13th Five-Year Plan” and the “One Belt and One Road” Initiative. The right direction shall be followed by the Hong Kong Government’s launching relevant work as soon as possible, the key of which lies in whether the Hong Kong Government has the needed vision to set up objectives and to implement the blueprint.

As our country deepens the opening-up policy and reform of financial sector, Hong Kong, being the largest offshore RMB (“CNH”) center, is well positioned to develop into the world’s most important offshore RMB (“CNH”) price fixing center. With China integrating with the global market, the Hong Kong government should consider expanding and extending the interconnectivity model to new asset classes, as well as constructing the most effective cross-market interconnectivity platform, so as to develop a local market that converges domestic and foreign products. New platforms for fixed-income and currency products, commodities and bonds can be set up to establish benchmark prices, while risk management tools can also be developed to complement the existing equity and derivatives business. On the other hand, the huge capital requirement for the infrastructures of the “One Belt and One Road” Initiative alone is estimated at USD 1.04 trillion. Hong Kong is fully competent to become its “financing center”, acting as the primary multi-channel financing hub for companies of the countries along Belt and Road. Deplorably, the Hong Kong Government has not shown the vigor to set up these fore-mentioned objectives in the Policy Address.

Following up with the right direction of the Policy Address

Regarding the development of bond market, Hong Kong’s financial industry can now leverage on the capital requirement from the “One Belt and One Road” Initiative and develop into a multi-channel financing center for financial products like sukuk. As a matter of fact it was mentioned in the Policy Address that Hong Kong is aspired to achieve the relevant objective. The problem is that Hong Kong’s bond market is substantially lagging behind. While the Hong Kong Government had acknowledged that Hong Kong must establish a liquid and active bond market many years ago, most bond products are only focusing on exchange fund notes, or fund gathering by bond issuance in the name of specific statutory bodies. These do not match up with our status as an international financial center. It is a pity that there is no sign of any powerful measure to drive any breakthrough in this bottleneck of our bond market in the Policy Address. In the budget delivered by the Financial Secretary, it was only mentioned that the Hong Kong Government would roll out the third round of sukuk in a timely manner; nothing about how to deepen development in the bond market was touched upon. In fact, the “financial industry” was only mentioned in four short paragraphs in this year’s Policy Address, and they are separated from those about the “13th Five-Year Plan” and the “One Belt and One Road” Initiative, as if there is no connection amongst them whatsoever. Had the Hong Kong Government stood up high enough, it would actually be able to recognize that full-scale development is only possible if industrial development is combined with the opportunities arising from the “13th Five-Year Plan” and the “One Belt and One Road” Initiative.

Meanwhile, “financial technologies” have been developing rapidly in recent years. Accelerated advances are noted in the scopes of payment, financing, investment and risk management, etc. Hong Kong as an international financial center could have been well-positioned to grow into a leading financial technology hub, just like New York and London. However, due to the inability to enact local laws and regulations timely with emerging innovative business models, progresses in mobile phone wallets, P2P loans and crowdfunding now all fall much behind other cities, and our “financial technologies” are only developing at a snail’s pace.

A balance to be stricken when developing financial technologies

At the moment, amendments to the laws have been made for developments in financial technologies in advanced economies such as the US, the European Union, Singapore and Japan, etc. In contrast, the three-month old Payment Systems and Stored Value Facilities Ordinance (Cap 584) is the only legislation in Hong Kong that is relevant to financial technology. In terms of emerging financing models such as internet crowdfunding and P2P loans, operators of loan platforms must be Money Lenders Licensees according to Hong Kong law, which has created much hindrance to relevant businesses. However, the issues that laws are not catching up with development are not dealt with in the Policy Address. If Hong Kong is truly developing “financial technologies”, then “the Steering Group on Financial Technologies” should appropriately loosen laws and regulations, while at the same time meticulously protect the interests of investors, such that a reasonable balance between loosening laws and protecting investors’ interests can be stricken. With such a basis in place, financial technologies will be able to grow orderly and healthily. Based on the existing legal framework of Hong Kong, a more suitable path for operation is to categorize clients of emerging financing models such as crowdfunding and P2P internet lending as professional investors. And in early March of this year, the industry has announced the launch of Hong Kong’s first-ever P2P crowdfunding platform for professional investors.

The problem of laws failing to catch up with development is also troubling the innovative technology sector. Admittedly, the unprecedentedly “generous” proposal of a 4.7 billion-dollar investment into innovative technology for scientific research, start-ups and technological application in this year’s Policy Address is a very good initiative. However, the support does not seem to be strong enough, and complementing policies such as legal issues are yet to be properly dealt with. While the 2 billion dollars setting aside for the “inno-tech fund” will be upped to 6 billion after matching with private venture capital funds, the amount is minimum compared with major technology nations which chip in hundreds of billions a year. The US, for example, invested USD 465 billion into the national research and development in 2014, 307.5 billion out of which was contributed by enterprises. Contrarily, private corporate contributions in Hong Kong have always been on the low side, resulting in the local research and development expenses only representing 0.73% of the GDP. To encourage companies to invest more resources in research and development, the Hong Kong government should offer tax incentives to technology development sectors such that they could enjoy tax deductions in research, personnel training and purchasing high-tech equipment. On the other hand, tax-free period and lowered profits tax can also be considered for start-ups in technological research.

The innovative technology industry has to be supported by laws and regulations

In fact, when the Chief Executive discussed with some young entrepreneurs of the innovative technology industry at a forum earlier on, it was mentioned that there are too many constraints in Hong Kong’s system of laws and regulations, which have been dragging the development of the innovative and technology sector. Examples of internet finance, internet car-calling services, auto-pilot driving technology etc. were raised to show where the real issues lie. If the Hong Kong Government advocates innovative and technology industry but allows hindrance to arise from outdated laws without actively managing the conflicts between new and old business models, I am afraid that good intentions would prove to be fruitless in the end.

With limited space in this column, I am only able to select a few examples to encourage the Government to pace up in perfecting its plans and to do its best to actualize all the relevant measures. I hope the government can take practical steps to lead and to support all the sectors of our society, seize the new opportunities in economic development and establish a strong foundation for Hong Kong’s continual prosperity and stability. I believe these are also the expectations of the general public.