Hong Kong Government Reviews New Tax Incentives Such as Tax Exemptions on Interest Income for Alternative Investments Including Private Credit, Hybrid Securities, Real Estate & Infrastructure
11th April 2024 | Hong Kong
The Hong Kong government has been reported to be reviewing new tax incentives such as tax exemptions on interest income for alternative investments including private credit, hybrid securities, real estate & infrastructure. In March 2024, Hong Kong released the Budget 2024/2025, with GDP increasing +3.2% in 2023 and the financial industry is one of the pillars of Hong Kong’s economy. Key highlights in Budget announcement on Hong Kong financial industry – 1) Financial Mega Event Week in March 2024 (Wealth for Good in Hong Kong Summit 2024 for family offices to be held on 27th March 2024, Milken Institute Global Investors’ Symposium on 26th March 2024 & One Earth Summit on 25th March 2024), 2) Hong Kong to attract global family offices & asset owners to Hong Kong, 3) New 2-year residency Capital Investment Entrant Scheme launched on 1st March 2024 with at least $3.84 million investment in approved assets, 4) Grant scheme for open-ended fund companies & REITs extended by 3 years to 2027, 5) Expands government Green Bond Program with $64 billion borrowing ceiling, 6) Issue $15.3 billion new bonds in 2024, 7) Wealth Management Connect 2.0 launched with increased quota to RMB 3 Million equivalent to $417,000, 8) Increased Mutual Market Access for Mainland China & Hong Kong, 9) Stock exchange & securities enhancements, 10) Support for residential property, SME recovery, Green Finance, Digital Finance & Web3.0. Overview of Hong Kong financial industry – Hong Kong GDP in 2023 increased +3.2% and GDP forecast 2025 to 2028 to increase +3.2% yearly. Hang Seng Index decreased -13.8% in 2023. Hong Kong Asset & Wealth Management industry with more than $3.8 trillion AUM (HKD 30 billion), Asia largest hedge fund centre, 2nd largest private equity centre (Largest is Mainland China), more than 250 open-ended fund companies & 780 limited partnership funds registered in Hong Kong, ranked 1st in Asia for 7 straight years for bond issuance, Hong Kong is the largest offshore RMB business hub, processing about 75% of global offshore RMB settlement, and has world’s largest offshore RMB liquidity pool (RMB 1 trillion). Hong Kong Financial Secretary Paul Chan delivered the 2024-25 Budget in the Hong Kong Legislative Council on 28th February 2024. See below for key highlights & summary | View Hong Kong 2024/2024 Budget here
” Hong Kong Government Reviews New Tax Incentives Such as Tax Exemptions on Interest Income for Alternative Investments Including Private Credit, Hybrid Securities, Real Estate & Infrastructure “
Hong Kong Budget 2024/2025: GDP Increased +3.2% in 2023, Financial Event Week in March 2024, To Attract Global Family Offices & Asset Owners to Hong Kong, New 2-Year Residency Capital Investment Entrant Scheme Launched on 1st March 2024 with at Least $3.84 Million Investment in Approved Assets, Grant Scheme for Open-ended Fund Companies & REITs Extended by 3 Years to 2027, Expands Government Green Bond Program with $64 Billion Borrowing Ceiling, Issue $15.3 Billion New Bonds in 2024, Wealth Management Connect 2.0 Launched with Increased Quota to RMB 3 Million Equivalent to $417,000, Increased Mutual Market Access for Mainland China & Hong Kong, Stock Exchange & Securities Enhancements, Support for Residential Property, SME Recovery, Green Finance, Digital Finance & Web3.0
8th March 2024 – Hong Kong has released the Budget 2024/2025, with GDP increasing +3.2% in 2023 and the financial industry is one of the pillars of Hong Kong’s economy. Key highlights in Budget announcement on Hong Kong financial industry – 1) Financial Mega Event Week in March 2024 (Wealth for Good in Hong Kong Summit 2024 for family offices to be held on 27th March 2024, Milken Institute Global Investors’ Symposium on 26th March 2024 & One Earth Summit on 25th March 2024), 2) Hong Kong to attract global family offices & asset owners to Hong Kong, 3) New 2-year residency Capital Investment Entrant Scheme launched on 1st March 2024 with at least $3.84 million investment in approved assets, 4) Grant scheme for open-ended fund companies & REITs extended by 3 years to 2027, 5) Expands government Green Bond Program with $64 billion borrowing ceiling, 6) Issue $15.3 billion new bonds in 2024, 7) Wealth Management Connect 2.0 launched with increased quota to RMB 3 Million equivalent to $417,000, 8) Increased Mutual Market Access for Mainland China & Hong Kong, 9) Stock exchange & securities enhancements, 10) Support for residential property, SME recovery, Green Finance, Digital Finance & Web3.0. Overview of Hong Kong financial industry – Hong Kong GDP in 2023 increased +3.2% and GDP forecast 2025 to 2028 to increase +3.2% yearly. Hang Seng Index decreased -13.8% in 2023. Hong Kong Asset & Wealth Management industry with more than $3.8 trillion AUM (HKD 30 billion), Asia largest hedge fund centre, 2nd largest private equity centre (Largest is Mainland China), more than 250 open-ended fund companies & 780 limited partnership funds registered in Hong Kong, ranked 1st in Asia for 7 straight years for bond issuance, Hong Kong is the largest offshore RMB business hub, processing about 75% of global offshore RMB settlement, and has world’s largest offshore RMB liquidity pool (RMB 1 trillion). Hong Kong Financial Secretary Paul Chan delivered the 2024-25 Budget in the Hong Kong Legislative Council on 28th February 2024. See below for key highlights & summary | View Hong Kong 2024/2024 Budget here
Hong Kong Budget 2024/2025
Hong Kong has released the Budget 2024/2025, with GDP increasing +3.2% in 2023 & the financial industry is one of the pillars of Hong Kong’s economy. Hong Kong Financial Secretary Paul Chan delivered the 2024-25 Budget in the Hong Kong Legislative Council on 28th February 2024.
Overview:
- Hong Kong GDP in 2023 – Increased +3.2%
- Hong Kong GDP forecast 2025 to 2028 – Increase +3.2% yearly
- Hang Seng Index – Decreased -13.8% in 2023
- Asset & Wealth Management – Hong Kong Asset & Wealth Management industry with more than $3.8 trillion AUM (HKD 30 billion)
- Hedge Fund – Asia largest hedge fund centre
- Private Equity – 2nd largest private equity centre (Largest is Mainland China)
- Funds & LPs in Hong Kong – More than 250 open-ended fund companies & 780 limited partnership funds registered in Hong Kong
- Hong Kong Bond market – Ranked 1st in Asia for 7 straight years for bond issuance
- International Financial Centre – Financial industry is one of the pillars of Hong Kong’s economy
- RMB – Hong Kong is the largest offshore RMB business hub, processing about 75% of global offshore RMB settlement, and has world’s largest offshore RMB liquidity pool (RMB 1 trillion)
What’s New:
- Financial Mega Event Week in March 2024 – Wealth for Good in Hong Kong Summit 2024 for family offices to be held on 27th March 2024, Milken Institute Global Investors’ Symposium on 26th March 2024 & One Earth Summit on 25th March 2024
- New task force to further develop Hong Kong asset & wealth management industry.
- Attracting global family offices and asset owners to Hong Kong – Provided tax concessions (0% tax concession bill) for qualifying transactions of family-owned investment holding vehicles managed by single family offices in Hong Kong, and streamlining the suitability assessment when dealing with sophisticated professional investors.
- Enhance the preferential tax regimes for related funds, single family offices and carried interest – To review scope of tax concession regimes, increase types of qualifying transactions, enhance flexibility in handling incidental transactions (to attract more funds and family offices with potential to establish a presence in Hong Kong)
- Hong Kong Capital Investment Entrant Scheme (CIES) – New 2-year residency program launched on 1st March 2024, with $3.84 million (HKD 30 million) investment in approved assets
- Grant Scheme for Open-ended Fund Companies & Real Estate Investment Trusts (REITS) – Extended for 3 years from 2025 to 2027
- Open-ended Fund Companies Grant (OFC) – 70% of the eligible expenses, subject to a cap of HK$1 million per OFC; and a maximum of 3 OFCs per investment manager.
- Real Estate Investment Trusts (REITS) – 70% of the eligible expenses, subject to a cap of HK$8 million per REIT.
- Expands Government Green Bond Programme – Covers sustainable finance projects & Infrastructure Bond Scheme, and new borrowing ceiling of of $64 billion (HKD 500 billion) and credited to Capital Works Reserve Fund. This will gradually replace the existing Government Bond Programme.
- 2024/2025 New bond issuance – To issue $15.3 billion bonds (HKD 120 billion new bonds, of which HKD 70 billion retail tranche that includes HKD 50 billion Silver Bond & HKD 20 billion green bonds & infrastructure bonds)
- Financial Cooperation in the Greater Bay Area (GBA) – Wealth Management Connect (WMC) Scheme 2.0 launched in February 2024 (Eg. Increased individual investor quota to RMB 3 million / $417,000 & lowering the threshold for participating in the Southbound Scheme)
- Specialty Insurance Market – Invite Mainland and overseas enterprises to establish captive insurers in Hong Kong. Promotes the development of insurance-linked securities (ILS) by establishing a dedicated regulatory regime and launching a pilot grant scheme
- Promote Growth in Financial Services – Government earmarks $12.7 million (HKD 100 million) to promote the sustainable development of financial services. This includes green and sustainable finance, fintech, asset and wealth management, headquarters business, and risk management etc.
- RMB – Development of an offshore RMB ecosystem to promote the internationalisation of the RMB. Will develop the Central Moneymarkets Unit (CMU) into Asia’s major international central securities depository platform, providing better support for RMB businesses such as cross-border clearing, settlement and custodian services etc.
- Mutual Market Access (Mainland China & Hong Kong) – Bond Connect, the Cross-boundary Wealth Management Connect Scheme, ETFs in Stock Connect & Swap Connect. Provides more asset allocation and risk-management options for Mainland and international investors. HKEX will host the 10th Anniversary of Mutual Access Forum. In discussion with Mainland authorities over the introduction of block trading, the inclusion of RMB counters under the Southbound Trading of Stock Connect, and the expansion of the mutual-market access regime to cover REITs, bringing in more enterprises and capital to the Hong Kong market.
- Stock Exchange – Setting up Renminbi Dual Counter securities model. Added Saudi Arabia and Indonesia stock exchanges to list of Recognised Stock Exchanges allowing secondary listing in Hong Kong. Reforming the Growth Enterprise Market (GEM) including introducing a treasury share buy-back regime and maintaining trading operations under severe weather.. Listing requirements & arrangements for structured products will also be enhanced. Waiver of stamp duties payable on the transfer of real estate investment trust (REIT) units and the jobbing business of option market-makers. Established the listing regime for specialist technology companies and the HongKong Dollar – Renminbi Dual Counter securities model.
- Reviewing measures to increase market efficiency & liquidity – Enhancing the listing regime, improving the transaction mechanism, boosting investor services, stepping up market promotion
- Re-domiciliation Mechanisms for Open-ended Fund Companies & Limited Partnership Funds – Attract existing foreign funds to establish and operate in Hong Kong. Will submit a legislative proposal enabling companies domiciled overseas, especially enterprises with a business focus in the Asia-Pacific region, to re-domicile in Hong Kong.
- New Capital Sources – Open up new capital sources including those from the Middle East. Asia-Pacific region’s first Exchange Traded Fund (ETF), which tracks stocks in Saudi Arabia, was listed in Hong Kong. Hong Kong Monetary Authority (HKMA) is also working with a number of financial institutions on the listing of an ETF in the Middle East that tracks Hong Kong stock indices.
- Belt & Road – To host the annual Belt and Road Summit in September & a new Belt and Road Festival will be launched. The festival will promote collaboration with B&R countries in a wide range of areas including trade and investment, technology, arts and culture and talent exchange. Hong Kong will also host the Conference of Belt and Road Initiative Tax Administration Cooperation Forum, which will be attended by representatives of the governments, international organisations, academic institutions and strategic enterprises of B&R regions.
- Hong Kong Investment Corporation Limited (HKIC) – Will host a Roundtable for International Sovereign Wealth Funds. Sovereign wealth funds and financial leaders will be invited to explore investment opportunities and develop collaborative partnerships. A Summit on Start-up Investment and Development in Hong Kong will also be organised. First batch of direct investment and co-investment projects will be implemented in the first half of this year, covering areas such as life technology, green technology and finance, semi-conductors and chips, as well as the upgrading and transformation of manufacturing industries.
- Nurturing Start-ups – Since its inception, the Corporate Venture Fund under the Hong Kong Science and Technology Parks Corporation (HKSTPC) has invested a total of nearly $51 million (HKD 400 million) in 31 start-ups and attracted private investment of about $1.6 billion (HKD 12.6 billion). HKSTPC will soon launch the Co-acceleration Programme to pool the efforts of the I&T industry and provide value-added support services to I&T start-ups with high potential and to nurture them as regional or global enterprises.
- Residential Property Recovery – Shortening the applicable period of the Special Stamp Duty (SSD) from 3 years to 2 years, reducing the rates of the Buyer’s Stamp Duty (BSD) and the New Residential Stamp Duty (NRSD) by half, and introducing a stamp duty suspension arrangement for incoming talents’ acquisition of residential properties. To cancel all demand-side management measures for residential properties with immediate effect, that is, no SSD, BSD or NRSD needs to be paid for any residential property transactions. Property mortgage loans adjusted.
- SME Financing Guarantee Scheme – Extend the application period for the 80% and 90% Guarantee Products under the SME Financing Guarantee Scheme for two years to the end of March 2026. The total guaranteed commitment under the Scheme will increase further by $1.28 billion (HKD 10 billion). In addition, I have instructed the HKMA to maintain close communication with banks and the commercial sectors, adopt an accommodating manner to help enterprises tide over their liquidity needs, and refrain from demanding repayment of loans due to a fall in collateral value.
- Green Finance Events – HKMA will co-host a Joint Climate Finance Conference in Hong Kong with the Dubai Financial Services Authority. The Conference will explore transition financing opportunities and challenges for the Middle East and Asia.
- Extend the Green and Sustainable Finance Grant Scheme – Provided subsidies to eligible bond issuers and loan borrowers for the issuance of more than 340 green and sustainable debt instruments in Hong Kong through the Green and Sustainable Finance Grant Scheme which totalled $100 billion. Propose to extend the scheme, which is due to expire in mid-2024, to 2027, and expand the scope of subsidies to cover transition bonds and loans.
- Formulate Sustainability Disclosure Standards – Financial Services and the Treasury Bureau and the SFC will formulate a roadmap and vision statement to assist companies and financial institutions in sustainability reporting and the analysis of relevant data, elucidating our vision of promoting green and sustainable finance.
- Green Technology – Government’s Green Tech Fund funds research and development (R&D) projects which help Hong Kong decarbonise and enhance environmental protection, and encourages their subsequent practical applications. With $51 million (HKD 400 million) injected into the Fund, thirty projects from local universities, public research institutes and enterprises have been approved, involving a total grant of about $16 million (HKD 130 million) for subsidising local research projects. We will launch the Green and Sustainable Fintech Proof-of-Concept Subsidy Scheme in the first half of this year. It will provide early-stage funding support for green fintech, facilitating commercialisation and fostering the development of new green fintech initiatives.
- Digital Finance – HKMA completed Phase 1 of the e-HKD Pilot Programme last October, and has studied domestic retail use cases in various areas such as programmable payments, offline payments and tokenised deposits. Phase 2 of the pilot programme will soon commence to further explore new use cases. Project mBridge, another important initiative, has also achieved good progress. Phase 1 of its service, which is expected to be launched this year, will become one of the first projects around the world to settle cross-boundary transactions for corporates using central bank digital currencies. In addition, we will expand the scope of e-CNY pilot testing in Hong Kong. Members of the public may set up e-CNY wallets easily for use and for topping up funds by the Faster Payment System.
- Web3.0 – Expedite development of the Web3.0 ecosystem. Issued the first batch of inaugural tokenised green bonds in February 2023, we issued the second batch of tokenised green bonds in early February this year, worth a total of $767 million (HKD 6 billion) and denominated in Hong Kong dollar, Renminbi (RMB), US dollar and Euro. This is the world’s first-ever multi-currency tokenised bond issuance, and has attracted overwhelming subscription by global institutional investors, including asset managers, insurance companies, private banks and non-financial corporates. consulted the public on a legislative proposal to develop a regulatory regime for stablecoin issuers in end-2023, with the aim of putting in place a regulatory regime that safeguards financial stability without compromising innovation. The HKMA will soon roll out a “sandbox” for entities interested in issuing stablecoins to conduct trials, under manageable conditions, on the issuance process, business models, investor protection and risk management system. The “sandbox” will also facilitate communication on future regulatory requirements.
Hong Kong Budget 2024/2025
1) Asset and Wealth Management Centre – Hong Kong is an international asset and wealth management centre, with assets under management amounting to more than HK$30 trillion. It is also Asia’s largest hedge-fund centre and the second-largest centre for private equity management after the Mainland. Currently, there are more than 250 open-ended fund companies and 780 limited partnership funds registered in Hong Kong.
- To drive market development, the Government will extend the Grant Scheme for Open-ended Fund Companies and Real Estate Investment Trusts for 3 years, and set up a task force to discuss with the industry measures for further developing the asset and wealth management industry.
- Attracting global family offices and asset owners to Hong Kong will help bring in more capital and drive ancillary economic activities. We have implemented a number of measures, including providing tax concessions for qualifying transactions of family-owned investment holding vehicles managed by single family offices in Hong Kong, and streamlining the suitability assessment when dealing with sophisticated professional investors.
- The new Capital Investment Entrant Scheme (new CIES) will soon invite applications. Eligible investors who invest HK$27 million or more in qualifying assets and place HK$3 million into a new CIES Investment Portfolio may apply to reside in and pursue development in Hong Kong. The new CIES will help strengthen our advantages in developing the asset and wealth management industry and related professional service sectors in Hong Kong, while supporting the I&T sector’s development.
- We are setting the stage for the second Wealth for Good in Hong Kong Summit in end-March in a bid to showcase Hong Kong’s unique advantages to global family offices and asset owners. In addition, we will further enhance the preferential tax regimes for related funds, single family offices and carried interest, including reviewing the scope of the tax concession regimes, increasing the types of qualifying transactions and enhancing flexibility in handling incidental transactions, all to attract more funds and family offices with potential to establish a presence in Hong Kong.
2) Financial Forums – Organising thematic conferences can help reinforce Hong Kong’s branding. The Global Financial Leaders’ Investment Summit and the Asian Financial Forum are two very successful illustrations of this. The Financial Mega Event Week will be launched in Hong Kong in March, featuring an array of major financial events, including the Wealth for Good in Hong Kong Summit, which brings together owners and managers of family offices, the Global Investors’ Symposium by Milken Institute etc. There will also be a wealth of activities for enriching Hong Kong’s branding, including a round-table conference to be organised by the HKIC. Apart from inviting visitors to our city, we will continue to go global, visiting regions and markets to tell the good stories of Hong Kong and expand our circle of friends. We will also launch a new Sponsored Overseas Speaking Engagement Programme. Renowned scholars and industry leaders will be sponsored to attend overseas events and give speeches to promote Hong Kong and its many advantages.
3) Securities Market – We are keen to foster the development of the securities market into one with greater depth, breadth and vibrancy, thereby consolidating and enhancing market competitiveness.
- Bond Market – As a long-standing leader in bond issuance in Asia, Hong Kong has ranked first in the region for seven consecutive years in terms of the volume of international bond issuance. In the last Budget, I proposed to expand the scope of the Government Green Bond Programme to cover sustainable finance projects and take forward the Infrastructure Bond Scheme to raise capital for infrastructure projects, thereby facilitating the early completion of projects for the good of the economy and people’s livelihood. We will set a borrowing ceiling of a total of $500 billion for these two programmes to allow more flexibility in quota re-allocation. The sums borrowed will be credited to the Capital Works Reserve Fund for investment in projects which are conducive to long-term development. These two programmes will gradually replace the existing Government Bond Programme. In 2024-25, we will issue $120 billion worth of bond, of which $70 billion will be retail tranche that includes $50 billion worth of Silver Bond, and $20 billion worth of green bonds and infrastructure bonds to achieve financial inclusiveness and enhance a “sense of participation” in infrastructure and sustainable development among the public.
- Deepen Financial Cooperation in the GBA – The Cross-boundary Wealth Management Connect (WMC) Scheme in the GBA has seen continuous and steady development. “WMC 2.0” was officially launched earlier this week, introducing such enhancement measures as increasing the individual investor quota to RMB 3 million and lowering the threshold for participating in the Southbound Scheme. To help enterprises secure financing in the GBA more easily, the HKMA and Mainland regulatory authorities will continue to build a collaborative framework on cross-boundary credit referencing. Through such collaboration, the banks of both places, upon consent from corporate customers, will be allowed to access the credit data of relevant corporations, so that credit assessment can be conducted in a more secure and efficient manner.
- Specialty Insurance Market – As an international risk-management centre, Hong Kong provides diversified risk-management channels, including professional insurance services. We have been making dedicated efforts to invite Mainland and overseas enterprises to establish captive insurers in Hong Kong, enhancing their corporate risk-management capabilities. We are also promoting the development of insurance-linked securities (ILS) by establishing a dedicated regulatory regime and launching a pilot grant scheme. To date, we have facilitated the issuance of four catastrophe bonds in Hong Kong, one of which marked the inaugural listing of its type of ILS. We will continue to attract more issuing institutes to Hong Kong, while nurturing talent and propelling the industry’s development.
- Create Strong Impetus for Growth in the Financial Services – To bolster the competitiveness and advantages of the financial services industry in Hong Kong, the Government will earmark $100 million to promote the sustainable development of financial services. This includes green and sustainable finance, fintech, asset and wealth management, headquarters business, and risk management etc.
4) Bond Issuance – The issuance of Government bonds is conducive to the development of the bond market and allows the use of the capital raised from the market to drive green/sustainable and infrastructure projects. I emphasise that proceeds from bond issuance will not be used for funding government recurrent expenditure. The Committee on the Financing of Major Development Projects led by me has reviewed how to adopt an orderly and phased approach in developing the Northern Metropolis. We plan to issue bonds of about $95 billion to $135 billion per annum in the next five years to drive the development of the Northern Metropolis and other infrastructure projects. For the Kau Yi Chau Artificial Islands project, we will continue to conduct relevant studies, and in considering its concrete implementation timetable, we will take into account various factors including the public finance position. The Government will continue to adhere strictly to fiscal discipline and keep the government debt at a prudent level. It is expected that the ratio of Government debt to GDP will be in the range of about 9 to 13 per cent from 2024-25 to 2028-29, which is much lower than most of the other advanced economies.
5) International Financial Centre – A highly efficient financial market accelerates the development of the real economy by effectively matching capital with the needs of industry. The financial industry is one of the pillars of Hong Kong’s economy. Hong Kong as an international financial centre is also our country’s international financial centre, having an edge in “quantity” and “quality” that enables various financial areas to thrive. Our country is the world’s second-largest economy. The proportion of RMB as a global currency for international trade, investment and financing, cross-border payment and reserves is increasing continuously, as the Mainland develops closer economic ties with other regions. Market demand for RMB is becoming keener than ever. As the world’s largest offshore RMB business hub, Hong Kong processes about 75 per cent of global offshore RMB settlement. We also have the world’s largest offshore RMB liquidity pool, at over RMB 1 trillion. To capitalise on this enormous opportunity, we will press ahead with the development of an offshore RMB ecosystem to promote the internationalisation of the RMB in a steady and prudent manner. We are taking forward relevant work on various fronts. It includes making continuous efforts to deepen mutual-market access schemes that facilitate RMB cross-boundary investment and two-way fund flows to enhance offshore RMB liquidity. It also includes encouraging financial institutions to provide more offshore RMB products and risk-management tools, and carrying out RMB financing in Hong Kong. We will also develop the Central Moneymarkets Unit (CMU) into Asia’s major international central securities depository platform. It will provide better support for RMB businesses such as cross-border clearing, settlement and custodian services etc.
6) Mutual Market Access – Mutual-market access between financial markets in the Mainland and Hong Kong has been expanding in scope and capacity. Bond Connect, the Cross-boundary Wealth Management Connect Scheme, ETFs in Stock Connect and Swap Connect are among the many opportunities that have been implemented, one after another, in recent years. The initiatives provide more asset allocation and risk-management options for Mainland and international investors. This year, HKEX will host the 10th Anniversary of Mutual Access Forum to share our experience with the industry and explore how best to inject new impetus into the regime. We will stage a series of roadshows in the Mainland to promote mutual market access further. We are now in discussion with Mainland authorities over the introduction of block trading, the inclusion of RMB counters under the Southbound Trading of Stock Connect, and the expansion of the mutual-market access regime to cover REITs, bringing in more enterprises and capital to the Hong Kong market.
7) Stock Market – Setting up Renminbi Dual Counter securities model. Added Saudi Arabia and Indonesia stock exchanges to list of Recognised Stock Exchanges allowing secondary listing in Hong Kong. Reforming the Growth Enterprise Market (GEM). Listing requirements & arrangements for structured products will also be enhanced. Waiver of stamp duties payable on the transfer of real estate investment trust (REIT) units and the jobbing business of option market-makers. During the past year, we have made good progress in developing the stock market. We joined hands with regulators and HKEX in implementing a number of measures, including establishing the listing regime for specialist technology companies and the HongKong Dollar – Renminbi Dual Counter securities model. Regarding attracting overseas enterprises to be listed in Hong Kong, HKEX has included the Saudi Arabia and Indonesia stock exchanges in its list of Recognised Stock Exchanges last year, which facilitates enterprises primary listed on the main market of these exchanges to seek secondary listing in Hong Kong. We are actively implementing measures proposed, last October, by the Task Force on Enhancing Stock Market Liquidity. They include reforming the Growth Enterprise Market (GEM). The HKEX has consulted the market on such initiatives as introducing a treasury share buy-back regime and maintaining trading operations under severe weather. Both are targeted for implementation in the middle of the year. The Securities and Futures Commission of Hong Kong (SFC) and the HKEX are considering an array of measures to boost market efficiency and liquidity, including:
- (a) enhancing the listing regime: explore enhancing the process of price discovery in the initial public offering of shares and reviewing requirements for the public float of shares of listed companies to boost market efficiency. Listing requirements and arrangements for structured products will also be enhanced, while the listing costs of the products will be lowered;
- (b) improving the transaction mechanism: explore reducing the minimum trading spread to narrow bid-ask spreads, with the proposal to be submitted in the second quarter; enhancing stock-trading units adopted in the cash market as the next step; and making further adjustments to the position limits and margin requirements of derivative products to better meet risk-management needs;
- (c) boosting investor services: explore refining real-time, market-data services, to provide investors with targeted services at a reasonable price; and
- (d) stepping up market promotion: the HKEX will strengthen the promotion of Hong Kong’s securities market through its overseas offices and deepen connectivity with the Middle East and ASEAN countries, to attract more issuers and capital.
To further enhance market competitiveness, stamp duties payable on the transfer of real estate investment trust (REIT) units and the jobbing business of option market-makers will be waived. It is estimated that this will reduce government revenue by about $1 billion annually.
8) Re-domiciliation Mechanisms – We have already taken the first step by putting in place user-friendly fund re-domiciliation mechanisms for Open-ended Fund Companies and Limited Partnership Funds. These mechanisms attract existing foreign funds to establish and operate in Hong Kong. In the first half of 2024, we will submit a legislative proposal enabling companies domiciled overseas, especially enterprises with a business focus in the Asia-Pacific region, to re-domicile in Hong Kong.
9) Opening Up New Capital Sources – Alongside our longstanding efforts to reinforce Hong Kong’s appeal to traditional European and American capital, we are striving to open up new capital sources, including those from the Middle East. At the end of last year, the Asia-Pacific region’s first Exchange Traded Fund (ETF), which tracks stocks in Saudi Arabia, was listed in Hong Kong, a milestone in enhanced mutual access between our two markets. The Hong Kong Monetary Authority (HKMA) is also working with a number of financial institutions on the listing of an ETF in the Middle East that tracks Hong Kong stock indices.
10) Belt & Road – The B&R Initiative promulgated by our country has entered its second golden decade. Hong Kong will continue to give full play to its role as a functional platform for the B&R. To this end, we will actively participate in and contribute to fostering high-quality development, especially in green development as well as innovation and technology. Apart from continuing to host the annual Belt and Road Summit in September, a new Belt and Road Festival will be launched. The festival will promote collaboration with B&R countries in a wide range of areas including trade and investment, technology, arts and culture and talent exchange. Hong Kong will also host the Conference of Belt and Road Initiative Tax Administration Cooperation Forum, which will be attended by representatives of the governments, international organisations, academic institutions and strategic enterprises of B&R regions. It will provide a platform for attendees to establish connections and exchange ideas, thereby promoting tax administration co-operation and capacity building. Besides, more outbound missions will be organised, including visits to the Mainland for enterprises of B&R countries which are operating in Hong Kong to explore business opportunities.
11) Hong Kong Investment Corporation Limited (HKIC) – Performing its role of channelling capital and leveraging market resources, the HKIC will attract more I&T (Innovation & Technology) companies to establish their presence in Hong Kong, accelerating the development of strategic industries. The first batch of direct investment and co-investment projects will be implemented in the first half of this year, covering areas such as life technology, green technology and finance, semi-conductors and chips, as well as the upgrading and transformation of manufacturing industries.
- The HKIC will also encourage enterprises in its investment portfolio to engage more actively in local, Mainland and overseas I&T networks, where they can explore more application and development opportunities, while identifying potential investors and their target clientele.
- To enhance Hong Kong’s attractiveness to enterprises and capital, the HKIC will host a Roundtable for International Sovereign Wealth Funds. Sovereign wealth funds and financial leaders will be invited to explore investment opportunities and develop collaborative partnerships. A Summit on Start-up Investment and Development in Hong Kong will also be organised. It will bring together prominent figures in the start-up ecosystem, with a view to boosting collaboration among the investment, industry, academic and research sectors. That will help support I&T enterprise development at varying stages.
- To enhance Hong Kong’s attractiveness to enterprises and capital, the HKIC will host a Roundtable for International Sovereign Wealth Funds. Sovereign wealth funds and financial leaders will be invited to explore investment opportunities and develop collaborative partnerships. A Summit on Start-up Investment and Development in Hong Kong will also be organised. It will bring together prominent figures in the start-up ecosystem, with a view to boosting collaboration among the investment, industry, academic and research sectors. That will help support I&T enterprise development at varying stages.
12) Nurturing Start-ups – Since its inception, the Corporate Venture Fund under the Hong Kong Science and Technology Parks Corporation (HKSTPC) has invested a total of nearly $400 million in 31 start-ups and attracted private investment of about $12.6 billion. The HKSTPC will soon launch the Co-acceleration Programme to pool the efforts of the I&T industry and provide value-added support services to I&T start-ups with high potential and to nurture them as regional or global enterprises.
13) Creating Favourable Conditions for Property Recovery – The Government announced on 25 October 2023 the adjustment of demand-side management measures for residential properties. The relevant adjustments included shortening the applicable period of the Special Stamp Duty (SSD) from three years to two years, reducing the rates of the Buyer’s Stamp Duty (BSD) and the New Residential Stamp Duty (NRSD) by half, and introducing a stamp duty suspension arrangement for incoming talents’ acquisition of residential properties. Among them, the stamp duty suspension arrangement has been well-received, with over 500 applications approved. This is a testament to the appeal of Hong Kong for overseas talents.
- We have been keeping a close watch on the residential property market. After prudent consideration of the overall current situation, we decide to cancel all demand-side management measures for residential properties with immediate effect, that is, no SSD, BSD or NRSD needs to be paid for any residential property transactions starting from today. We consider that the relevant measures are no longer necessary amidst the current economic and market conditions.
- The HKMA adjusted the countercyclical macroprudential measures for property mortgage loans in July last year. Taking into account the external and local economic situation, we consider that there is now room to make further adjustments to the relevant measures and other supervisory policies pertinent to property lending where appropriate, under the premise of maintaining the stability of the banking system. The HKMA will make announcements later today.
14) Assisting Small & Medium Enterprises (SMEs) – Taking into consideration that the strength of our economic recovery still requires consolidation and changes in market conditions, the Government will assist small and medium enterprises (SMEs) through different measures to tackle their capital-flow problems, tap into new markets and accelerate upgrading and transformation.
15) SME Financing Guarantee Scheme – To assist SMEs in tackling their capital-flow problems, I will extend the application period for the 80% and 90% Guarantee Products under the SME Financing Guarantee Scheme for two years to the end of March 2026. The total guaranteed commitment under the Scheme will increase further by $10 billion. In addition, I have instructed the HKMA to maintain close communication with banks and the commercial sectors, adopt an accommodating manner to help enterprises tide over their liquidity needs, and refrain from demanding repayment of loans due to a fall in collateral value.
16) Moving towards a Green Future – “Green development is a defining feature of high-quality development”. As global economies pursue carbon neutrality, green transformation creates huge business opportunities and financing needs, leading to industry clusters of great diversity. Sustainable fuels, energy saving, emission reduction and carbon-capture technologies continue to emerge.
- Green Finance – Being an international financial centre, Hong Kong is also rising as an international green finance centre. The Government is hosting “Hong Kong Green Week” this week, comprising events covering technology, finance and other fields. It has brought together industry leaders from the Asia-Pacific region to examine issues such as green development and climate finance. This autumn, the HKMA will co-host a Joint Climate Finance Conference in Hong Kong with the Dubai Financial Services Authority. The Conference will explore transition financing opportunities and challenges for the Middle East and Asia.
- Extend the Green and Sustainable Finance Grant Scheme – The Government has so far provided subsidies to eligible bond issuers and loan borrowers for the issuance of more than 340 green and sustainable debt instruments in Hong Kong through the Green and Sustainable Finance Grant Scheme which totalled US$100 billion, enriching our green and sustainable finance ecosystem. We propose to extend the scheme, which is due to expire in mid-2024, to 2027, and expand the scope of subsidies to cover transition bonds and loans. This will encourage related industries in the region to make use of Hong Kong’s transition financing platform as they move towards decarbonisation.
- Formulate Sustainability Disclosure Standards – Accurate information is essential to the promotion of sustainable financing. It is also the priority of international organisations and government agencies in the next few years. To deepen Hong Kong’s green and sustainable finance development, enterprises must align their practices in sustainability disclosure with international standards. Financial Services and the Treasury Bureau and the SFC will formulate a roadmap and vision statement to assist companies and financial institutions in sustainability reporting and the analysis of relevant data, elucidating our vision of promoting green and sustainable finance.
- Green Technology – Hong Kong also possesses advantages in green technology. More than 200 green-technology companies work out of Hong Kong, with some equipped with globally competitive technologies and have successfully tapped into Mainland and overseas markets. And the Greater Bay Area cities, apart from their market scale, enjoy strong capabilities in research, advanced manufacturing and commercialisation. Together, we have what it takes to become Asia’s leading green technology hub. The Government’s Green Tech Fund funds research and development (R&D) projects which help Hong Kong decarbonise and enhance environmental protection, and encourages their subsequent practical applications. With $400 million injected into the Fund, thirty projects from local universities, public research institutes and enterprises have been approved, involving a total grant of about $130 million for subsidising local research projects. We will launch the Green and Sustainable Fintech Proof-of-Concept Subsidy Scheme in the first half of this year. It will provide early-stage funding support for green fintech, facilitating commercialisation and fostering the development of new green fintech initiatives.
17) Digital Finance – Digital technology has turned new financial business models into reality. Digital finance, through integrating data and technological innovations in different use case scenarios, can complement traditional financial services in enabling wider service access and enhancing the inclusiveness of financial services. The HKMA completed Phase 1 of the e-HKD Pilot Programme last October, and has studied domestic retail use cases in various areas such as programmable payments, offline payments and tokenised deposits. Phase 2 of the pilot programme will soon commence to further explore new use cases. Project mBridge, another important initiative, has also achieved good progress. Phase 1 of its service, which is expected to be launched this year, will become one of the first projects around the world to settle cross-boundary transactions for corporates using central bank digital currencies. In addition, we will expand the scope of e-CNY pilot testing in Hong Kong. Members of the public may set up e-CNY wallets easily for use and for topping up funds by the Faster Payment System, thereby further enhancing the efficiency and user experience of cross-boundary payment services.
18) Web3.0 – In last year’s Budget, I proposed to expedite development of the Web3.0 ecosystem. We have made good progress over the past year. Having successfully issued the first batch of inaugural tokenised green bonds in February 2023, we issued the second batch of tokenised green bonds in early February this year, worth a total of $6 billion and denominated in Hong Kong dollar, Renminbi (RMB), US dollar and Euro. This is the world’s first-ever multi-currency tokenised bond issuance, and has attracted overwhelming subscription by global institutional investors, including asset managers, insurance companies, private banks and non-financial corporates. Apart from the many technological innovations, we have also achieved breakthroughs in this issuance in areas such as broadening investor participation and streamlining the issuance process. In keeping abreast of the latest international trends and market development, we consulted the public on a legislative proposal to develop a regulatory regime for stablecoin issuers in end-2023, with the aim of putting in place a regulatory regime that safeguards financial stability without compromising innovation. The HKMA will soon roll out a “sandbox” for entities interested in issuing stablecoins to conduct trials, under manageable conditions, on the issuance process, business models, investor protection and risk management system. The “sandbox” will also facilitate communication on future regulatory requirements.
Hong Kong Financial Secretary Paul Chan delivered the 2024-25 Budget in the Hong Kong Legislative Council on 28th February 2024.
Mr President, Honourable Members and fellow citizens,
I move that the Appropriation Bill 2024 be read a second time.
During the past year, Hong Kong has returned to normalcy after the epidemic. The society and the daily lives of our people are back to normal as they have longed for. Visitors are returning, and our economy is regaining positive growth. A series of mega events have helped to restore a buoyant mood in the community. Meanwhile, geopolitical uncertainties and high interest rates have impacted capital flows. Resumption of outbound travel, changes in consumption patterns and a shift in inbound visitors’ preferences, along with competition from other economies and so forth have all weighed down economic confidence.
Amid a complicated and ever-changing international environment, and with our economy and society constantly evolving, more strenuous efforts are required to strengthen momentum of our economic recovery. While the uneven pace of recovery across industries merits our attention, there are also certain constraints that need to be unravelled in a gradual manner. Innovation and technology as well as data empowerment will catalyse the emergence of new business models, however they will also heighten competition and pose challenges to many enterprises. Through vigorous promotion of innovative research and transformation of its outcomes as well as acceleration of digital transformation in recent years, we are well-equipped to navigate the changes. Underpinned by our country’s firm and steady development, our institutional advantages under “One Country, Two Systems” and our highly international characteristics, Hong Kong will attract yet a bigger pool of talent, capital and enterprises. I have absolute confidence in Hong Kong’s future. Our public finances, nevertheless, need consolidation as the epidemic subsides. Upon a full and thorough evaluation, we will adopt a fiscal consolidation strategy to narrow our fiscal deficit progressively towards achieving the goal of restoring fiscal balance.
The theme of this Budget is: “Advance with Confidence. Seize Opportunities. Strive for High-quality Development.” I will elaborate on this a little later.
Concluding Remarks
Mr President, this year will still be fraught with uncertainties. Investment sentiment and capital flows are under the sway of the complicated and volatile external environment. In the short term, we need to reinforce the momentum of our economic recovery, while in the long run, we have to adjust our economic growth model with enhancements to both “quality” and “quantity”. By charting the course of high-quality development, we will drive further innovations, bring in new services and products, stimulate new demand and open up new markets. This is the necessary path to take for the future development of Hong Kong.
Just as nature goes through endless evolutions, so economic development has its cycles of ups and downs. New challenges and future uncertainties may be disconcerting. But when we reflect on decades of development in Hong Kong, it is obvious that the path we have trodden, however winding or bumpy, has always led to a better tomorrow. The colour of the cover of this year’s Budget symbolises the first glimmer of dawn, for this inspires hope, faith and our longing for greater unity and harmony. We have succeeded in turning challenges into greater opportunities every step of the way. We owe every success to the strong leadership of the Central People’s Government, the staunch support from our country, as well as the agility and tenacity of Hong Kong people.
Our unique positioning and distinctive functions make us irreplaceable as our country strides towards high-quality development and the building of a great modern nation. And we have been playing an active role in contributing to our country’s development. Our country’s swift and steady progress, alongside a fast developing Asia, has provided us with infinite opportunities along the way.
Hong Kong thrives on its cultural blend of East and West and its connectivity to the world. It is also the only place in the world where the global advantage and the China advantage come together in a single economy. So long as we know where we stand and chart the right direction, we will be able to give full play to our unique strengths. By blazing new trails and firmly pressing ahead, Hong Kong will certainly thrive and prosper, like a dragon soaring far and high in the boundless sky. Thank you, Mr President.
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