MOTION DEBATE ON THE 2024 POLICY ADDRESS
President, the Policy Address, themed “Reform for Enhancing Development and Building Our Future Together”, begins by echoing Hong Kong’s strategic positioning as set out in the Resolution of the Third Plenary Session of the Central Committee of the Communist Party of China (“the CPC Central Committee”). It has proposed a series of initiatives focusing on consolidating and enhancing our status as international financial, shipping and trade centres, building Hong Kong into an international hub for high-calibre talents, etc., which will help enhance Hong Kong’s unique role and functions as an international city. These, coupled with other policies related to people’s livelihood, have answered the community’s call to revitalize the economy and to respond to and embrace changes. I therefore support this Policy Address and the Motion of Thanks.
President, finance is the lifeblood of the national economy and an important component of national core competitiveness. The 2023 Central Financial Work Conference highlighted the need to accelerate the building of China into a financial powerhouse with a strong currency, a strong central bank, strong financial institutions, strong international financial centres, strong financial supervision and a strong team of financial talents. Among these six “strong” elements, Hong Kong is the actual embodiment of a “strong international financial centre”, the international stage for a “strong currency”, the nurturing base for “strong financial supervision” and the incubator for a “strong team of financial talents”. Hong Kong’s positioning in financial development must be complementary to the country’s requirement of building itself into a financial powerhouse.
I note that of the three Policy Addresses delivered by the Chief Executive, this year’s has the richest content on economic policy areas. In particular, it has placed more emphasis on the development of the financial sector, with significantly more coverage than in the previous two years, fully demonstrating the importance attached to the financial sector. In September this year, Hong Kong returned to the third place in the global financial centre rankings. In addition to adopting a multi-pronged approach to continuously enhance the competitiveness of traditional financial industries, the Policy Address has also strategically proposed the establishment of an international gold trading centre and a commodity trading ecosystem, and applied out-of-the-box thinking to promote the synergistic development of the three centres. This has given me full confidence in the prospects of Hong Kong’s financial sector.
In the following, I would like to express my views on the Policy Address in four aspects.
The first aspect is the continuous improvement of the competitiveness of the traditional financial industries. I am pleased to see that the Policy Address has taken on board the views of a number of Members, including myself, and indicated that the securities market will be further enhanced. The Securities and Futures Commission (“SFC”) and the Stock Exchange of Hong Kong Limited (“HKEX”) have immediately announced an enhanced mechanism for New Listing applications, which will provide more certainty on the timing and rounds of their regulatory comments. I hope that the enhanced mechanism will increase transparency in the vetting process of New Listing applications, avoid indefinite withholding of decisions and unlimited rounds of questions, lower the application costs for prospective listed companies, attract more enterprises from different regions to raise funds in Hong Kong, and further enhance Hong Kong’s attractiveness as the leading international initial public offering market in the region, thereby enabling Hong Kong to regain its position as one of the top three global fundraising centres or even reclaim the top spot.
In terms of boosting market efficiency, SFC and HKEX will review the arrangement for deposit of margin, and refine the requirements on placement of margin and collateral. I believe this will facilitate transactions by more market participants, enable a more efficient and smoother transaction process, streamline the cumbersome procedures and reduce time consumption, thereby lowering transaction costs.
However, it remains necessary for the Government to continue to explore other measures to lower the costs for investors in order to attract the participation of, among others, high-frequency traders. In addition, as neither excessively low market value nor negligible trading volume is included in the current delisting conditions, the stock market is still filled with a large number of listed companies with low market values and pitiful annual trading volumes. I suggest that the Government should consider establishing an OTC (i.e. over-the-counter) trading market and refining the delisting conditions to allow the aforementioned companies and technology start-ups that do not meet the listing requirements to enter the market for trading. This will, firstly, improve the image of Hong Kong listed companies; secondly, provide an alternative post-delisting trading mechanism; and, thirdly, allow investors who have purchased the shares of the delisted companies to cash them in, thereby strengthening investor protection.
On the other hand, to strengthen Hong Kong’s status as a global offshore Renminbi (“RMB”) business hub, the Government plans to offer more RMB-denominated investment products, including the introduction of the Hong Kong dollar-RMB dual counter for more stocks. It has also mentioned that more RMB green bonds will be issued to attract large institutional investors. At the same time, the Government will seek support from the Ministry of Finance for boosting the size and frequency of RMB sovereign bond issuance in Hong Kong, and consider launching offshore RMB sovereign bond futures. As sovereign bond futures are characterized by active hedging against interest rate risks and low transaction costs, which are conducive to the formation of a transparent and reliable yield curve for the market, accelerating the launch of such sovereign bond futures should be able to promote offshore RMB long-term loans and other related transactions. Moreover, the further enhancement of the existing Cross-Boundary Wealth Management Connect Scheme 2.0 and the expansion of the Bond Connect (Southbound Trading) will help increase market liquidity and enrich investors’ choices. I hope that the policies in these areas will be implemented as early as possible.
The development of Hong Kong’s offshore RMB is not at all shameful if we look at it from the perspective of its annual growth. However, judging by the national strategy of expanding the use of RMB globally, it has yet to make a quantum leap, so we must speed up the pace of its development without the slightest hesitation.
The second aspect concerns the opening up of new growth areas for the financial sector. Following the advice of the industry, the Government has announced that it will build an international gold trading market and promote the construction of related infrastructural facilities. Today, amidst global market instability, gold’s value preservation and hedging functions have increased, leading to a surge in trading volumes. Geopolitical considerations have prompted many countries to move their gold holdings, originally stored in the United States and the United Kingdom, to other places, and Hong Kong’s position as an international financial market and its security perfectly meet their need for risk diversification. Now that Hong Kong ranks among the world’s largest import and export markets for gold by volume, with an average daily trading volume of about $100 million, it has the prerequisites for building a gold pricing centre in Asia.
The Government has proposed to promote the development of world-class gold storage facilities by the industry, thereby facilitating the storage and delivery of spot gold by users and investors in Hong Kong, which will in turn drive demand for related services such as collateral and loan businesses. At the same time, the Financial Services and the Treasury Bureau will set up a working group to explore ways to strengthen the trading mechanism and regulatory framework and to promote application of cutting-edge financial technology, so as to make up for Hong Kong’s shortcomings in terms of the infrastructural facilities and formulation of rules for the gold market.
However, competition in international gold trading is extremely fierce these days, with all the major exchanges now actively expanding their market sizes. We can only compete in the international market if we expeditiously draw up a timetable for upgrading our gold storage facilities and motivate the industry to make concerted efforts to break through the development frontiers.
At the same time, the Government has proposed to explore the introduction of tax concessions and support measures to create a commodity trading ecosystem. At present, the overall size of Hong Kong’s commodity derivatives market is still relatively small, so there is plenty of room for growth. We can take the opportunity of an international commodity exchange’s intention to set up accredited warehouses in Hong Kong to promote the development of infrastructure and supporting facilities, so as to attract Mainland enterprises to engage in commodity trading, especially non-ferrous metal, in Hong Kong.
The commodity trading ecosystem includes attracting relevant Mainland and overseas enterprises to establish a presence in Hong Kong, thereby generating greater demand for financial products and services. This will enhance Hong Kong’s financial functions and drive operations related to storage and delivery, shipping and logistics, risk management, and more.
In conjunction with the creation of a gold and commodity trading ecosystem, the Government may also consider studying and utilizing the “first-line development” system adopted in the Mainland’s free trade zones, in an attempt to link Hong Kong’s delivery system with the designated bonded warehouses on the International Board of the Shanghai Gold Exchange, and to establish a closed-loop channel serving the needs of the Mainland’s gold market and commodity trading, which will become a pilot gateway for mutual market access for gold and commodities in the future.
The third aspect relates to promoting the application of cutting-edge financial technology and building a new fintech innovation ecosystem. Promoting the development of the digital economy is an integral part of our ongoing efforts to consolidate and enhance Hong Kong’s status as an international financial centre. I am pleased to see that the Government has taken on board a number of suggestions from the financial and technology sectors on promoting fintech and financial inclusion, including the use of central bank digital currencies (“CBDCs”) for cross-boundary payment and the enhancement of the regulation of virtual asset (“VA”) trading.
The Hong Kong Monetary Authority (“HKMA”) also announced last month the establishment of new cross-border partnerships with the Banco Central do Brasil and the Bank of Thailand respectively, under which the two institutions will link their experimental CBDC infrastructures to further explore use cases in areas such as trade finance and carbon credits. I believe that the scope of cooperation between central banks will only continue to expand.
At the same time, HKMA plans to launch the Digital Bond Grant Scheme to encourage more financial institutions and issuers to adopt tokenization technology in capital market transactions. Digital bond transactions, which allow for easier tracking and analysis and lower overall operating costs, are very popular among European investors. Following the launch of the scheme, I believe that more institutional investors will issue tokenized bonds, which is conducive to improving the efficiency of the bond market and encouraging more trading activity. The Project Ensemble Sandbox was already launched in August this year to explore the application of real-world asset tokenization, and this project is crucial to the success of Hong Kong’s financial sector in staying at the forefront of global financial markets in the future. I hope that HKMA will continue to spearhead industry innovation and upgrading, improve market infrastructure and enhance the competitiveness of our local financial market.
Regarding the establishment by HKMA and the People’s Bank of China of a cross-boundary linkage between Hong Kong’s Faster Payment System (FPS) and the Mainland’s Internet Banking Payment System (“IBPS”), I believe that the measure will initially be limited to small remittances by individuals, as there is still a single transfer limit under IBPS. However, as Hong Kong people go north for consumption and Mainland students come to Hong Kong to study, there will be more and more payment scenarios in daily life in both places; and small and medium enterprises (“SMEs”) will also go to the Greater Bay Area to look for development opportunities. I hope that, within the general framework of foreign exchange controls, efforts will be made to progressively strive to raise the limit and expand the scope of services to enterprises, so as to realize large cross-boundary remittances and payments for the benefit of both SMEs and the general public.
The fourth aspect is about injecting “living water” into the real economy and stabilizing the property market. The Policy Address announces that borrowing enterprises under the SME Financing Guarantee Scheme will be allowed to apply for principal moratorium for up to 12 months; the maximum loan guarantee periods will be extended; and the partial principal repayment options will be offered. I believe these will provide breathing space to some SMEs facing financial difficulties and alleviate their liquidity distress.
At present, the 16 banks in Hong Kong, which account for more than 90% of share of the SME loan market, have already set aside a total of more than $370 billion in dedicated funds to support SMEs. I believe that such a multi-pronged approach will produce practical results in helping SMEs facing financing pressure. Another measure is the injection of $1 billion into the BUD Fund, which includes the expansion of the geographical coverage of E-commerce Easy to the 10 countries of the Association of South East Asian Nations (ASEAN). The BUD Fund will continue to provide funding support to non-listed enterprises to enhance the competitiveness of SMEs and assist them in developing new markets through developing brands, upgrading and restructuring operations and promoting sales. Indeed, injecting “living water” into SMEs to enable them to undergo timely transformation for development is very important for Hong Kong’s economy in terms of consolidating the foundation and regaining momentum.
As for the enhancement of the New Capital Investment Entrant Scheme (“CIES”), allowing investment in residential properties valued at $50 million or above and expanding the investment options will further enhance the attractiveness of CIES and, in turn, absorb more investments. As this type of residential property is classified as luxurious residential property, the market for small and medium residential properties for ordinary people will not be affected. According to the latest disclosure from the Hong Kong Investment Corporation Limited, at least 100 applicants will have completed their new investment immigration by the end of this year. I understand that they have actually invested more than $50 million, with many of them reaching the $100 million threshold. The first tranche of capital will be at least $300 million, demonstrating the popularity of the enhanced CIES.
On the mortgage front, the maximum loan-to-value (“LTV”) ratio and the maximum debt servicing ratio for both residential and non-residential properties will be standardized at 70% and 50% respectively, which I believe will help to meet the needs of home buyers and investors. This, coupled with the fact that the rate-cut cycle has already begun, should have a stabilizing effect on the property market as a whole.
The real estate sector should be able to benefit from the two policy measures, namely CIES and the relaxation of the LTV ratio. Although the rising number of negative equity cases in recent months has caused concern in the market, there is still a long way to go before the number of negative equity cases reaches its peak seen at the end of the last century. If the property market can quickly bottom out and stabilize, and people’s incomes improve along with the economy, I believe that the growth rate of negative equity cases can be brought under control.
President, the Third Plenary Session of the CPC Central Committee focuses on comprehensively deepening reform. For Hong Kong, pushing forward with reform does not mean denying Hong Kong’s traditional advantages, but rather adhering to our principles and being innovative in the sense that, in the light of our actual development needs, we should review the shortcomings of the existing systems, continuously improve our mechanisms and propose new initiatives in various policy areas. Whether it is identifying international gold and commodity trading as new growth areas for the financial sector, proposing the innovative Basic Housing Units mechanism or otherwise, all these fully demonstrate the SAR Government’s new thinking on development. All in all, I think the Chief Executive has delivered a policy address to all Hong Kong people that is full of reform determination. I hope that all levels of the Government will make all-out efforts to implement the Policy Address, so that Hong Kong’s economy will not be stuck in the slow lane as it is now, but will return to the fast lane as soon as possible and develop at an accelerated pace as early as possible.
I so submit. Thank you, President.