Hong Kong: International Financial Centre & Gateway to China
August 2018 Why Hong Kong?
The dominant gateway to all things China
A competitive international financial platform
A forward-looking hub for new businesses
1 01 The dominant gateway to all things China
2 WHY HONG KONG The dominant gateway to all things China
The Chinese economy is large and fast growing
China is now the world’s 2 nd largest economy. … and the growth is expected to continue. By Annual growth of China is larger than the size of 2030, China is expected to make up 20% of the some major economies… world economy
1-year = USD1.1 trn Indonesia Mexico 50 China's GDP 25% 45 or 20% 40 20% > 17% 35 15% 30 15% 26.5 India UK 25 3-year = USD3.3 trn trn USD 20 10% 15.6 or 15 12.3 4% > France Russia 10 3% 5% 5 0.3 1.2 0 0% 1980 2000 2017 2020 2030
Size (LHS) Share of world total (RHS)
Note: Projections for 2020 and 2030 by IMF and PwC respectively Source: IMF, PwC. Source: IMF 3 WHY HONG KONG The dominant gateway to all things China
International investment in China is low but rising
Foreign investment in China is far below international … but is set to rise exponentially average…
Foreign ownership in domestic bond Foreign holding of China's domestic markets assets 68% 70% 1,400 64%
1,175 1,199 60% 1,200
50% 46% 1,000 +111% +79% 41% 39% 38% Average: 38.5% 40% 800 672 29% 30% RMB bn RMB 600 556
20% 400 13% 8% 10% 200 2% 0% - Equities Bonds
2014 2017
Source: ChinaBond, SCH, PBOC, BIS Source: PBOC 4 WHY HONG KONG The dominant gateway to all things China
New opportunities from the “going out” of Chinese firms…
China has more global top firms than most other … and they are actively expanding abroad economies…
Number of world top 50 banks by assets China’s outward direct investment (2017) 200 China 14 170 UK 5 150 CAGR: 19% Japan 5 118 USA 4 103 100 Number of Fortune 500 companies (2017) 90
USD bn USD 77
USA 133 59 60
China 109 50
Japan 51
France 29 0 2010 2011 2012 2013 2014 2015 2016
Source: Accuity (RELX Group), Fortune Global 500 Source: China’s Ministry of Commerce
5 WHY HONG KONG The dominant gateway to all things China
… and overseas investment by Chinese investors
Demand for investment opportunities driven by … and investment abroad still has plenty of scope rapid wealth accumulation… to grow
High-net-worth individual (HNWI) wealth External portfolio investment 20 14 18 16.8 12.4 16 12
14 10 12
10 8 6.9 USD trn USD 8 7.0
5.8 trn USD 6 6 4.2 2011-2017 4 CAGR: 16% 4 3.4 3.6 2.1 1.7 2 2.8
- 2 USA Japan China UK France 0.5 0.2 60% 66% 113% 34% 49% 0 USA Japan UK China
2016 HNWI Wealth 2011-2016 growth rate 2011 2017
Source: Capgemini Source: IMF
6 WHY HONG KONG The dominant gateway to all things China
Hong Kong has been the dominant gateway to China
Originates and intermediates 2/3 of China’s inward … and most financial investments foreign direct investment (FDI) and outward direct investment (ODI)…
China's FDI & ODI RQFII quotas approved RMB bn 350 Hong Kong 308
300 South Korea 75
250 Singapore 75
170 UK 41 200 90 Australia 32
USD bn USD 150 59 France 24 100 US 17 134 115 124 50 Luxembourg 15 41 0 Germany 11 2000 2010 2013 2016 Canada 9 38% 54% 59% 59% Switzerland 7 China FDI China ODI HK's share of total
Source: China’s Ministry of Commerce Source: SAFE
7 WHY HONG KONG The dominant gateway to all things China
New channels have been opened to enhance connectivity
QFII RQFII Mutual Recognition of Funds Bond Connect Invest in onshore equity & Extension of QFII Chinese and HK investment funds can be International investors can bond markets after opening to allow RMB distributed to each other’s public after trade and clear China bonds onshore accounts streamlined approval using HK
2002 2003 2011 2014 2015 2016 2017
Mainland-Hong Kong Closer Shanghai-HK Stock Connect Shenzhen-HK Economic Partnership Arrangement International investors can trade Shanghai Stock Connect (CEPA) stocks through HKEX and Chinese investors Extension of Stock Preferential trade & investment policies can trade HK stocks through SSE Connect to cover SZSE
Benefits of investing via Hong Kong
Legal certainty Follow international market practices Use existing infrastructure and counterparty relationships
8 WHY HONG KONG The dominant gateway to all things China
By far the largest offshore centre for the increasingly popular RMB
International use of RMB has been growing rapidly Hong Kong offers full RMB services, supported by ample liquidity
RMB’s share as an international payment RMB deposit currency RMB bn 3.0% Hong Kong 618
+5.6x 2.5% 2.3% Singapore* 152 2.2%
2.0% 1.9% UK 62 1.7% 1.6% 1.5%
1.1% Outstanding RMB loans and bonds: RMB357bn at the end 1.0% of 2017
0.6% Hong Kong provides over 500 RMB-denominated investment products: Bonds, certificates of deposit, 0.5% 0.3% insurance, fixed income funds, currency futures, exchange- traded funds, real estate investment trusts, stock and derivative products, etc. 0.0% 2011 2012 2013 2014 2015 2016 2017 May-18 As of year end 2017. Source: SWIFT * Figures include certificates of deposit except for that of Singapore which is not available publicly Source: HKMA, IMF, MAS, BOE, FSTB 9 02 A competitive international financial platform
10 WHY HONG KONG A competitive international financial platform
Hong Kong is the leader across many capital markets in Asia
2017 Notes Banking • 200 authorised institutions, including the world’s Assets (USD bn) 2,910 largest, and 70 of the world top 100 • +3.4 times from 2000 Stock market • Global #1 in IPO fundraising in 5 out of last 10 Market Capitalisation (USD bn) 4,351 years • +7 times from 2000 Bond market • #3 in Asia ex-Japan, after Mainland China and G3 and local currency bond issuance 467 Korea (USD bn) • +7 times from 2000 Asset management • Asia’s #1 international fund management hub Asset under management (USD bn) 3,112 • +16 times from 2000 • Largest international private wealth management of which: private wealth management 1,002 centre in Asia (USD bn) • +16 times from 2002 *
* Data before 2002 is not available Source: HKMA, HKEX, World Federation of Exchanges, PwC, ADB, SFC
11 WHY HONG KONG A competitive international financial platform
A banking centre for today and the future
Hong Kong is Asia’s largest banking hub for China … and we are launching a number of initiatives to move and international banks… Hong Kong into a new era of smart banking
Assets of HK banking industry Promotion of Virtual Banking 3,000 2,905 • The virtual banking licences are now open for application 2,475 2,500 • First licenses expected to be granted towards end 2018 or in Q1 2019
2,000 Enhanced Fintech Supervisory Sandbox 2.0 1,586 1,500 • Chatroom to provide speedy feedback USD bn USD • Give tech firms direct access
935 • Single point of entry for all regulators 1,000 854
Banking Made Easy 500 • Allow adoption of innovative technology, such as big data and 0 consumer behavioral analytics, for 2000 2005 2010 2015 2017 credit risk management Source: HKMA
12 WHY HONG KONG A competitive international financial platform
Asia’s deepest international capital markets…
The world’s largest equity fundraising centre and 3rd largest bond centre in Asia ex-Japan one of the fastest growing
HK's market capitalisation 1,200 2017 Asia ex-Japan bond issuance 5,000 4,351 1,000 1,000 4,000 +7x 3,185 800 703 3,000 2,702 600 467 USD bn USD 2,000 bn USD 400 342 1,047 267 1,000 624 200
0 - 2000 2005 2010 2015 2017 China Korea Hong Kong Singapore Thailand Source: HKEX Source: ADB • Global #1 in IPO fundraising in 5 out of last 10 years • New initiatives to promote bond market: • Broadening listing regime: Pilot Bond Grant Scheme to subsidise
Allow weighted voting right issuance Allow pre-revenue biotech firms Enhance Qualifying Debt Instrument Scheme Concessionary secondary listing route for Greater to broaden tax concession for bond investment China and international companies
13 WHY HONG KONG A competitive international financial platform
… and #1 international asset management hub
... for conventional asset managers… … and alternative asset managers
HK's asset under management USD trn AUM of alternative funds in 2017 2017 3.1 500 18.9 Asia’s largest hedge fund 2015 2.2 hub and second largest PE 400 centre after China 2010 1.3 +16.3x 2005 0.6 300 2000 0.2 450 63.2 200
Number of licensed asset managers in HK bn) (USD AUM 2017
2017 1,477 5.6 100 9.9 29.6 141 17.6 2015 90 1,135 67 66 41 36 1 0 2010 798 +7.3x 2005 475
2000 203 Private equity * Hedge fund * By capital under management Source: SFC Source: Asia Venture Capital Journal, Preqin
14 WHY HONG KONG A competitive international financial platform
Preferred location for corporate treasury centres
Growing need for Drawing more corporate centralization of treasury Hong Kong government’s treasury centres management tax incentives
• > 8,000 MNCs in Hong Kong, more Corporate liquidity than half as Asian headquarters • Interest deductions under Forex profits tax for corporate • > 140 corporates have benefited treasury centres (CTCs); from our new CTC regime so far Interest rate and • ~ 50 notable corporates have set up or indicated plans to set up their Debt financing CTC operations in Hong Kong • 50% deduction on profits tax Collection and payment for specified treasury o e.g. China National Petroleum activities (i.e. to 8.25%) Corporation, State Power Investment Corporation Limited, Newell Brands Inc., Working capital Hitachi Capital ...
15 WHY HONG KONG A competitive international financial platform
One-stop shop for essential professional and support services
Wide selection of service providers Ranked #1 on talent in Asia*
• >100,000 banking staff • 4 universities in World’s Top • >70 of the world’s 100 top banks Banking 50 & Top 10 in Asia operate in Hong Kong Universities • Top 2 EMBA programmes in the world • >37,000 fund management business Fund employees • All of the top 20, and 70 of the top management 100 global money managers have • Professional training, cross- presence in Hong Kong Academy of sector expertise sharing and Finance collaboration in applied • >10,000 practicing solicitors and research barristers Legal • Over half of the Global 100 law firms have a presence in Hong Kong Enhanced • By the HKMA to develop talent pool of banking • >36,000 certified public accountants Competency professionals Accounting in Hong Kong Framework
* Source: IMD World Talent Ranking 2017 Source: Hong Kong Institute of Certified Public Accountants , Census and Statistics 16 Department, The Law Society of Hong Kong, SFC Fund Management Activities Survey 2017, HKTDC 03 A forward-looking hub for new businesses
17 WHY HONG KONG A forward-looking hub for new businesses
The Belt & Road Initiative builds connectivity, requires major investment and brings business opportunities
RUSSIA Growth: • Infrastructure investment • Chinese firms’ overseas ITALY Beijing TURKEY operations Urumqi • Regional investment and trade flows IRAQ IRAN CHINA Xi’an Basra Quanzhou Khambhat BANGLADESH Silk Road Economic Belt OMAN Guangzhou INDIA Hong Kong Demand for: 21st Century Maritime Road THAILAND • Capital Kollam • Treasury management KENYA SRI LANKA Banda Aceh • Professional services
Belitung • Risk management INDONESIA • RMB services
Belt and Road economies' share of world total:
62% Population 31% GDP 33% Trade
Source: State Information Centre of China
18 WHY HONG KONG A forward-looking hub for new businesses
Greater Bay Area (GBA) Initiative creates an integrated financial and innovation zone around Hong Kong
Greater San New GBA Tokyo Francisco York Area Bay Area City GUANGDONG GDP Zhaoqing Guangzhou 1.5 1.8 0.8 1.7 Huizhou (USD trn) Foshan Dongguan Shenzhen Zhongshan Hong Kong Area Jiangmen Zhuhai 56,000 36,800 17,900 783 Macau (sq.km)
Population 70.0 43.8 7.6 8.6 (mn)
• Population, trade and capital flows require support and create opportunities for payment, banking and wealth management services
• Testing ground for and benefit from China’s opening-up measures
Source: Fung Business Intelligence, China Council for the Promotion of International Trade 19 WHY HONG KONG A forward-looking hub for new businesses
Embrace and actively facilitate fintech
• The largest fintech investor among major Asian markets outside China* Hong Kong’s • HKMA set up the Fintech Facilitation Office to enhance ecosystem in Hong credentials Kong, to build infrastructure, and to promote international cooperation
Faster Payment System: • Supports the use of mobile phone numbers or email addresses for 7x24 real time payments in Hong Kong dollar and RMB Supportive Open Application Programming Interface (API): government • Formulate a policy framework to facilitate the development and wider adoption of API & regulatory by the banking sector initiatives Cross-border collaboration: • Cross-border trade finance infrastructure based on distributed ledger technology. • Comprehensive cooperation arrangement with Shenzhen
* Based on data from Accenture and CB Insights. The markets covered by the analysis include Hong Kong, Australia, Japan and Singapore. 20 WHY HONG KONG A forward-looking hub for new businesses
Hub for infrastructure and green financing
Matching China’s need for green finance with international green funding
• Infrastructure funding needs in Asia: US$1.7 trillion a 30 Green bond issuance in China 35% year from 2016 to 2030 23.6 30% • IFFO facilitates infrastructure investments and their 25 22.9 financing by working with a cluster of key 29% 25% 20 stakeholders, including: multilateral development 20% banks, financiers, investors, project owners, and 15
professional service providers bn USD 15% 10 15% 10%
5 2% 5% 1 0 0% 2012 2013 2014 2015 2016 2017 China green bond issuance* China's share of world total
* Only include green bonds that meet international standard Source: Asian Development Bank, Climate Bonds Initiative, China Central Depository & Clearing Company
Supportive government initiatives: • Green Bond Grant Scheme to subsidise external review costs • HKD100 bn (USD13 bn) government green bond programme to create demonstrative effect
21 WHY HONG KONG
Why Hong Kong?
The dominant gateway to all A competitive international A forward-looking hub for things China financial platform new businesses
Growth and opening up Strengths in banking, Belt & Road and Greater of China offer unmissable capital market and asset Bay Area initiatives open opportunities management up new opportunities
Hong Kong is the best One-stop shop for Well positioned to capture place for China-related essential professional & fintech and infrastructure and businesses support services green finance opportunities
22 ANNEX Hong Kong’s favourable business environment
23 WHY HONG KONG Hong Kong’s favourable business environment
Unparalleled connectivity to the world
No. of daily direct Flying time flights to & from (approx., HK hrs)
London 18 12
New York 9 16
Boston 2 16
San 10 15 Francisco
Toronto 5 16
Zurich 4 12
Sydney 12 9.5
Mumbai 5 6 72.9 5 hours Over Over 220 Dubai 10 7 1,100 destinations million from half Riyadh flights daily worldwide by passengers the world’s 1 8 (Saudi Arabia) 100+ airlines handled in population 2017 Moscow 2 9.5
Notes: Direct flights only (excl. code share flights)
Source: InvestHK; Google 24 WHY HONG KONG Hong Kong’s favourable business environment
Most convenient access to Mainland China
50 Mainland destinations; < 4 hours to major cities No. of daily direct flights Flying time to & from HK (hrs) Beijing 39 3.5 Shanghai 66 2.5 4hrs Hangzhou 12 2.5 Xiamen 12 1.5 Chengdu 11 2.5 Chongqing 6 2.5 1hr Kunming 6 2.5 Notes: Direct flights only (excl. code share flights) Hong Kong < 1 hour between Hong Kong, Macao and PRD * western coast
• The Hong Kong-Zhuhai-Macao Bridge (soon to open)
* Pearl River Delta (PRD)
Connected to the 22,000 km national high-speed rail network • The Guangzhou-Shenzhen-Hong Kong Express Rail Link • 8hrs to Shanghai, 9hrs to Beijing
Source: Airport Authority Hong Kong, Google 25 WHY HONG KONG Hong Kong’s favourable business environment
World standard and bilingual legal and regulatory regimes
Consistently ranked top 3 in Asia in The World Justice Project's Rule of Law Index and Transparency International’s Corruption Perceptions Index
English-Chinese bilingual common law legal system: • Bilingual Statue books: 100% • Judges from Hong Kong, UK and Australia sit in the Court of Final Appeal
IMF Financial Sector Assessment Program: “HKSAR has a very high level of compliance with the Basel Core Principles (BCPs) for Effective Banking Supervision.”
Leadership in global regulatory cooperation and standard setting: • HKMA Chief Executive chairs the FSB Standing Committee on Supervisory and Regulatory Cooperation • The Chief Executive Officer of the Hong Kong Securities and Futures Commission chairs the Board of the International Organization of Securities Commissions (IOSCO)
Source: WJP, Transparency International
26 WHY HONG KONG Hong Kong’s favourable business environment
A free, competitive and low tax economy
Consistently ranked as the world’s freest and … with low overall tax burden most competitive economy…
No. 1 in Economic Freedom of the World No: x VAT/GST/Sales tax x Estate duty Canada’s Fraser Institute, 2017 Annual Report x Capital gains tax x Global tax x Investment withholding tax x Wine duty The World’s Freest Economy
Heritage Foundation, The 2017 Index of Economic Corporate Personal Freedom Report
World’s Most Competitive Economy
IMD World Competitiveness Center, Competitiveness Yearbook, 2016, 2017
Best Business City in Asia
Business Traveller, 2017 Asia-Pacific Travel Awards
* No standard rate across China. Shanghai is used as an example. # as percentage of employee’s wage paid by the employer ## as percentage of employee’s wage paid by the employee Source: InvestHK Note: The chart of tax comparison is for illustration only. The various taxes are applied to different bases and are not additive. Where there are multiple 27 tax rates for a type of tax, the highest tax rate is used WHY HONG KONG Hong Kong’s favourable business environment
Plenty of office space options with good connection to central business district Quality office space at much lower cost outside … new office space coming up central business district…
Average rents of Grade A offices in different districts of Hong Kong (2016) Energizing 160 Kowloon 143 East: 140 125 7 million m2 120 2 100 96 90
80 71 per month per
USD per m 65 60 2 Action Areas 48 in Kowloon Bay 40 and Kwun Tong: 20 560,000 m 2 - Central Sheung Wan Chai / Yau Ma Tsim Sha North Point Kowloon Wan Causeway Tei / Mong Tsui / Quarry Bay / Kwun Bay Kok Bay Tong Source: World Cruise Terminals Source: Rating and Valuation Department
28 WHY HONG KONG Hong Kong’s favourable business environment
Largest international school network among Asian cities
Strong international school presence Increasing supply of international school places
44,000 43,593 Wide range of schooling options
42,000 53 international schools highest number among Asian cities 40,000 38,868 38,682
~43,600 primary and secondary 38,000 school places
36,000 Students of more than 30 34,374 nationalities 34,000
Over 10 curricula, including 32,000 American, Australian, British, Canadian, French, German, Japanese, Singaporean, South 30,000 Korean and the International 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Baccalaureate Number of school places Number of students
Source: Education Bureau
29 Contact us
hkma.gov.hk
Email: [email protected] [email protected]
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