In delivering his 2024 Policy Address on Oct 16, Chief Executive John Lee Ka-chiu echoed the term “cross-boundary wealth management” multiple times, underlining a bold industrial forecast: Hong Kong is poised to ascend as the globe’s premier cross-border wealth management hub by 2028.
A few weeks ago, the 36th edition of the Global Financial Centres Index (GFCI 36) crowned Hong Kong with a top global ranking in the “investment management” sector. This sector, listed next to traditional ones like “finance”, “insurance”, “banking” and “professional services”, underscores the critical role of the investment management sector within international financial hubs.
In recent years, the investment management sector has emerged as a cornerstone industry in many of the world’s leading economies. Beyond assisting local households and individual investors, the industry also serves global investors through cross-border investment management services.
For instance, the United Kingdom’s 2024 Investment Management Guide vividly illustrates how investment management has become the lifeblood of the UK economy and “attracts the world to Britain”, generating employment opportunities and fiscal revenue, enhancing the UK’s standing in the global financial arena, and playing a pivotal role in shaping the global financial regulatory framework.
New York leverages Wall Street’s established capital markets to provide sophisticated financial services and innovative products to investors globally. Switzerland offers secure and discreet family wealth planning and management services worldwide. Singapore has made significant strides in developing family offices, estate planning, and trust services, capitalizing on its stability, market prowess, and robust legal framework. In the competitive realm of international and regional financial centers, cross-border asset management has emerged as a key yardstick of competitiveness.
Even cities on the Chinese mainland have initiated pilot programs for cross-border asset management centers, with Shanghai proposing the establishment of a global asset management center by 2025, aiming to position the city as a leading hub for Asian asset management on a global scale.
The chief executive is calling for a united front to attract additional global capital for management within Hong Kong, including facilitating the opening of new distribution channels for private equity funds through the Hong Kong Stock Exchange’s listing.
Similar to Singapore, the Hong Kong Special Administrative Region boasts a liberalized capital market and a robust legal system based on common law. What sets Hong Kong apart, though, is its strategic proximity to the Chinese mainland, making it a vital conduit for mainland capital seeking international investment opportunities.
Indeed, Hong Kong’s edge over Singapore lies in its capacity to facilitate access to the mainland’s investment management market, enabling more mainland investors to participate in investment management and asset allocation within Hong Kong.
Despite notable progress in establishing family offices in Hong Kong over the past year, there is room for further optimization of policies. The author’s consultations with leaders of family offices, financial institutions and insurance companies in Hong Kong revealed persistent policy bottlenecks hampering the development of the investment management industry.
Larry Hung Lung-chuen, the founding partner of Centaline Family Office, emphasized that many high-net-worth clients from the mainland interested in establishing family offices in Hong Kong face challenges in accessing global asset allocation services because of the stringent requirements of the New Capital Investment Entrant Scheme (NCIES).
The NCIES mandates applicants to demonstrate absolute beneficial ownership of a minimum of HK$30 million ($3.86 million) in net assets or capital for the two years preceding their application. However, proving “absolute beneficial ownership of at least HK$30 million” on a personal basis poses a significant hurdle for many applicants. For instance, while a married couple may collectively possess assets exceeding HK$60 million as community property, since these assets are jointly owned and not individually held, neither spouse meets the NCIES requirement necessitating a demonstration of personal absolute beneficial ownership.
The NCIES has been enhanced by the latest Policy Address to allow investment in residential properties provided that the transaction price of the residential property concerned is no less than HK$50 million, which will be counted at HK$10 million toward the total capital investment.
The Policy Address also highlights that Hong Kong has the highest concentration of insurance companies and the highest insurance density in Asia. In a strategic move, the chief executive proposed that the Insurance Authority embark on a comprehensive review next year to fortify Hong Kong’s standing as a premier global risk management hub.
A learned friend of the author working in the insurance sector has highlighted another significant challenge faced by licensed insurance consultants in Hong Kong. These professionals are currently prohibited from selling insurance products across borders, including promoting Hong Kong’s insurance offerings through major e-communication platforms. This restriction creates an almost insurmountable hurdle for a Hong Kong licensed consultant to reach out to clients on the mainland or for a mainland customer seeking access to a legitimate licensed insurance agent or broker in Hong Kong. Consequently, navigating through unauthorized intermediaries has become nearly unavoidable. This prevalent practice not only undermines the interests of insurance professionals in Hong Kong but also falls short of adequately safeguarding the rights of mainland policyholders. Perhaps the authorities on both sides should explore avenues to address this situation.
Hong Kong can leverage Qianhai’s policy advantages and innovative environment to provide mainland investors with more accessible investment channels while injecting additional funds and resources into Hong Kong’s investment management sector
While Shanghai has long been recognized as the mainland’s primary and central financial hub, recent data and analyses from the GFCI seem to suggest that Shenzhen is swiftly emerging as the new primary financial center of the Chinese mainland.
In the GFCI 36 comprehensive ranking, Shanghai holds the eighth position globally, with Shenzhen closely trailing at ninth. Notably, in the “finance” sector subranking, Shenzhen has surpassed even New York to secure the top global position, underscoring its growing international influence.
Shenzhen’s Qianhai area has introduced several pioneering initiatives in financial innovation. For instance, eligible asset management firms within the Qianhai Cooperation Zone have initiated cross-border transfers of asset-backed securities, encouraging financial institutions to innovate by introducing relevant financial indexes and directing funds toward high-quality financial assets in Qianhai. Efforts to promote the introduction of Qualified Domestic Institutional Investor wealth management products aim to facilitate efficient connections between funds and assets within the zone.
To the author, Shenzhen’s rapid financial industry growth signifies not competition, but a significant opportunity for enhanced development in Hong Kong. By strengthening cooperation with Qianhai in cross-border investment management, Hong Kong can leverage Qianhai’s policy advantages and innovative environment to provide mainland investors with more accessible investment channels while injecting additional funds and resources into Hong Kong’s investment management sector.
The juxtaposition of Shenzhen and Hong Kong along the Shenzhen River, with one side being the mainland’s primary financial center and the other Asia’s premier international financial hub, presents an opportunity to generate significant synergies under the constitutional framework of “one country, two systems”, injecting the most potent economic impetus into the development of the Guangdong-Hong Kong-Macao Greater Bay Area.
The author is a program director at HKU Space and a practicing lawyer in China and the US state of California.
The views do not necessarily reflect those of China Daily.
