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Hong Kong’s economy has doubled in size since the establishment of the Hong Kong Special Administrative Region (HKSAR) in 1997. The vibrant Asian hub is lauded by investors for the ease of doing business, low taxation, and its unique position as a bridge between mainland China and the world.

The financial services industry is a major driver of this growth, contributing almost a quarter of Hong Kong’s GDP, and employing about 277,500 people – 7.6% of the total workforce in 2021. Hong Kong has become Asia’s fourth-largest stock market by market capitalization and is a preferred venue for global trading.

Hong Kong’s Financial Services Sector in Numbers CONTRIBUTES ALMOST EMPLOYS OF HK’S GDP PEOPLE THAT'S OF TOTAL WORKFORCE (2021) 277,50025%7.6%

The city’s enduring success is due to its resilience. It came through the Asian financial crisis in 1997, successfully repelling an attack by speculators on the Hong Kong dollar and recovered quickly after the 2003 SARS virus outbreak. Between 2003 and 2006, average annual economic growth jumped to 6.3% from an average of 1.9% between 1997 and 2002.

It’s also regarded as one of the world’s freest economies, operating with a high degree of autonomy under the “One Country, Two Systems” principle. The HKSAR government maintains an open trading environment, with free flows of capital, information and goods, a low tax rate for corporations and individuals, and access to a large pool of local and international talent. 

A robust regulatory environment overseen by the Hong Kong Monetary Authority (HKMA), the Securities and Futures Commission, the Insurance Authority, and the Mandatory Provident Fund Schemes Authority ensures a stable, rules-based system in which the risk of serious corruption is minimized.

Zhaoqing Guangzhou Huizhou Shenzhen Zhuhai Dongguan Foshan Jiangmen Zhongshan The Guangdong - Hong Kong - Macao Greater Bay Area Hong Kong Macao

Gateway to China

While Hong Kong offers easy access to key markets across Asia, its role as a gateway to mainland China is undoubtedly a key reason why almost 1,500 multinational firms have located their regional headquarters in the city.

“Hong Kong boasts very well-connected financial markets,” said Chris ST Chan, Financial Services Markets Leader, GBA Services, PwC Hong Kong. “Companies doing business in mainland China but headquartered in Hong Kong can raise debt and access a wide range of financial products to optimize their investment, funding, and treasury management.

“Hong Kong is closely tied to the international financial services regulatory infrastructure, so it is easier to manage cash flows, working capital, and transfer money internationally for trade purposes. The fact that the Hong Kong dollar is pegged to the US dollar and the city is the leading offshore renminbi center is extremely helpful for managing the treasury function.”

Hong Kong and Guangdong Province have a combined share of around 25% of China’s households with investable assets of RMB 10 million ($1.47 million) or above, according to one study, making the area a fertile ground for wealth management and wealthtech.

One of the biggest investment prospects is the Guangdong–Hong Kong–Macao Greater Bay Area (GBA), the Chinese government’s initiative to turn Hong Kong, Macao and nine other cities in southern China into an economic powerhouse with a combined GDP of about $1.96 trillion and a total population of more than 86 million people.

The GBA development fosters deeper collaboration among its cities by easing the flow of factors of production, including people, goods, technology, and money.

And this means opportunities for both retail and professional investors.

“The former will be able to access thoroughly regulated products through Wealth Management Connect, which is GBA-specific, as well as through China-wide schemes, such as the recently launched ETF Connect,” said PwC's Chan. “And for professional investors there are numerous investment opportunities that are related to building out the GBA vision, covering infrastructure, technology, health, and retirement-care services for China’s aging population.”

Hong Kong also remains equally important for Chinese companies looking internationally.

“Hong Kong offers a range of US dollar-denominated cross-border products and services for mainland businesses,” explained Chan. “It also boasts a deep talent pool to promote and facilitate inbound and outbound investment. The increasing integration with the GBA will lead to greater synergies of talent and infrastructure, as well as closer alignment with the global financial architecture.”

Tech-Powered Future

Innovation in areas like fintech will help drive future growth in Hong Kong, where a powerful financial services sector has established it as a global hub over the past 25 years.

“Fintech offers real opportunities to build on Hong Kong’s strengths. For instance, regtech to help financial institutions with regulatory and financial crime compliance and risk management,” said Lapman Lee, Professor of Practice (ESG and Fintech), The Hong Kong Polytechnic University.

“Banks spend tremendous amounts of money and time to tackle money laundering, fraud, and criminal financing – a huge drain on resources,” said Lee. “Made-in-Hong Kong innovation in the regtech space for export to the rest of the world can help contribute to Hong Kong’s refreshed standing as an international financial center. Think of Hong Kong and the GBA as a huge sandbox for new business models and technological innovations.”

Lee also highlighted the potential of wealthtech -- digital tools that leverage technologies such as AI, big data, and machine learning to enhance personal and professional wealth management and investing.

“There is significant demand, especially from high-net-worth individuals, for having digital tools at their fingertips to make investment decisions tailored to their risk appetite,” he said.

Vibrant Environment

With more than 600 fintech companies and 3,700 start-ups, Hong Kong has created an enabling ecosystem for innovation in financial services.

“We have a vibrant environment that can spur fintech development, with conducive policies and a strong foundation,” said Nelson Chow, Chief Fintech Officer, Hong Kong Monetary Authority.

Source: FintechHK 3,700+ START-UPS 600+ FINTECH COMPANIES

For instance, the “Fintech 2025” strategy was launched last year to drive the adoption of technology in the financial sector.

“As part of this, HKMA released a Tech Baseline Assessment, which indicated that banks in Hong Kong are committed to greater fintech adoption and prepared to dedicate healthy amounts of financial and talent investment,” explained Chow.

This spirit of innovation is underpinned by a supportive regulatory system.

“Openness is vital to fostering innovation in the digital age,” said Chow. “But it is essential to strike the right balance between flexibility for innovation and ensuring that customer interests are properly safeguarded.

“HKMA adopts a technology-neutral, risk-based approach to supervision, meaning it has no preference for innovative or traditional methods so long as banks can demonstrate that they can adequately manage the associated risks.”

Hong Kong has never been more relevant. The factors that made it so resilient – a strong financial and legal system, a business-friendly climate, world-class infrastructure, and its location – remain.

But the city’s ability to adapt and look forward will supercharge its future, from embracing its role within the GBA to nurturing the next generation of tech-focused innovators with a social conscience.

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