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Summary of PwC's Recommendations for Hong Kong's Competitive Edge

Core Content

PwC has outlined a comprehensive set of recommendations aimed at reinforcing Hong Kong's position as an international financial centre and enhancing its competitiveness in the global and regional markets. These recommendations are aligned with the Government's three-pronged framework: results-oriented approach, boosting competitiveness, and consolidating the foundation for development. The focus is on leveraging Hong Kong's existing strengths while addressing current challenges and exploring new opportunities.

Main Recommendations

1. Upholding Hong Kong's Status as an International Financial Centre

• Diversify the capital market by introducing a tailored listing regime for advanced technology companies and re-engineering the GEM to attract SMEs and start-ups.

  • A new listing regime for high-growth sectors like technology can drive innovation and investment.
  • Relaxing listing requirements for SMEs and start-ups can broaden access to capital.

• Develop as a regional infrastructure financing hub under the Belt and Road Initiative (BRI).

  • Utilise infrastructure REITs to revitalise the market and support large-scale projects like the Northern Metropolis and Lantau Tomorrow.
  • Expand the definition of infrastructure in tax law to include New and Green Infrastructure.
  • Explore cross-border infrastructure financing securitisation and green finance.

• Support RMB internationalisation by rebooting RMB IPOs and introducing more RMB-denominated investment products.

  • Enhance the RMB pool by promoting yuan-denominated trading desks and their inclusion in Stock Connect.
  • Encourage the development of cross-border investment services, especially through the Wealth Management Connect (WMC).

2. Enhancing International Competitiveness of the Tax System

• Ensure tax incentives are business-friendly and commercially viable.

  • Review and adjust existing tax regimes to remove anti-avoidance provisions and improve practicality.
  • Expand tax incentives for R&D and technology activities, particularly in the GBA, to establish Hong Kong as an IP hub.

• Explore new tax policies and incentives for emerging industries such as crypto assets, the metaverse, and Web 3.0.

  • Address the unique needs of these industries to maintain Hong Kong's attractiveness as a global financial hub.

• Provide non-tax measures like grants and subsidies to attract investment and talent.

3. Developing Hong Kong as a Trusted Digital Economy Hub

• Strengthen digital infrastructure to support the city's transition into a 'digital ready, mobile first' smart city.

  • Focus on 5G coverage, data processing capabilities, and digital identity systems for both individuals and corporations.

• Enable secure cross-border data flow.

  • Facilitate data movement between Mainland China and other regions through updated regulations and policies.
  • Establish a robust governance framework to ensure data security, integrity, and legality.

• Address cybersecurity threats.

  • Implement forward-looking strategies to mitigate risks from emerging technologies like quantum computing.
  • Develop a strategic plan for AI and the metaverse that includes use cases, benefits, challenges, and societal implications.

4. Improving Policymaking and Effectiveness

• Enhance policymaking and effectiveness to deliver focused and result-driven outcomes.
  • Conduct a comprehensive review of the tax system to align with modern business practices and international standards.
  • Expand the network of Double Taxation Agreements (CDTAs) to include key trading partners like Australia, Brazil, Germany, and the United States.

5. Building Asia's Sustainable Finance Hub

• Establish ESG leadership by broadening the scope of ESG-linked financial instruments.

  • Expand ESG-linked investment and financing products, including sustainability-linked loans and green infrastructure funds.
  • Align with global standards like the ISSB's IFRS S1 and IFRS S2 to ensure credibility and prevent greenwashing.

• Accelerate the development of Hong Kong's carbon market through collaboration with Mainland China.

  • Leverage the expertise from the seven regional carbon pilot zones to pilot cross-border carbon trading.
  • Focus on upskilling finance professionals and creating a standardised platform for carbon credit transactions.

Key Information

• Economic Challenges: Hong Kong faces challenges such as global uncertainties, internal constraints (land shortage, brain drain), and competition from neighboring markets.
• Opportunities: The city has the potential to become a leading hub for sustainable finance, digital economy, and infrastructure financing.
• Strategic Focus: PwC recommends a strategic and targeted approach to enhance competitiveness, focusing on innovation, collaboration, and regulatory reform.
• Digital Economy: The development of a digital-ready city is crucial, including infrastructure, cybersecurity, and governance.
• Tax Reform: The tax system must evolve to remain competitive, with a focus on removing barriers and promoting new industries.

Conclusion

PwC's recommendations aim to position Hong Kong as a global financial and digital hub by addressing current challenges and capitalising on new opportunities. The strategies proposed include enhancing the capital market, promoting RMB internationalisation, reforming the tax system, building a sustainable finance framework, and strengthening the digital economy. These measures are essential to maintaining Hong Kong's competitive edge and ensuring its continued role as a key player in the global and regional economies.