6 steps to HK’s resurgence 

PwC said the city still faces strong headwinds including slower-than-expected recovery of the Chinese Mainland economy.

Despite facing multiple challenges locally and globally, PwC believes Hong Kong will still be able to boost its overall competitiveness, shifting its path from resilience to resurgence. 

The first step to its path to resurgence is by cementing its status as an international financial centre which it can do by strengthening its collaboration with global stock exchanges, especially those in the Middle East and Southeast Asia, through exploring dual listing opportunities.

“This can enhance the attractiveness of listing in Hong Kong as dual listing has the advantage of expanding the geographical base of investors and issuers,” Eddie Wong, PwC Hong Kong Capital Markets Services Partner, said.

Wong also recommended the implementation of the Primary Equity Connect (PEC) initiative “as it holds significant potential to enhance connectivity and promote companies to list in Hong Kong by raising funds in RMB.”

“Additionally, it would allow Mainland Chinese investors to participate in Hong Kong IPOs using RMB while Hong Kong investors can subscribe to Mainland IPOs using HKD or RMB. Expanding the Stock Connect scheme from secondary markets to IPOs can significantly enhance the liquidity of both markets.”

Given the growing demand for Hong KLong’s medical services within the GBA, Chris Chan, PwC Financial Services Markets Leader for GBA Services, said it is also advisable that “the government acts as the facilitator to advocate for an integrated proposition of medical services and health insurance development in the GBA by encouraging Hong Kong insurers and reinsurers to expand their presence in the Chinese Mainland market while proliferating medical service facilities in the n the Northern Metropolis to cope with growing South bound demand.”

Chan also suggested that Hong Kong expand beyond the retail investor channel to include other investor groups, such as institutions, high-net-worth individuals, and family offices. 

“Additionally, introducing a broader range of products, particularly alternative asset classes like private funds and infrastructure opportunities, will offer investors greater exposure and opportunities for diversification,” he said,

Fostering a robust sustainability ecosystem in Hong Kong

For Hong Kong to emerge anew as a competitive market, the government must also work on enhancing its ESG regulatory framework, ensuring it is robust and clear to issuers and providing relevant information to investors to aid them in decision-making. 

“Going forward, this includes aligning it with ongoing international developments, for example incorporating nature-related disclosure referring to the TNFD framework,” Lit Ping Low, PwC Asia Pacific Sustainability, Climate Change Partner, said.

Lit also recommended that the government adopt a data-driven approach to monitor progress including energy efficiency and consumption. 

“The government can serve as a role model for the private sector, encouraging them to follow suit in their sustainability efforts. Climate tech is a fast-growing area attracting substantial investments in recent years,” Lit said. 

“In addition to technology solutions, we should promote and incubate innovative financial products or measures, such as the development of insurance products that cover commercial losses caused by extreme weather events, green and sustainable financing, and the formation of an ESG data repository,” Lit added.

Unlocking the next phase of growth with innovation and technology

The government has long prioritised the promotion of Innovation and Technology (I&T) as a key driver of economic growth. According to the notice issued on the “Development Plan for Shenzhen Park of Hetao Shenzhen-Hong Kong Science and Technology Innovation Co-operation Zone”, the Hong Kong-Shenzhen Innovation and Technology Park (HSITP) will jointly develop with the Shenzhen side to act as a pioneering zone for innovation and technology cooperation amongst Shenzhen and Hong Kong, as well as a pilot production cluster in the GBA.

As the city considers Innovation and Technology (I&T) a driver of economic growth, Thomas Leung, PwC China Managing Partner - Markets, suggested that Hong Kong-Shenzhen Innovation and Technology Park (HSITP) should speed up its land allocation process and adopt a flexible mixed model that includes the self-user model and the investor model to encourage commercialisation of I&T findings at the HSITP. 

“To cultivate a vibrant and diverse I&T ecosystem, we suggest the HSITP implement exclusive support policies for enterprises and talents as soon as possible. This would effectively attract talents, enterprises, and investors, providing cross-border flow for the convenience of enterprises through the ‘four flows’ - talent, capital, data and logistics flow, as well as offering companies the same benefits as Mainland companies,” Leung said.

“In addition, efforts should be channelled towards attracting leading international and national companies, investors, private equity funds, Contract Research Organisations (CROs), and professional certification bodies. It is also crucial to implement industrial and supporting facilities such as enterprise accelerators, joint incubation programmes, one-stop service windows, and talent accommodation facilities, to fulfil the needs of the enterprises and talents at the HSITP,” he added.

Here are other PwC’s recommendations: “To position Hong Kong as a regional GAI hub, it is crucial to establish close collaboration with stakeholders in the GBA in building a regional large language model (LLM) designed to cater to social and business applications and developing GAI use cases specific to the region, having due consideration of a variety of languages used in the daily living and business context of the GBA.

To support the growth of a vibrant digital and metaverse ecosystem, we recommend clarifying tax provisions for digital activities, introducing tax incentives for specified qualifying expenditures, expediting the implementation of the patent box regime outlined in the 2023-2024 Budget, aligning IP-related tax deduction rules with the proposed patent box regime, and allowing tax deductions for R&D activities in the GBA to encourage collaboration.”

Other steps that can help Hong Kong resurge include providing more support and flexibility for attracting and retaining talents in the city, establishing itself as a regional data hub for frictionless flow and exchange of data, and optimising infrastructure development to bolster long-term growth and competitiveness.

Here are specific recommendations from PwC’s experts: 

Wise Lam, PwC Hong Kong Private Client Services Partner:
To enhance international cooperation, promote cross-border talent mobility, and provide favourable tax arrangements for businesses and individuals, the government could accelerate the expansion of Hong Kong's tax treaty network, particularly with key trading partners and jurisdictions along the Belt and Road. New tax incentives and other measures should be explored to attract and retain the talent of specific industries, for instance, family office professionals. These include tax measures such as granting tax deductions for children's education and non-fiscal incentives like housing subsidies. Investments in capacity building for ESG talents and attracting overseas professionals in green finance are also important. Initiatives, such as the enhancement of the GSF Capacity Building Funding Scheme, will strengthen expertise in sustainable finance and Hong Kong's leading position in green finance.

Effective and efficient data flow is the pre-requisite for a vibrant digital economy, and equally importantly, an essential cornerstone for the seamless movement of people, goods and capital in any modern economy. Hong Kong’s status as both an international financial hub and a gateway to the Chinese Mainland can make data transfer challenging due to the diverse nature of the many stakeholders involved.
 
Albert Wong, PwC Hong Kong Public Sector Consulting Partner:
The government must take the lead in executing the memorandum signed between the Cyberspace Administration of China and - the Innovation, Technology and Industry Bureau in Hong Kong. This involves introducing measures to enhance trust amongst different parties, reducing compliance costs and streamlining regulatory approval processes. At a regional level, this would require working closely with the governments of the main jurisdictions in the GBA as well as regulators, industry associations, and financial institutions to establish harmonised legal and regulatory frameworks and common mechanisms.
 
It is [also] recommended that the government develop a unified, comprehensive catalogue of data that the government holds to facilitate data exploration and sharing within and beyond the public sector. This would promote the collection and interoperability of big data among government departments. Concerning digital infrastructure, it should formulate a roadmap for the growth of new Green Data Centres, including a comprehensive review of the current regulatory regime governing data centre development projects.

Roy Chan, PwC Hong Kong Public Sector Consulting Partner:
To expedite the development and management of significant projects, Hong Kong should explore various Private Public Partnership (‘PPP’) mechanisms to leverage diverse funding approaches. Additionally, establishing a dedicated infrastructure fund can provide financing and investment opportunities for infrastructure and I&T projects, supporting long-term economic growth and competitiveness. Coordinated efforts and ongoing communication with the Chinese Mainland authorities (particularly Shenzhen) are crucial to accelerate the development of the Northern Metropolis. This collaborative approach will harness the synergies between Hong Kong and the GBA for shared growth and prosperity.