• The Securities Market
• Retail Bonds
• Cross-border Financial Services
• Asset Management
• Belt and Road Initiative
• Fintech
• Start-ups
• Support for SMEs

The following are the highlights of the Hong Kong Budget 2016-17 (the 2016 Budget) presented by Financial Secretary, John Tsang, from the perspective of the Hong Kong financial services industry.

The Securities Market

The Hong Kong IPO market was the world’s largest in 2015, raising HK$260 billion, an increase of 12% compared to 2014. The SFC and the Hong Kong Stock Exchange are planning a joint public consultation on enhancing the regulatory framework for listings in the near future. Given the importance of reinforcing the position of Hong Kong as a premier capital formation centre, there needs to be a focus on streamlining procedures and enhancing market efficiency.

Retail Bonds

The Government has issued five inflation-linked retail bonds (iBonds) since 2011 under the Government Bond Programme. The Government will issue a further iBond of up to HK$10 billion with a maturity period of 3 years.

Cross-border Financial Services

The Government will work with the Mainland authorities to open up more channels for the two-way flow of RMB funds. In particular, it will look into securing an increase in Hong Kong’s investment quota under the RMB Qualified Foreign Institutional Investors (RQFII) Scheme.

Following the successful launch of Shanghai-Hong Kong Stock Connect in November 2014 and the Mutual Recognition of Funds framework in July 2015, the Government hopes to launch Shenzhen-Hong Kong Stock Connect as soon as possible, subject to the agreement of the Central Government.

Asset Management

To attract more multinational and Mainland enterprises to set up corporate treasury centres in Hong Kong, a bill has been introduced to Legco¹ to allow interest deductions under profits tax for intra-group financing business of corporations and to reduce the profits tax for specified treasury activities by 50%.

A further bill has been submitted to Legco to amend the Securities and Futures Ordinance to allow a new open-ended fund company structure in Hong Kong. Currently, open-ended investment funds can only be established under Hong Kong law in the form of a unit trust.

Belt and Road Initiative

The Government and the Hong Kong Trade Development Council will organise the inaugural Belt and Road Summit in May 2016 on the role Hong Kong can play in this initiative. The Hong Kong Monetary Authority has been asked to set up an office to facilitate the financing of infrastructure projects and provide a platform for pooling the efforts of investors, banks and the financial sector to provide comprehensive financial services for various infrastructure projects.

Fintech

The 2016 Budget includes a number of measures to support financial technologies (Fintech) start-ups. However, while acknowledging the potential application of Fintech in the provision of financial services, including the distribution of financial products, equity crowdfunding and peer-to-peer lending, the Budget provides no concrete proposals on the application of Fintech and how these activities would be regulated. The Government will however follow up on recommendations made by The Steering Group on Financial Technologies to drive the development and application of Fintech in Hong Kong. The steering group was set up after last year’s budget and has examined Hong Kong’s Fintech development in conjunction with the industry, research and development institutions and the regulatory authorities.

The 2016 Budget’s proposals in relation to Fintech include:

• The Innovation and Technology Fund will provide financial support to Fintech start-ups and financial institutions;
• Cyberport will set aside 3,000 square metres and implement a programme to support 150 Fintech start-ups over the next 5 years;
• The Hong Kong Monetary Authority (HKMA), the Securities and Futures Commission and the Office of the Commissioner of Insurance will set up Fintech dedicated platforms to liaise with the industry to ensure a balance between market demand and investors’ understanding and tolerance of risk when introducing innovative financial products and services;
• In relation to consumer protection, the HKMA is working with the Hong Kong Applied Science and Technology Research Institute, the Hong Kong Institute of Bankers and the Hong Kong Association of Banks to set up a cyber security programme, including the establishment of a cyber intelligence-sharing platform, and the conduct of risk assessment and professional certification; and
• The Government will encourage the industry and relevant organisations to explore the application of “Blockchain” technology in the financial services industry as a means to reduce suspicious transactions and lower transaction costs.

Start-ups

There are currently 1,600 local start-ups according to InvestHK. Measures announced in the 2016 Budget to support start-ups include:

• The Government will set up a HK$2 billion Innovation and Technology Fund to co-invest with private venture capital funds on a matching basis in local technology start-ups;
• The Science Park will be expanded in stages to provide an additional 70,000 square metres for start-ups and tech companies by 2020; and
• Cyberport will earmark HK$200 million for investment in start-ups.

Support for SMEs

Hong Kong’s 320,000 SMEs employ some 50% of the private sector workforce. The 2016 Budget proposals include:

• Reducing profits tax for 2015-2016 by 75%, subject to a ceiling of HK$20,000;
• Waiving the business registration fees for 2016-17;
• Launching a 3-year Pilot Technology Voucher Programme under the Innovation and Technology Fund to subsidise SMEs’ use of technology. The programme will provide a maximum subsidy of HK$200,000 for each eligible SME, on a matching basis.
• Extending the application period for the “special concessionary measures” under the SME Financing Guarantee Scheme to 28 February 2017;
• Reducing the annual guarantee rate for the measures by 10%; and
• Removing the minimum guarantee fee for the measures.

The Hong Kong Budget speech is available at http://www.budget.gov.hk/2016/eng/pdf/e_budgetspeech2016-17.pdf.