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Hong Kong plans HK$30 billion fund to lure foreign firms, tax breaks to draw family offices

Hong Kong intends to offer tax concessions to lure family offices, speed up cross-border trading with China, launch more investment tools denominated in Chinese renminbi, and set up a HK$30 billion (US$3.85 billion) co-investment fund to attract foreign firms. The plans were announced by Chief Executive John Lee in his first policy address to the Hong Kong legislature on October 19. “The measures aim to enhance Hong Kong’s competitiveness in financial services,” said Lee, who became Hong Kong’s leader in July. They are aimed at addressing the exodus of talent from Hong Kong. Lee said the city’s workforce has shrunk by 140,000 over the past two years. To entice foreign firms to set up business in Hong Kong, Lee said the government will earmark HK$30 billion to form a co-investment fund through which the firms can participate in individual projects.

The brain drain has been particularly serious in the financial sector. Frustrated by Hong Kong’s strict Covid-19 quarantine rules, many international firms have relocated their regional operations to Singapore, which has dropped almost all of its pandemic-related restrictions.

Hong Kong only recently loosened its rules but maintains a so-called zero plus three policy, meaning three days of medical observation without having to quarantine at a hotel.

In his announcement, Lee zeroed in on family offices, which he described as “a key growth segment of asset and wealth management industry”.

He said the government will introduce a bill to offer tax concessions in the hopes of attracting at least 200 family offices to set up shop in Hong Kong by the end of 2025. He didn’t provide specific details. The legislation will be introduced in the current fiscal year which ends on March 31, 2023.

He said the government will also speed up measures to facilitate cross-border trading by investors in Hong Kong and China, such as exempting stamp duty for transactions conducted by dual-counter market makers.

The government will also explore enhancements to southbound trading via the Bond Connect scheme to facilitate issuance and trading of more diverse dim sum bonds, he said. Dim sum bonds are Chinese currency bonds issued in Hong Kong.

Bond Connect is a two-way channel through which investors in Hong Kong and China can trade in each other’s debt markets. Southbound trading refers to flows from China to Hong Kong.

Lee said the government will also promote more RMB-denominated investment tools and services, such as exchange and interest rate risk management tools, noting that around 75% of the world’s offshore RMB settlements are carried out in Hong Kong.


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