- Overview of the Urban Economic Structure
By observing the economic data of the Hong Kong Special Administrative Region from 2012 to 2018, it is found that the economy of the Hong Kong Special Administrative Region has been growing year after year, with a relatively large economic volume. In 2012, the GDP of Hong Kong in RMB was approximately 1.65 trillion yuan. After seven years of development, it reached approximately 2.39 trillion yuan in RMB. In the three major industries, Hong Kong mainly focuses on the development of the service industry and is one of the regions with the highest proportion of the service industry in the world. The service industry has always driven the economic development of Hong Kong, while the contributions of industry and agriculture are relatively small. In 2014, the contribution of the service industry to Hong Kong’s GDP rose to 93.0%, while the contribution of the manufacturing industry to the GDP dropped to 1.3% in the same period. In the financial service industry, the annual growth value of Hong Kong’s financial service industry contributes between 16% – 18% to the GDP of that year, and it even rose to 18.9% in 2017. Hong Kong also has three pillar industries, namely tourism, trade and logistics, professional services and other business support services, and their combined proportion remains between 38% – 41%.
Note: The proportion of the three industries in 2018 is compared with that in 2017.
Data source: Census and Statistics Department of the Hong Kong Special Administrative Region Government
Figure 1: Development of the Three Major Industries in the Hong Kong Special Administrative Region from 2012 to 2016
- Analysis of Urban Industrial Characteristics
(1) Financial Industry. Hong Kong has attracted many well – known banks from around the world to set up operations. Meanwhile, international institutions such as the World Bank have also established branches in Hong Kong, which reflects Hong Kong’s status as an international financial center. As a leader in Asian finance, Hong Kong has developed well in areas such as fund investment. Hong Kong’s capital market is stable and mature, which can provide financing options for enterprises and also offer many investment opportunities for investors around the world.
In 2017, the bond markets of Hong Kong and the Chinese mainland were interconnected. The launch of the “Bond Connect” is a new opportunity for enhanced financial cooperation between Hong Kong and the Chinese mainland after the “Shanghai – Hong Kong Stock Connect” and the “Shenzhen – Hong Kong Stock Connect”. Hong Kong, leveraging its status as an international financial center, aggregates international funds and, as a transfer station for allocation, channels more funds into the construction of the Chinese mainland. In terms of securities development, according to the information disclosed on the website of the Hong Kong Securities and Futures Commission, as of January 2017, the market capitalization of listed companies on the Hong Kong Stock Exchange ranked seventh in the world (third in Asia) at US$4.35 trillion. In terms of asset management business, the total business volume in Hong Kong in 2016 was HK$12.824 trillion, a 4.6% increase from 2015. The total private wealth management business volume was HK$5.203 trillion, a 9% increase from 2015.
(2) Tourism Industry. In recent years, the tourism industry in Hong Kong has contributed 4.5% – 5% to the growth of Hong Kong’s GDP. In 1997, the number of mainland visitors to Hong Kong was 2.36 million, and by 2017, this figure had climbed to 58.472 million, 24 times that of 1997. Since 2012, the occupancy rate of hotels in Hong Kong has remained above 85%. Hong Kong International Airport is one of the busiest airports in the Asia – Pacific region. Due to the transit visa – free policy, many mainland tourists choose Hong Kong as their first stop when traveling abroad. With the increasing convenience of mainland residents obtaining visas to visit Hong Kong, the most prominent change in Hong Kong’s tourism is that the proportion of mainland visitors has become higher and higher, becoming the backbone force. Hong Kong is a duty – free region. There are price differences between some goods in Hong Kong and the Chinese mainland, and the exchange rate between the RMB and the Hong Kong dollar also makes shopping cheaper. Therefore, it has attracted many mainland tourists to visit Hong Kong or take advantage of the transit visa – free period to shop, which has also promoted the development of Hong Kong’s retail industry.
(3) Logistics Industry. Trade and logistics is one of the four pillar industries in Hong Kong and plays a crucial role in Hong Kong’s economic development. However, there is a large gap between Hong Kong’s import and export volumes, with exports far exceeding imports. The excellent ports in Hong Kong provide a good foundation for its trade development. For most goods flowing through Hong Kong, Hong Kong may not be their final destination. However, with advantages such as less trade friction, good cargo accessibility, and excellent services, most goods choose to transit through Hong Kong, making Hong Kong a transit hub for trade and logistics in the Asia – Pacific region.
(4) Professional Services. Hong Kong’s gross domestic product in 2018 was HK$2,845,317 million, a 3% increase. More than 92% of Hong Kong’s GDP is created by the service industry, which is a relatively high proportion among all economies in the world and is a significant sign of a developed economy. Many universities in Hong Kong rank among the top in the world, which have trained a large number of talents. At the same time, through talent – introduction policies such as the “Quality Migrant Admission Scheme” and the “Admission Scheme for Mainland Talents and Professionals”, Hong Kong invites talents with significant achievements in professional and technical fields to participate in its social development. Due to the presence of professional talents in corporate management and various service industries, professional services have always been one of the most competitive industries in Hong Kong. Among them, legal, accounting, architecture and related engineering, and medical services are particularly outstanding. Hong Kong’s professional talents have internationally recognized professional qualifications, rich international networks, and management experience, and are also familiar with the national conditions and the mainland market. The contribution of Hong Kong’s professional service industry to the local GDP has exceeded 5%, comparable to that of the tourism industry, and its growth rate is even faster.
Data source: Census and Statistics Department of the Hong Kong Government
Figure 2: Contribution of the four major industries to GDP in Hong Kong
- Difficulties in urban development
(1) Unreasonable industrial structure that needs optimization and upgrading. This is mainly manifested in the serious differentiation of Hong Kong’s industrial structure, with an excessively high proportion of the tertiary industry. The contribution of local manufacturing to Hong Kong’s economic and social development is relatively low. Excessive “de – industrialization” has made Hong Kong’s economy lose its real – economy foundation. Relying too much on the development of the financial industry, if there are changes in the international financial environment, the impact may spread across the whole of Hong Kong. The international financial crisis in 1998 is a clear example.
(2) Facing increasingly fierce competition. In terms of trade and logistics development, Hong Kong is facing competition from neighboring countries and regions such as Singapore and the “Four Asian Tigers”. In the area of e – commerce, which is quite popular in today’s society, Hong Kong companies have fallen behind Alibaba, Tencent, and Baidu on the Chinese mainland. The role of Hong Kong as a trading center in the past has been impacted by the new e – business models.
(3) The tourism industry is facing transformation difficulties. Hong Kong has always been a world – famous international tourism center. Tourism occupies an important position in Hong Kong’s national economy and also plays a significant role in the development of international tourism. According to statistical data, currently, Hong Kong’s tourism industry shows an obvious tendency to be dominated by shopping consumption and mainland Chinese tourists. This is not conducive to the transformation and upgrading of Hong Kong’s tourism industry to a higher level, nor is it conducive to the further construction of Hong Kong as an international tourism center. - Existing achievements in green finance
(1) Formulation of green finance policies
Hong Kong’s ESG disclosure system: In December 2011, the Hong Kong Stock Exchange issued a consultation paper on the “Environmental, Social and Governance Reporting Guide”. The “Guide” requires listed companies to disclose information on environmental protection and other aspects and formulates different disclosure indicators for different levels. In 2013, the “Guide” was included as a regular recommendation in the appendix of the “Listing Rules”. In Hong Kong, listed companies need to identify and report the main categories, levels and key performance indicators of relevant environmental, social and governance aspects with significant environmental and social impacts, so that investors and stakeholders can understand the issuer’s performance in environmental, social and governance aspects. In 2017, the key performance indicators of the environmental category in the “Guide” were upgraded from recommended disclosure to “comply or explain”.
The Hong Kong Quality Assurance Agency launched the “Green Finance Certification Scheme”: The Hong Kong Quality Assurance Agency launched a third – party “Green Finance Certification Scheme” to support investment in environmental protection projects and promote the development of green finance. In response, the Hong Kong Special Administrative Region Government encourages Hong Kong, mainland Chinese and overseas enterprises to use this certification scheme and the Hong Kong capital market to finance green projects. This certification scheme is established with reference to the standards of multiple countries and international standards, which is an “adaptation to Hong Kong” of international standards, making the standards more suitable for Hong Kong’s development. The scheme provides third – party certification services for green finance issuers.
The government supports enterprises to finance through green certification: The SAR government said that it encourages enterprises to use the certification scheme, hoping to promote mainland Chinese, “Belt and Road” and a wider range of international investors to finance green projects through the Hong Kong capital market. The 2018 – 2019 fiscal budget of the Hong Kong Special Administrative Region Government proposed to launch a green bond scheme with a ceiling of HK$100 billion. The funds raised will be allocated to the Capital Works Reserve Fund to finance its green projects. The “Arrangement” also hopes that Hong Kong will give full play to its professional advantages in environmental and planning management to make the “Belt and Road” projects meet the requirements of sustainable development.
Support from the National Development and Reform Commission: The National Development and Reform Commission announced the “Arrangement between the National Development and Reform Commission of the People’s Republic of China and the Government of the Hong Kong Special Administrative Region on Supporting Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative”. The “Arrangement” points out that it will promote the development of the green bond market based on the Hong Kong platform, support eligible Chinese – funded institutions to issue bonds on the Hong Kong platform to raise funds for green projects related to the “Belt and Road” Initiative, and promote the establishment of internationally recognized green bond certification institutions.
(2) Construction of green finance institutions
Hong Kong Financial Services Development Council: In May 2016, the Hong Kong Financial Services Development Council released a report titled “Developing Hong Kong as a Regional Green Finance Hub”. The report put forward a number of suggestions on how to consolidate Hong Kong’s leading position in green finance, including: First, issuers controlled by the government and public institutions should issue benchmark “green bonds”; Second, establish a green finance advisory committee or a similar institution to formulate long – term work priorities and provide assistance; Third, hold global conferences and a series of seminars on green finance and investment; Fourth, cultivate green finance talents through universities and professional organizations to ensure the talent supply; Fifth, establish a “green finance labeling scheme” for green finance projects and securities to attract new issuers and new investors to Hong Kong.
Hong Kong Quality Assurance Agency: On January 3, 2018, the Hong Kong Quality Assurance Agency announced the launch of the “Green Finance Certification Scheme”, which provides third – party certification services for green finance issuers. Hong Kong attaches great importance to promoting the development of green finance to support sustainable development and address climate change. The certification standards of this scheme refer to international standards and are localized to suit Hong Kong’s development. Currently, the certification scheme has been implemented since March 2018.
Hong Kong Exchanges and Clearing Limited: Listed companies on the Hong Kong Stock Exchange support enterprises to finance through green bonds. Many enterprises have issued green bonds through the Hong Kong Stock Exchange.
Hong Kong Emissions Exchange: As the leading and only operator of the environmental resource commodities exchange in Hong Kong, the Hong Kong Emissions Exchange operates a comprehensive environmental resource commodities and derivative financial products trading market. Its main services include trading, settlement and delivery of various commodities, custody, and information and consulting services related to energy conservation and emission reduction. The Hong Kong Emissions Exchange has also established strategic cooperation relationships with various carbon trading pilot markets in China and is actively contributing to the internationalization of the Chinese carbon trading market, providing global investors with opportunities to participate in the world’s largest carbon trading market in the future.
(3) Innovation of green financial products
The Environmental Protection Department of the Hong Kong Special Administrative Region approved the eighth batch of applications for the Green Transport Fund, providing funding for the local industry to test green transport technologies.
Swire Properties, a leading real – estate company in Hong Kong, announced the successful issuance of its first batch of 10 – year green bonds worth a total of US$500 million, with an annual interest rate of 3.5%.
The Hong Kong and China Gas Company issued green bonds. The issuance framework was formulated with reference to the international standards set out in the “Green Bond Principles” (2017). This was the first time in Hong Kong that a bond issued by an energy supplier met the “Green Bond Principles” and independent opinions.
The MTR Corporation issued its first 10 – year green bonds worth US$600 million in November 2016, and the final subscription exceeded US$1.4 billion. The Group decided to increase the issuance scale to US$600 million and set the annual interest rate at 2.537%, which was based on the lower limit of the guidance spread, i.e., the 10 – year US Treasury bond yield of 1.737% plus 80 basis points.
After the innovation of green bond products in many industries in Hong Kong, the development of green bonds in Hong Kong has entered a new era.
Data source: Hong Kong Monetary Authority
(4) Promotion of green finance
The Hong Kong Financial Services Development Council called on Hong Kong to leverage its unique advantages to develop green finance and become a regional pioneer. It warned against missing this opportunity and allowing other cities to take the lead. It also emphasized that vigorously developing “green finance” would promote employment in Hong Kong and boost the development of industries such as investment management, insurance, and private equity funds. The Council suggested that in the short term, the Hong Kong Special Administrative Region Government should issue green bonds managed by the government and public institutions, establish a “Green Finance Advisory Committee”, organize relevant global conferences, and cooperate with universities and other professional organizations to cultivate green finance talents.
- Difficulties in the development of green finance
Green finance is an innovative financial model that Hong Kong has been planning to develop in recent years. However, the market’s response to the “green” aspect of green finance has not been very obvious. Many members of fund investment companies are not very interested in investing in green projects. In highly market – oriented Hong Kong, it is impossible to promote the development of a sector through administrative orders. The most important thing is to do a good job in market education for investors, so that they can understand the importance of green finance for social development. - Suggestions on the development of green finance in Hong Kong
The Outline Development Plan for the Guangdong – Hong Kong – Macao Greater Bay Area positions Hong Kong as follows: to consolidate and enhance its status as an international financial, shipping, and trading center and an international aviation hub; to strengthen its position as the global offshore RMB business hub, an international asset management center, and a risk management center; to promote the high – end and high – value – added development of finance, commerce, logistics, professional services, etc.; to vigorously develop innovation and technology, cultivate emerging industries; to build an international legal and dispute – resolution service center in the Asia – Pacific region; and to create a more competitive international metropolis. Hong Kong’s greatest advantage is its status as an international financial center, which can attract a large amount of international capital. Many domestic projects that are of interest can be connected to international buyers through the Hong Kong market. Therefore, it is recommended to leverage Hong Kong’s status as an international financial center to build it into an international green finance center in the Guangdong – Hong Kong – Macao Greater Bay Area. The specific functional design is as follows:
(1) Green finance assessment and certification center
Establish an internationally recognized green bond certification institution, which will be responsible for the assessment and certification of green enterprises and green bonds in the Guangdong – Hong Kong – Macao Greater Bay Area and even across the country (i.e., certifying which enterprises are green in Hong Kong, including standard setting, publication, and certification assessment).
(2) Green bond issuance center
Since 2016, China has issued green bonds in large numbers and has become the world’s largest issuer of green bonds. HSBC estimates that the green bond market could reach an annual issuance volume of US$300 billion by 2018. Against the background of such a large issuance scale, domestic enterprises should be encouraged to issue green bonds in Hong Kong to raise funds from international investors.
(3) International green finance exchange center
Leverage Hong Kong’s status as an international metropolis and a world financial center to regularly hold international green finance seminars or forums in Hong Kong. Exchange advanced international experience in green finance, promote preferential policies related to green finance in the Guangdong – Hong Kong – Macao region, attract more foreign green finance investors, and strengthen exchanges and cooperation with international green finance institutions. Enterprises that have issued green bonds and financial institutions that have issued green financial products can also be gathered to hold regular green product exhibitions.
(4) Green finance standard – issuing center
As an international financial center, Hong Kong has a social system and management mechanism that are in line with international financial markets, with a sound legal system and a high reputation. Issuing green finance – related standards here has international authority and credibility.
(5) Integration center for on – shore and off – shore green finance business
Hong Kong is the world’s largest offshore RMB market, with the world’s largest offshore RMB capital pool and handles about 70% of global offshore RMB payment transactions. Through reasonable division of labor, cooperation, and coordinated development in the Guangdong – Hong Kong – Macao Greater Bay Area, the integration of on – shore and off – shore markets can be further promoted, giving full play to the function of the global offshore RMB business hub. Financial interconnection and interoperability will gradually be realized in the Greater Bay Area, facilitating payment and settlement, and promoting the pilot implementation of QDII2/QDIE. The implementation of specific projects will promote innovation and cooperation in regional integration, financial cooperation, economic integration, financial infrastructure, and cross – border RMB in the Greater Bay Area. In addition, under the framework of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) and the policies of the Guangdong Free Trade Zone, a number of trade liberalization policies and capital account opening measures will be launched in the Greater Bay Area first. The high – speed flow of cross – border capital will inevitably promote the high – speed development of on – shore and off – shore business.
(6) Capital market cooperation center for green finance
Leverage the communication advantages between the Hong Kong Stock Exchange and the Shanghai and Shenzhen Stock Exchanges on the Chinese mainland. Use preferential policies such as the Shenzhen – Hong Kong Stock Connect, Shanghai – Hong Kong Stock Connect, and Bond Connect to design a series of cross – border green finance trading products. In view of the extensive financing needs of new – economy companies in the “Guangdong – Hong Kong – Macao Greater Bay Area”, in addition to the traditional initial public offering or bond market, Hong Kong can actively develop and research diversified financial platforms and products, such as non – listed enterprise equity trading platforms, to promote the alliance of advantageous industries in the Greater Bay Area and drive financial innovation in the region.
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