Citywealth IFC update: Hong Kong and China
As China celebrates 75 years of communism, Citywealth caught up with leading advisors in the region to get an update on the current environment.
China at 75: How Communism Shapes Today’s Financial Landscape
While the financial regulatory framework remains robust, recent political changes including the implementation of the National Security Law some years ago have raised concerns among investors.
Despite the negative rhetoric around Hong Kong, its stock market and the sluggish property sector, the news in some industries is quite the opposite and could be considered exuberant. A ruby and diamond ring was the top seller at an October 2024 jewellery sale at Phillips, fetching $1.3 million. “Phillips Jewels is experiencing an extraordinary period of growth,” said Benoît Repellin, worldwide head of jewellery. “.. we achieved an outstanding 89% year-on-year increase at the Hong Kong jewels auction.”
Schroders in their Asian equities 2024 report agree, “The strongest performance has been in the travel and leisure-related sectors – hotels, gaming, restaurants, luggage, and beverage companies. Here, the rebound in activity and earnings in Mainland China has broadly met, or in some cases exceeded, initial expectations in 2023.”
Hong Kong’s Shifting Role Amid China’s Political and Economic Changes
But a law firm advisor based in Hong Kong said “There is no doubt that in broad terms the “market” in Hong Kong is not as fast paced as it has been in the past but seems stable and on a gentle upward trajectory which probably reflects the wider Chinese economy and we believe will present opportunities to those committed to the region. However, we note that there has been recent China stimulus, so comments on the state of the market could be out of date very quickly.”
Wealthy Families Diversify Investments but Keep Hong Kong in Focus
Wisdom Hon, a tax, and trusts wealth structuring consultant at C. P. Lin & Co in Hong Kong says, “From my experience, wealthy families have always been investing internationally – be it financial markets, property, private equity, commodities, or art. With the property downturn, families are selling properties to liquidate for other investments. I must say though for many families, their investment focus is still very much Hong Kong.” Good news has come on the property front though according to Schroders, “For the first time the Central Government has allocated funding for local Government entities to buy excess housing inventory from the market as a way to both reduce the supply and direct funds to developers.”
Middle East and Europe put Hong Kong on their radar
Singapore has seen a big jump in family offices now boasting 1600+ and the growth continues apace. Hon confirms that Hong Kong is also seeing interest from this market segment. “While China remains a big market for Hong Kong, I see that some families from the Middle East and Europe are setting up family offices here.” She says the reason could be that “It’s complimentary to the family’s other offices worldwide,” adding, “It helps them benefit from our low tax rate and a simple tax system and talent pool.” This answer makes sense when you see there are no estate taxes, VAT, or tax on dividends. “I feel like the government is eager to attract foreign investments and families to establish offices in Hong Kong, it is being proactive in launching marketing campaigns and initiatives.”
Hong Kong vs Singapore: Shifting Policies Reshape Family Office Choices
Of Singapore, Hon says, “Many compare Hong Kong with Singapore. To me, they are quite different. In the past few years, Singapore successfully attracted people setting up family offices there. However, since last year there’s been a decline as their policy has changed refusing to renew residency visas, increasing the investment threshold and more importantly, granting a passport has now become discretionary.” She adds, “In Hong Kong everything happens very quickly, and people are willing to go extra mile to serve clients. In Singapore, despite the expats moving there, you will find a longer wait to get things done.”
Hong Kong Positioned as China’s International Financial Centre
Clifford Ng, Co-Managing Partner Hong Kong at Zhong Lun law firm which is one of the largest full-service law firms in China, with 18 offices and over 2,500 professionals says, “My thesis for Hong Kong is that it is THE international financial centre that is part of China – for better or worse. For those who see the need to diversify geopolitically out of the “G7” sphere, they need to consider Hong Kong. The recent BRICS summit (in Russia of all places) was attended by China, India, Abu Dhabi, among others. Malaysia wants to join and I think Indonesia as well. In that grouping, only Hong Kong has the history for family offices and asset management, the depth in the financial markets and human capital and open markets.”
Ng continues, “In addition, HSBC just signed up to China’s alternative to the SWIFT network, considered to be the road to de-dollarization. That is on top of all the talk about the increase in the price of gold being indicative of China starting to horde because they want to diversify assets out of US treasuries.”
He says, “There seems to be forever talk of China’s economy almost surpassing that of the US. However, China’s per capita GDP is less than a third of that of the US. There is plenty of room for China to grow despite all the doom talk of the declining and aging population. It isn’t just China with that problem, its also in the developed world.”
Greater Bay Area: A $2 Trillion Economy on Hong Kong’s Doorstep
“Within 90 minutes,” adds Ng, “of ground travel from Hong Kong is the “Greater Bay Area” with Shenzhen (30 minutes) and Guangzhou (under 90 minutes) and a combined GDP of over USD2 trillion which would be 11th largest economy in the world. This far surpasses the tip of Malaysia that is next to Singapore.”
“Wealthy Chinese may want to diversify and hold assets in Singapore and other places and they can use Hong Kong as a gateway. The wealthy outside of G7 or concerned with G7 concentration so they may want to hold or manage some of the assets in Hong Kong.”
Post Covid linked with National Security Law changes there was a sense that more Chinese were sending their children abroad because of personal safety concerns following broadcast of riots, but Hon pushes back on this and says it’s for a different reason, “I do not see this from my practice. Families sending children to study overseas has been common for years, it’s just that it is has become more affordable in the last two decades.” Hon continues, “To clarify, there has never been any lock down in Hong Kong, just that people were subject to quarantine. On that score, things have been back to normal since the start of 2023.” Of the downside, Hon says, “the quality and standard of advisors and practitioners in the region can vary quite a lot and it’s hard for families to know if they are getting sound advice. There seems more focus here on wealth management so investment rather than succession or individuals but adds, “Only a few families really make succession their priority currently.”
Ng concludes, ” Hong Kong is also a very established IFC centre with 180 years of common law and a long history of trusts. It is also an easy place to live and work in with low taxes, good and efficient infrastructure and international schools.”
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