Hong Kong Leads 2024 ‘Economic Freedom’ Rankings

Hong Kong Chief Executive John Lee stated in his 2024 policy address, “Reform for Enhancing Development and Building Our Future Together,” delivered on October 16, that the city would align itself to “harness the institutional strengths of ‘One Country, Two Systems’ while consolidating and enhancing its status as an international financial, shipping, and trade centre.” For businesses, Hong Kong’s robust framework, including mechanisms like issuing and allotment of shares, supports its position as a global financial leader.

According to him, the resolution would also strengthen cooperation within the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) by better harmonizing regulations and procedures, as well as “Hong Kong’s position to become an international hub for high-calibre talents, to exert a greater role in our country’s opening up to the world.”

On the same day, the Fraser Institute of Canada’s 2024 “Economic Freedom of the World” assessment measured the extent to which individuals in 165 countries worldwide are free to make their own economic decisions. Hong Kong was placed first.

Economic Freedom Ranking Analysis

The report evaluated five areas: international trade freedom, regulation, government size, legal system and property rights, and access to sound money. Based on data from 2022, Hong Kong was placed third in the world for “access to sound money” and first for “openness to international trade” and “regulation.”

With an overall score of 8.58, Hong Kong just outscored Singapore (8.55). Switzerland came in third with a score of 8.43, followed by the US and New Zealand, with 8.39 and 8.09, respectively. Canada came in eighth, Australia and Luxembourg tied for ninth, and Denmark and Ireland tied for sixth, rounding out the top ten.

Japan is ranked eleventh, followed by the United Kingdom at twelve, Germany at sixteen, Taiwan at nineteen, South Korea at thirty-two, France at thirty-six, Italy at fifty-one, India at eighty-four, Brazil at eighty-five, and mainland China at 104.

According to the report, “the overwhelming weight of the evidence indicates that people who reside in jurisdictions with more economic freedom have higher levels of well-being as indicated by factors like greater productivity, faster economic growth, higher income levels, less poverty, less corruption, and fewer conflicts.”

Policy Address Highlights: Key Areas for Improvement

The 2024 Hong Kong Policy Address identified several areas for improvement in the financial services sector, including:

Wealth Management:

To become the most significant cross-border wealth management centre in the world, the government plans to do the following:

• We are establishing funds to invest in assets in Mainland China and other regions and collaborating with sovereign wealth funds in places linked by Mainland China’s Belt and Road plan.
• Looking for ways to give funds and single-family offices tax breaks on eligible transactions.

Attracting Talent:

To draw top talent to Hong Kong, the government will do the following:

• Thirteen more universities are being added to the Top Talent Pass program.
• Through the pilot program for GBA graduates to work in Hong Kong, they offer scholarships and other incentives to entice international students to study there.
• In the following White Form Secondary Market Scheme, there will be more quotas for young families to buy apartments under the Home Ownership Scheme.

Securities Market:

To strengthen Hong Kong’s securities market, the government plans to:

• We present Exchange Traded Funds (ETFs) for Middle Eastern Hong Kong stock indices.
• We are promoting listing major mainland companies in Hong Kong to maximize Hong Kong’s reciprocal access to the financial markets on the mainland.
• It lowers transaction costs and increases market efficiency.
• The Hong Kong Stock Exchange (HKEX) and the Hong Kong Securities and Futures Commission (SFC) will implement new policies to speed up screening businesses seeking to list on the HKEX.

Gold:

The government wants to build gold storage facilities and create a worldwide marketplace for gold trade. It views the expansion of Hong Kong’s gold industry as generating new growth opportunities by increasing demand for associated services like collateral and lending companies.

Insurance:

The Insurance Authority will review its risk management system, including capital requirements for infrastructure investment, enhancing the allocation of assets for risk diversification in insurance companies, and increasing investment in infrastructure, including Hong Kong’s Northern Metropolis.

Immigration:

To improve the New Capital Investment Entrant Scheme, residential property investments are allowed immediately if the transaction price is at least HKD50 million. The amount of real estate investment that can be included in the total capital investment is limited to HKD10 million. Investments made through an applicant-owned, fully qualified private firm will also contribute toward the applicant’s eligible investments as of March 1, 2025.

Research, Innovation, and Technology (IT):

To assist Hong Kong’s IT industry, the government has established:

• A HKD1.5 billion Research Matching Grant Scheme to assist research-related organizations.
• An IT Industry-Oriented Fund worth HKD10 billion would invest in vital industries like robots and artificial intelligence, life and health technology, semiconductors and smart devices, advanced materials, and new energy.
• An HKD1.5 billion fund is needed for crucial industry start-up investments.
• An HKD180 million cash allocation for an IT Accelerator Pilot Scheme aims to establish accelerator bases in Hong Kong by luring inexperienced start-up services from domestic and foreign sources.

Intellectual Property (IP):

By 2025, the government hopes to improve Hong Kong’s intellectual property laws by:

• We are extending the Copyright Ordinance to safeguard the advancement of AI technology, consulting on the registered design regime, and putting up changes to improve the efficiency of the IP litigation procedure.
• To allow public searches in the trademark database, launch a new AI-assisted picture search tool for Trade Marks Registry users.

Fintech Innovation Ecosystem:

The government should continue to encourage the creation of new financial services, such as virtual banks, virtual insurance, mobile payments, Central Bank Digital Currencies (CBDCs), and virtual asset (VA) transactions.

• The Financial Services and the Treasury Bureau (FSTB) will soon release a policy statement on using AI in the financial market.
• The Hong Kong Monetary Authority (HKMA) is actively testing and investigating technology solutions linked to cross-border trade settlement on the bridge platform to encourage using CBDCs for cross-border payments. Additionally, the HKMA plans to expand the involvement of both the public and private sectors.
• To improve the oversight of trade in virtual assets (VA):
• The second round of public consultation on the proposed regulations for VA over-the-counter trading must be finished by the FSTB.
• Describe the planned licensing structure for custodian service providers of the VA.
• Encourage the development of a digital money ecosystem and the tokenization of real-world assets. To this end, the HKMA is advancing Project Ensemble, a financial market infrastructure project, to investigate the use of digital money for interbank settlement and the application of real-world asset tokenization. Additionally, the HKMA will continue working with various jurisdictions to develop a mechanism for transmitting trade information, facilitating cross-border data transfer and digitizing global trade.
• In 2024, the FSTB and the HKMA will present a measure regulating stablecoin issuers that use fiat currency.
• The HKMA will introduce the Digital Bond Grant Scheme to encourage more financial institutions and issuers to use tokenization technology in capital market transactions.

Conclusion

More encouraging news regarding these government-led efforts to advance and strengthen the financial services industry and increase Hong Kong’s standing as a global business hub is welcome. We are not surprised by the findings of the independent Fraser Institute of Canada assessment because Hong Kong is a vibrant city that has successfully adapted to and overcome the numerous difficulties it has encountered recently.

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