Hong Kong should expand its real estate investment trust industry by tapping into infrastructure assets of two major China-backed development projects, according to King Au, executive director of the Financial Services Development Council (FSDC), a government advisory body.
He says assets in the Greater Bay Area and the Belt and Road Initiative (BRI) can be offloaded once mature, which will “help the central government recycle capital”.
The Greater Bay Area comprises Hong Kong, Macau and nine cities in China’s southern Guangdong province, with a total population of over 70 million holding roughly US$420 billion of investable assets. Beijing wants to turn the area into a finance and business hub by 2030.
BRI is a development strategy involving multiple mega-infrastructure projects to improve connectivity between China and Asia and parts of Europe.
“We would like to expand the real estate investment trust sector to infrastructure assets,” Au says in an interview with Asia Asset Management (AAM). “In fact, a lot of BRI projects are infrastructure-related. It can provide a secondary market, create liquidity or exit [options] for early-stage investors.”
The FSDC advises the Hong Kong government on strategies to boost the city’s financial market.
The 18-member council, which includes the Secretary for Financial Services and the Treasury, comprises representatives from major sectors of Hong Kong’s financial services industry.
The FSDC presented its recommendations to the Hong Kong government in a paper last year, pointing out that assets underlying existing REITs are limited and mostly invested in residential and commercial properties in the city.
It suggested, for example, that integrating transportation infrastructure across the Greater Bay Area holds opportunities for logistics companies with warehouses across the region that could potentially be turned into REIT assets.
Hong Kong versus Singapore
The FSDC is now on a global roadshow to reassure investors of Hong Kong’s viability as an international financial centre after Beijing introduced a national security law in the city two years ago following social unrest.
An increasing number of asset owners and investors have moved their funds and assets to Singapore amid concerns about Hong Kong’s legal independence and regulatory stability. China’s harsh Covid-19 policy has added fuel to the outflow.
Hong Kong and Singapore have long competed to be the leading financial centre in Asia.
Total assets under management in Hong Kong’s asset and wealth management industry last year was $4.6 trillion, up 2% from 2020, according to the Hong Kong Securities and Futures Commission’s survey published in July.
Data from the Monetary Authority of Singapore show that the city state had $3.5 trillion of total assets under management in 2020, the latest available figure.
Singapore unseated Hong Kong as Asia’s top financial centre, and third in the world behind New York and London, in the Global Financial Centres Index published last month.
Au, who spoke to AAM during the Singapore stop of the FSDC roadshow, says the two jurisdictions actually complement each other, drawing an analogy to a successful business that expands and sets up shop in multiple locations.
“Singapore cannot replace the proximity that Hong Kong and China have. Similarly, Hong Kong will not be able to replace Singapore’s uniqueness,” he says. “I would look at it from the perspective of how to expand the pie for all.”
According to Au, concerns about Hong Kong’s legal and regulatory stability are “a misunderstanding” and the city’s judicial independence is very solid”.
“I understand the uncertainties that prevail but there are also certain instances that have shown that our regular operations aren’t affected, such as the financial markets,” he says. “Brokerages still issue research reports and newspapers continue to comment on China’s covid-zero policy, or even China’s structural problems like the property market. No one goes to jail.”
