Hong Kong Policy Address 2022: Creating a thriving, vibrant Hong Kong through improved governance and economic diversification

HKSAR Chief Executive John Lee today unveiled his first Policy Address, mapping out a bold, comprehensive five-year blueprint for strengthening Hong Kong's competitiveness by building on the city's unique advantages and capturing new growth opportunities.

This comes against the backdrop of China's 20th Party Congress, which opened on 16 October. In his opening address, President Xi Jinping highlighted the crucial role of Hong Kong as he charted China's direction over the next five years, addressing the need to safeguard national security and pursue talent and innovation to give new momentum to development.

In line with the "four proposals" put forward by President Xi, the Chief Executive emphasized the importance of delivering on the sixth-term HKSAR Government's focus areas of injecting impetus into economic growth and tackling deep-seated social issues, while enhancing the level of governance and safeguarding social harmony and stability.

"With these goals in mind, today's Policy Address included a wide array of policies for economic transformation and social welfare in the short, medium, and long term, which will be welcomed by businesses and citizens in Hong Kong," says Deloitte China Southern Region Managing Partner Edward Au.

"The Chief Executive also signaled a focus on enhancing governance capacity and efficacy through a results-oriented approach, tasking top officials to lead key initiatives, and establishing clear KPIs and mechanisms to review progress. This shows the Government's resolve to reform its organizational culture by putting governance at the core of policy making and implementation."

Attracting and developing talent

The Policy Address included a raft of measures on talent, including the launch of the Top Talent Pass Scheme, creation of a Talent Service Unit to be led by the Chief Secretary for Administration, extension of stay for work visas, and enhancements to the Technology Talent Admission Scheme, making it clear that the HKSAR Government views talent as a top priority.

The Top Talent Pass Scheme will enhance Hong Kong's competitiveness in attracting mature global talent. The Government could also consider policies to attract technical scholars and overseas STEAM students, including subsidies, tax incentives, and simplified visa application procedures.

Talent retention and integration are equally crucial. We hope the HKSAR Government will consider support for medical care, housing, and children’s education to help global talent integrate better into Hong Kong. For balance and social cohesion, the Government could also create new opportunities for local students and talent through internships and further studies.

The Policy Address mentioned that within next five years, 35% of students at universities funded by the University Grants Committee (UGC) should be studying STEAM subjects and 60% studying subjects related to developing Hong Kong into the "eight centers" under China’s 14th Five-Year Plan. As global demand and the required skills for talent are constantly evolving, the Government should work with UGC universities to ensure Hong Kong talent remains competitive and meets ever-changing market needs.

Innovation & Technology as growth drivers

To promote the development of "eight centers" in Hong Kong as outlined in the 14th Five-Year Plan, the Policy Address set out strategic plans to boost the growth of finance, technology, and the arts in Hong Kong, with a view to injecting vitality into the local economy.

Re-industrialization and R&D commercialization initiatives, including the expansion of the Innovation & Technology (I&T) funding program and incentives for I&T companies to establish headquarters in Hong Kong, will enhance the growth of the local I&T ecosystem and encourage closer cooperation between industry, academia, and the research sector.

With the Northern Metropolis and Hong Kong-Shenzhen Innovation & Technology Park, Hong Kong is repositioning itself as an international I&T hub to drive growth in parallel with its long-established financial hub. Looking ahead, we would like to see cross-border connectivity and support strengthened to better integrate Hong Kong startups into GBA networks, particularly in legal advisory and professional services for startups seeking expansion.

Diversification of capital markets

We welcome the proposed revitalization of GEM and a listing regime for pre-earnings and/or pre-revenue large-scale advanced technology enterprises. This will form a more diverse, effective multi-tier platform for companies' funding needs in different stages, and further Hong Kong's I&T ecosystem. To further enhance efficiency and effectiveness, and maintain Hong Kong’s leadership as an international listing venue, Hong Kong should deploy technology continuously to transform market infrastructure like the upcoming IPO settlement modernization.

We also hope the Government will consider more tax and other initiatives to further promote the bond market and enhance market infrastructure, liquidity, and investor diversity, given the bond market is also key to Hong Kong's status as an international financial center and the goal of building Hong Kong into a regional hub for sustainable finance.

Boosting green finance

Hong Kong is in a unique position to develop a robust carbon credit standard and trading platform of high integrity, to achieve recognition from international and Mainland markets. In keeping with international trends, Hong Kong could continue to strengthen disclosure requirements on climate risks, net zero targets, and ESG.

As an international green finance hub, the Government could consider further incentives in relation to the cost of raising green funds. Hong Kong could also accelerate the development of carbon exchange and deploy existing channels, such as Bond Connect and Stock Connect, to bring in international investors to the Mainland, and connect Mainland investors with international markets.

Enhancing Hong Kong's tax competitiveness

We are pleased to see the Government introduce tax measures to attract talent and investment, such as the refund of extra stamp duty to eligible incoming talents, family office tax incentive, and enhancement of preferential aircraft leasing. We look forward to proposals on tax measures to attract high-potential and representative strategic enterprises to Hong Kong.

To enhance tax competitiveness, the Government could consider offering tax relief for intellectual property income, relaxed tax deductions on R&D spending, and reducing stamp duty on stock transfers to its original level to attract overseas company listings.

Striving toward carbon neutrality

We welcome the continued commitments to halving emissions before 2035 and carbon neutrality before 2050. To achieve this, all the infrastructure developments in the Policy Address should take account of the city's decarbonization targets, with in-built pathways to net-zero that make all development green development.

Hong Kong should use the best possible carbon accounting standards and metrics, and ensure that business and finance also use leading climate risk monitoring, reporting, and verification measures. This will enhance its role as a regional center for green technology, green finance, and carbon markets.

Alongside production-based carbon accounting, Hong Kong, which depends almost entirely on imports of food, consumer goods, energy, equipment, and raw materials, could consider preparing statistics on consumption-based emissions. Better information on this embodied carbon can encourage responsible consumption and complement plans to boost local agriculture.

Regulatory challenges brought by new technological developments

We support measures to facilitate cross border technological collaboration, including the introduction of a new regulatory regime for virtual assets, studying the feasibility of a regime for stablecoins, and reinforcing the protection of intellectual property rights.

To further support innovation, we hope the Government could continue to review possible regulatory issues arising from new fintech developments, including streamlining the regulatory framework to address complex legal issues around activities in the Metaverse, and developing specific data ethics rules and guidance for the use of artificial intelligence (AI) and cloud computing.