CSj talks to HKSAR Financial Secretary Paul Mo-Po Chan GBM GBS JP FCIS FCS about his aspirations for maintaining Hong Kong’s competitive edge in the rapidly changing political, business and social environment, and about the role that professional practitioners such as company secretaries can play in this endeavour.
Thanks for giving us this interview. Could we start by discussing your priorities for developing Hong Kong as a regional innovation and technology (I&T) hub?
‘As you probably know, the last administration launched the Innovation and Technology Bureau (ITB) in November 2015, so it has been going for just two years. We have been a late starter, but we can catch up very fast. Ever since the establishment of the ITB, the last government set aside HK$18 billion – mainly to build the infrastructure, the hardware and to create the ecosystem needed to develop the I&T sector.
In the first budget after I took office in January this year, I set aside another $10 billion for I&T but I didn’t specify how the money should be spent. The idea is to allow the ITB to work with industry to work out how best to spend that money. That is a demonstration of our commitment in terms of resource provision.
But, to answer your question, I think that there are a few areas that we need to look at and work on. The first is that, over the past decades, our input into research and development (R&D) has been small compared to that of many other jurisdictions. So we need to increase the resources available for R&D. Our new super tax deduction for R&D expenditure is one of the measures that we are going to implement. This will mean that the first $2 million of eligible R&D expenditure will enjoy a 300% tax deduction, with the remainder at 200% – this is quite generous when compared internationally.
However, promoting I&T development is not only about money. We need to create the ecosystem that will attract more I&T companies and talent to Hong Kong. The Science Park and Cyberport are part of this, as is our ‘Smart City’ initiative. This initiative is in fact one of the four areas we are prioritising in our bid to develop Hong Kong’s I&T sector – the other three are: fintech, artificial intelligence and biotech – in particular in the area of healthy ageing.
There are other initiatives that we believe will help create the necessary ecosystem. For example, we have been reviewing government procurement policies with a view to encouraging government departments, as well as non-profit organisations (NPOs) supported by the government, to use more products and services of the I&T sector. Already, government departments can apply to a fund we set up under the ITB when they want to roll out initiatives in this area. We are also encouraging NPOs and small and medium-sized enterprises (SMEs) to upgrade their efficiency and competitiveness through I&T products and services. As you probably know, we have launched a ‘Technology Voucher Programme’ under which SMEs can apply for a subsidy of up to $200,000 to spend on I&T products and services.’
Are you also looking at legislative amendments to promote I&T? One issue that we have been following in CSj is whether the current regulations relating to peer-to-peer lending and crowdfunding should be liberalised?
‘We will be reviewing our legislation and practices to see whether changes should be made to facilitate I&T development. Regarding peer-to-peer lending and crowdfunding, I can see the merit of liberalising the rules, but we also have to look at consumer protection. At this stage the government has not taken a final view.
One area also being explored as part of our review of legislation is the need for open data. We would like to improve access to government data, making it available to the private sector to the full extent possible. This will facilitate not only our ‘Smart City’ initiative, but also facilitate the development of solutions in quite a number of different areas – such as the development of different kinds of applications.’
What’s your view on the best way to attract the necessary human resources talent for the I&T sector?
‘At the moment we do not have enough expertise and talent. If we want to attract I&T companies to come to Hong Kong, we need to ensure that they can source sufficient talent locally, or bring the necessary talent into Hong Kong. We would like to encourage the recruitment and training our own people of course, so that these companies are bringing opportunities to develop local talent. In the longer term, I think we need to review our curriculum and invest more in relevant educational programmes.’
Can we turn to the role of professional practitioners, in particular corporate secretaries – do you have any advice for them?
‘The main thing I would emphasise is the need to see the bigger picture. The role of the company secretary used to be focused on compliance but things are changing very quickly – the I&T sector is a good example of how new technology can disrupt business models. So I think company secretaries need to recognise the bigger picture, including keeping up to date with developments in I&T, which can affect the survival of their companies.
Another thing I would emphasise is the need for integrity. I think this is far more important these days because things are changing so fast and that sometimes leads to ‘grey areas’. In those unclear waters, the guiding principles should always be ethics and integrity.’
What’s your view of the recent proposals by Hong Kong Exchanges and Clearing Ltd (the Exchange) to create two new boards – the ‘New Board PREMIUM’ and the ‘New Board PRO’. In particular, both of these new boards would allow, for the first time, companies with weighted voting rights (WVR) to list in Hong Kong – do you think Hong Kong should stand by the principle of ‘one share one vote’?
‘The way I see it is that WVR is a growing trend among new economy companies and this is understandable in terms of the ecosystem and business model of those companies. In the start-up phase they have innovative ideas but they need funding. We have already discussed some of our plans to help them get seed money, but going forward these companies must be able to raise funds from the private sector. This can be through angel investors, private equity or venture capital funds at first, but if they grow further they will need to go to the market for funding. During this process the founder’s shareholding will usually be diluted and further diluted. This is not the case for traditional companies listing on the Exchange. A successful manufacturer, for example, might open 30%-40% of its shares on the Exchange ensuring that the owners still maintain a very substantial control. But the successive phases of fundraising by a typical new economy company means that the founder’s shareholding probably becomes very diluted.
Founders are often the ‘soul’ of their companies, they represent the core competitive advantage of the business, so WVR is a major trend for new economy companies. As an international financial centre we need to embrace these companies, though we need of course to do so with caution – there have to be adequate safeguards for investors. We have to strike a balance between investor protection and acceptance of these companies. My inclination is that we should allow these companies to list, but we should put in place a set of safeguards for investors. We have asked the Exchange and the Securities and Futures Commission (SFC) to sit down and work out a set of safeguards. Obviously, any solution will need to be acceptable to the regulators, so the Exchange and the SFC are discussing these issues and there will probably be a consultation with the market soon.’
What’s your view of the SFC’s proposals last year to increase its participation in listing decisions? The proposals put forward in 2016 would have created two new committees – the Listing Policy Committee and the Listing Regulatory Committee – but these proposals were watered down this year following opposition.
‘I think the final outcome, announced in September this year, is a pragmatic solution. After extensive discussion between the SFC, the Exchange and the government, we have agreed to set up a Listing Policy Panel as an advisory body to centralise discussion of listing policies with broader regulatory or market implications. It seems to me that this outcome is pragmatic, sensible and is accepted by the market.
You may also know that we have set up a Financial Leaders Forum, chaired by myself and comprising the Secretary for Financial Services and the Treasury, the Chairman and the Chief Executive Officer of the SFC, the Chairmen of the Exchange, the Insurance Authority and the Mandatory Provident Fund Schemes Authority, as well as the Chief Executive of the Hong Kong Monetary Authority. We also have Mr Joseph Yam, Mr Bernard Chan and Mrs Laura Cha on the forum. The idea is to get regulators and market experts together to ensure that there are no regulatory gaps and to look at ways to develop our international financial centre (IFC) status and make ourselves more competitive. We should be cautious about systemic risks, but on the other hand we are keen to enhance our competitiveness and our leading status as an IFC.’
Are you optimistic about Hong Kong’s future? Political issues have been very much in the news and, as we have been discussing, the business environment is changing very rapidly – what are your feelings about how all these trends
are going to impact Hong Kong in the future?
‘I am still very optimistic, but the road ahead could be bumpy. First of all, under the new term of government, I think the relationship between the administration and the legislature has improved. Actually, it seems to me that the overall sentiment of the community is less confrontational, less polarised and this should lead to a more conducive environment for rational discussion.
The chief executive has put livelihood issues first in terms of our short-term priority. This means tackling Hong Kong’s housing issues and making further investments in education. I hope these areas, which top the agenda in many people’s minds, will be less controversial and less divisive. Luckily we are in a strong financial position which allows us to spend more in these areas to invest in Hong Kong’s future.
We still have a lot to do, however. We need to further develop our economy, particularly on a diverse and sustainable basis. On the financial services side, we have a competitive edge over our neighbouring cities but we have to stay ahead of the curve. Competition is very keen so we will have to work very hard.
Hong Kong is such an open society with many different civic bodies representing different sectors of the community. That means that, when we are facing difficult issues and trying to find solutions, we are bound to have different and at times conflicting views in the community about the way forward. This is understandable and good, because through this kind of debate we can come up with the best way forward.
In that process, I believe we need to have the participation of professional institutions – professionals need to speak out and speak up. Their views might not always be popular but I do encourage professionals, and professional institutions, to speak up – and not only on professional issues but also social issues. For example, we are all concerned about the high cost of housing. To solve this problem we need to have land, but when it comes to finding sources of land supply we need to make choices, sometimes hard choices. Are there any marine areas that we can reclaim? Are there fringe areas of the country parks, without ecological sensitivity considerations, that could be used for housing land supply? The community needs to debate the issues and make a choice and move on.
In these kind of issues, I think professional institutions’ views carry a lot of weight. Not only those professionals in relevant sectors, for example the construction, engineering and urban planning sectors. This is a community’s rights issue and all professional bodies and professionals carry a lot of credibility in the community. If we can engage in this kind of debate, it will help society to move forward. If professional bodies speak out, over time they will build their own credibility and their standing in the community.’
Do you have any advice for young people?
‘For young people in Hong Kong I think the border should not be a limit. Please do not confine yourselves to Hong Kong. I am not saying that people should leave Hong Kong, or that Hong Kong is not the best place to live – what I am saying is that Hong Kong is a hub and our services cover a much bigger area than our local jurisdiction. People in Singapore do not just serve Singapore, they serve the neighbouring region. For us likewise, I think our horizon should be beyond Hong Kong. We need to be multicultural and genuinely international in our outlook. An important part of this is to have the understanding and the ability to engage with people from different cultures and work together.’
Finally, how do you juggle your workload with your daily life?
‘That is a question of balance. I am not suggesting that I am doing it well, but I think it’s a bit like being a juggler in the circus – you have only two hands but you have three or four balls. My advice to company secretaries would be to remember to set aside time for exercise. Good health is the foundation of everything and you should not take it for granted even when you are young.’
Paul Mo-Po Chan GBM GBS JP FCIS FCS was interviewed on 24 October 2017 at the Central Government Offices by Samantha Suen FCIS FCS(PE), the Institute’s Chief Executive; Mohan Datwani FCIS FCS(PE), Senior Director and Head of Technical & Research; Lawrence Wong, Senior Manager, Marketing & Communications; and Kieran Colvert, Editor, CSj.