EY comments on the 2023 Policy Address

The Chief Executive of the Hong Kong Special Administrative Region, John Lee delivered the 2023 Policy Address yesterday. Giving equal importance to the continuous development of the Hong Kong economy and the enrichment of the wellbeing of Hong Kong citizens, the Policy Address actively aligns with the national strategy and formulates a policy blueprint for Hong Kong's development.

Jasmine Lee, EY Hong Kong and Macau Managing Partner, acknowledges that the Chief Executive’s second Policy Address continues to implement the “four musts” and “four proposals” put forward by President Xi, with measures to boost the economy as a whole and enhance development momentum, as well as a number of measures to improve people's livelihood, in line with the theme of vibrant economy for a caring community. Technological innovation and development continue to be the main focus of the Policy Address, reflecting the government's strategic vision of harnessing the power of technology to enhance Hong Kong's long-term competitiveness and improve people's livelihood. Fundamental social issues such as those concerning the youth and education are also the focus of the report. “Hong Kong will Prosper Only When its Young People Thrive,” young people are the key to Hong Kong's future and progress. Proposing to build an international post-secondary education hub, develop universities of applied sciences, expand the vocational talent pool, strengthen STEAM education and teaching support, and continue to implement and improve the Youth Development Blueprint, these measures will further provide young people with pragmatic opportunities in terms of academic development, employment, entrepreneurship, and home ownership, cultivating their talents and in turn build a brighter Hong Kong together.” 

Jasmine Lee says: "The EY team is happy to see the Chief Executive is addressing and responding to voices from different walks of the society, proposing resolute and immediate measures in the spaces of capital market, talent and real estate to address pressing needs. The government should remain persistent in the implementation of long-term strategies such as promoting the development of the Greater Bay Area (GBA), its participation in the Belt and Road Initiative, and strengthening Hong Kong’s positioning of the ‘eight centres’ to enhance its competitiveness in a wider scope. EY teams will continue to fully support the direction and strategy set out in the Policy Address, as well as to contribute to Hong Kong's economic development and people's livelihood by cultivating the younger generation of professionals, and assisting EY clients to seize their business opportunities locally and globally.”

Consolidating and leveraging the advantages as an international financial center

With regards to the reduction of the rate of Stamp Duty on Stock Transfer, Jacky Lai, EY¹ Assurance Partner points out: “Reducing the rate of Stamp Duty on Stock Transfer to 0.1% reverts the rate back to that of 2021. The measures are expected to have a positive impact on improving market liquidity in the short run.” 

Meanwhile, Jacky Lai also welcomes the proposed GEM market reform: “Along with lowering costs for issuers, the revised Listing Rules can encourage high-growth R&D enterprises smaller than those specified in Chapters 18A and 18C of the Listing Rules to consider getting listed in Hong Kong. It is recommended that regulatory authorities continue exploring the feasibility of including GEM and Beijing Stock Exchange into the Stock Connect Scheme to deepen the collaboration between the two exchanges, including cross listing.

“In terms of enhancing its long-term competitiveness, Hong Kong as an international financial center must strengthen its close ties and relevance with the international market, increase interconnectivity with exchanges in the Chinese mainland, the Middle East and Southeast Asia, and attracting companies listed elsewhere to come to Hong Kong for dual listing or secondary listing as well as overseas funds.”

Stimulating the potential of the property market 

To stimulate the local property market, the Policy Address proposes to adjust the stamp duty on home purchases. Wilson Cheng, EY² Hong Kong and Macau Tax Leader says: “One of the two tax concessions to stimulate the property market includes reducing the stamp duty on new residences (formerly known as "ad valorem stamp duty") from 15% to 7.5% to release the purchasing power of some Hong Kong residents into investing in residential properties for leasing purposes. Concurrently this can also affect the property tax revenue positively. Similarly, the introduction of a stamp duty suspension arrangement for incoming talent's acquisition of residential properties compliments other talent-attracting policies well. While details are yet to be announced, I believe this measure is attractive for potential incoming talent, bringing a positive effect on injecting new capital into the property market.”

Building, attracting, and retaining the right talent to enable Hong Kong as the destination for regional headquarters

The Policy Address proposes series of measures on talent. Jeff Tang, EY³ Greater China & ASEAN Financial Services, People Advisory Services Partner concurs with the measures: “Building, attracting, and retaining the right talent is a key enabler of making Hong Kong the destination for regional headquarters. A slew of measures on talent is a step in the right direction to create wider and deeper talent pool that will make Hong Kong an attractive proposition for both international organizations and Chinese mainland organizations with international ambitions. The expansion of universities list under the Top Talent Pass Scheme and measures around suspension of property levy, relaxation of visa for Vietnamese talent, easing of multiple-entry visa for foreigners to the Mainland will certainly strengthen Hong Kong competitiveness as an international gateway to the Mainland.

“Building a sustainable talent pool across different aspect of the economy is crucial to long term success of Hong Kong. Establishing the Legal Talents Training Academy and the expansion of vocational talent pool such as increase allowance for apprentice and vocational professional admission scheme will certainly alleviate some of the current labor shortage. Businesses needs talents to grow. I believe that building, attracting and growing talent pool requires a long-term continuous, holistic approach that span across different aspects of talents needs.”

Bettering lives through technological innovation and economic growth

A number of measures on digital economy and cybersecurity for critical infrastructure (including energy, communications, transportation, financial institutions.) was proposed. Vincent Chan, EY⁴ Greater Bay Area Consulting Leader says: “The Government’s determination in raising Hong Kong’s competitive strength and improving people’s livelihoods is evident through the proposed innovation and technology development in the Policy Address. Establishing an AI supercomputing center in phases, fostering new industrialization as well as R&D commercialization can support relevant start-up services, sectors and promoting industry development. These practical measures can certainly bring new impetus to Hong Kong’s economy and industries.

“Pressing ahead with the digitalization of government services, developing the ‘Digital Bay Area’ through collaborating with the Guangdong Provincial Government, and launching the Digital Transformation Support Pilot Programme can bring about great convenience as well as driving force to Hong Kong’s digital economy. With the new Digital Policy Office backed by the Digital Economy Development Committee, the opening up of data can be actualised, carrying digital infrastructure and cross-boundary data flow to new heights.” 

The tax rate on qualified profits generated by patents will be reduced from the current 16.5% to 5% to encourage more innovation and technology research and development, transformation, application and commercialization. Wilson Cheng says: “Tax incentives can be an attractive draw for scientific and technological innovation enterprises to consider setting up their R&D centers and patenting and commercialization processes in Hong Kong. With significantly lowered tax rate, it is possible that the after-tax profits of these enterprises will increase relatively. The corresponding valuation and return on investment after commercialization will consequentially increase, which will in turn attract investors to participate in early-stage science and technology innovation projects.”

Connecting within GBA through cross boundary data flow, allowing speedy development through integration

Promoting secured cross boundary data flow within the GBA, rolling out eHealth+, a comprehensive healthcare information infrastructure, can greatly facilitate cross-boundary financial and medical services, such as extending the coverage of the elderly health care vouchers. Vincent Chan adds: “Cross boundary data flow is crucial for the overall integration within the Greater Bay Area. The industry should be eager to see a pilot trial implemented in Guangdong which will simplify relevant compliance arrangements for the flow of personal data from Chinese mainland to Hong Kong to facilitate cross-boundary services within the Greater Bay Area." 

“The impact brought about by the implementation of cross-boundary data flow should be reflected in the Northern Metropolis and the Hetao Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone, generating synergy, further promoting the flow of funds and talents between the two locations, and facilitating the exchange of data and samples for research purposes. Combined with Hong Kong’s strategy in technological innovation and development, the secured cross boundary data flow should enable cities in the GBA to complement each other well.”

Paul Ho, Financial and Currency Connect Leader, Hong Kong and Macau, EY Greater Bay Area Center of Excellence says, “The inclusion of RMB counters and introduction of offshore Mainland government bond futures will not only strengthen Hong Kong’s position as an RMB center but also help advance RMB internationalization. The cross-boundary flow of personal data within the GBA coupled with the deepening of financial cooperation in the GBA will allow Hong Kong to flex its financial services and asset management strengths.” 

Paul Ho also supports the government to explore and identify projects with potential economic and social benefits arisen from the GBA Investment Fund. If the public fund is well set to invest in GBA projects, other private funds are likely to follow suit and accelerate the incubation of start-ups in the GBA. 

Building a green and sustainable Hong Kong

Ee Sin Tan, EY¹ Hong Kong and Macau Climate Change and Sustainability Services (CCaSS) Partner says: “Strengthening Hong Kong's climate resilience remains an urgent and paramount objective, particularly in light of the recent surge in extreme weather events. The proposed development of the new energy transport industry will require the transformation of the existing infrastructure in order to transit to zero emissions mobility. To effectively tackle the challenges posed by climate risks, Hong Kong must persist in synergizing technological innovation and green finance to drive innovative solutions. Concurrently, it is imperative to empower businesses’ existing workforce with comprehensive ESG knowledge to ensure the practical implementation of diverse green transformation initiatives. It is also critical that Hong Kong is paying attention to the importance of the parallel biodiversity while the climate crisis is being addressed.”

¹ Ernst & Young, Hong Kong

² Ernst & Young Tax Services Limited

³ Ernst & Young Advisory Services Limited

⁴ Ernst & Young Tax Services Limited

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