Opinion | Why Hong Kong still a long way from being an Islamic finance hub

The government has started its latest effort to transform the city into an Islamic finance hub with a proposed new law next year allowing it to issue Islamic sovereign bonds here. This is a grand plan but maybe a little too ambitious.

This is not the first time the government has promoted Islamic finance. In 2007, Financial Secretary John Tsang Chun-wah announced a plan to capture part of the Islamic finance pie, now worth US$1.3 trillion and expected to double by 2017.

But except for several visits to countries in the Middle East to shake hands with local officials, not much has been achieved.

Only Hang Seng Bank has done anything to promote the finance hub idea, issuing a retail Islamic fund in November 2007. By contrast, yuan-denominated retail funds have become a trend and we have seen scores of such funds flowing into the market since Beijing encouraged more yuan products in 2010.

In terms of Islamic bonds, also known as sukuk, no local company has made any inroads here. This has been partly because of tax laws, which means the sukuk would be subject to more tax than conventional bonds. It was only in July this year that the law was changed allowing the sukuk to face equal tax treatment to other conventional bonds.

With the new tax law in place, the government now may think it is time to restart the Islamic finance engine. It is also set to follow the British government, which in October said it would issue sovereign sukuk next year. Investment, like fashion, also has a trend to follow.