Praise from asset management industry for John Tsang's budget help
Budget speech outlined moves towards more tax deductions and progress on selling on mainland
Jasper Moiseiwitsch and Benjamin Robertson
There was a lot of talk about boosting competitiveness in yesterday's budget speech, but there was little to announce in terms of concrete fiscal measures.
Instead, Financial Secretary John Tsang Chun-wah used the speech to outline important ways in which the government is promoting business through policy initiatives with the mainland. These have been particularly beneficial to the asset management industry.
Tsang announced that a task force would be set up to look at tax deductions for corporate treasury activities. Tax experts said that was aimed at lowering or eliminating taxes on loans between international firms and their Hong Kong subsidiaries, and enticing corporations to make the city their regional financial headquarters.
At the moment, interest paid on loans from an offshore division of a multinational firm to its Hong Kong office is not tax deductible. "Hopefully this can attract more overseas entities to set up treasury function in Hong Kong and attract more headquarters," said Tracy Ho, tax managing partner at Ernst & Young.
Tsang also offered some concessions for the asset management industry. At the end of 2012, he said, assets overseen in Hong Kong's wealth and asset management industries topped HK$12.6 trillion, 40 per cent up on the previous year.
Tsang also announced a waiver of stamp duty on exchange-traded funds (ETFs) would be extended to cover all 117 ETFs.
Christopher Cheung Wah-fung, who represents the financial services sector in Legco, said this was unfair as stock traders still needed to pay stamp duty.
Tsang said the daily average turnover of ETFs had risen 54 per cent over the last three years. With daily turnover at HK$3.7 billion, Hong Kong has become one of the largest ETF markets in Asia-Pacific.
A lot of the recent increase in trading is attributable to the launch of the renminbi qualified institutional investor (RQFII) scheme, which has led to the launch of 15 ETFs in Hong Kong in the past two years.
Another non-monetary initiative with the potential to echo the RQFII's positive economic impact is a plan for "mutual recognition" of funds between the mainland and Hong Kong. This would give local asset managers the right to sell funds to the mainland's 1.3 billion potential investors - it's generating a lot of buzz in the industry.
Tsang announced that mainland and Hong Kong regulators had now reached a "consensus" on implementing this scheme.
While the mutual recognition scheme is not a budget item per se, it is a big part of official efforts to improve Hong Kong's competitiveness. Industry insiders give the government top marks for its efforts.
"I don't think anyone thought it would happen so quickly, because it's not easy [to negotiate]. So kudos to the Hong Kong government, because the mainland industry will be looking at a lot more competition," said Terry Pan, head of Hong Kong business for JP Morgan Asset Management.
Tsang has implemented or proposed a number of measures - such as tax exemptions for private equity funds - which point to a lot of fine-tuning by the government to make Hong Kong Asia's biggest asset management hub, a title long held by Singapore. Tsang said Hong Kong was now No1 in the region in terms of assets under management.
Michael Dai Daohua, a senior economist for Bank of China (Hong Kong), said Hong Kong had many strengths. "These government measures are the icing on the cake … placing Hong Kong neck and neck with Singapore as the No1 asset management centre in Asia," said Dai.