To regain its competitive edge, Hong Kong must stay the course in shipping and finance
Edward Yang Liu says the city, as a bridge between the mainland and the rest of the world, has a golden opportunity to leverage its know-how and reclaim its dominance in two key industries
When the first quarter of 2016 ended, Hong Kong, as an international financial centre, has already borne a spate of negative news. Firstly, the international rating agencies Moody’s and Standard & Poor’s lowered the credit rating of Hong Kong from stable to negative. The Global Financial Centres Index released by British think-tank and consultancy Z/Yen shows that Hong Kong has dropped out of the top three rankings and is now surpassed by Singapore. The lowered credit rating and ranking are undoubtedly a wake-up call for the competitiveness of Hong Kong’s financial sector. Therefore, identifying the right direction of development, so as to exploit its unique advantages to the full as soon as possible, should be the top priority for Hong Kong’s financial industry.
The financial industry and the shipping industry are two traditional industries in Hong Kong. As noted in the nation’s 13th five-year plan published in March this year, Beijing will support Hong Kong to consolidate and enhance its status as an international financial, shipping and trade centre.
However, the Hong Kong government’s “positive non-interventionism” of free-market economic policies has had some adverse consequences, resulting in not only the lack of innovation and development in the financial sector, but also the marginalisation of the shipping industry in recent years. This should change. In the policy address earlier this year, the chief executive clearly pointed out that Hong Kong should develop high-value-added shipping services. And shipping finance, the focus of high-end shipping services, should be the future direction of development.
The shipping industry is a capital-intensive industry. It is difficult for ports, shipping companies and shipyards to rely on their own funds to meet their investment needs. But stable funding for the development of the shipping industry can be realised through financing.
One of the reasons London is still the world’s top international shipping centre in the 21st century is that the advantages of its financial services are fully exploited in the shipping market and it has become one of the world’s leading shipping finance markets. Compared with London, Hong Kong, which is also a financial centre, has advantages such as diversification of financial products, an excellent investment environment where foreign exchange can be traded freely in the market, and also proximity to mainland China. The world’s major shipping finance banks also have regional headquarters or offices in Hong Kong.
To encourage shipping companies to take advantage of asset securitisation and other means to raise funds from the stock market, the newly established Hong Kong Maritime and Port Board should take the lead to set up a working group as soon as possible, with the purpose of liaising with the Hong Kong Shipowners Association and the Hong Kong Exchanges & Clearing to encourage more Hong Kong and mainland shipping companies to get listed in the city, so as to further expand the financing channels for shipping enterprises. There are currently more than 60 shipping companies registered with the Hong Kong Shipowners Association, and the number of ships registered in the Hong Kong Shipping Register is more than 2,500. The Hong Kong stock market can seek broader opportunities in the field of shipping, as well as further build Hong Kong into a leading shipping finance centre.
In addition, the maritime board should, together with financial institutions like the Financial Services Development Council, explore and expand shipping finance products and services, such as promoting the development and innovation of shipping price derivatives and broadening shipping finance channels in Hong Kong for mainland and international companies.
In addition, the government should follow the example of Singapore and set up a government-led shipping trust fund, in order to enter the capital market, thereby widening financing channels and fund-exit channels for shipping companies. This should also involve, for example, formulating the relevant tax benefits for the shipping trust fund and offering tax incentives for approved ship-leasing companies, shipping industry funds or trusts.
In addition, the shipping trust fund should enjoy preferential institutional benefits than listed companies. For instance, banks should have no lending limit imposed on shipping trusts; shipping trusts should not distribute bonus according to the accounting income, but instead pay dividends based on operating cash flow; income tax and stamp duty should be fully exempted for investment in the shipping trust fund, whether the investment is from Hong Kong, mainland Chinese or foreign investors.
As a centre for international finance and shipping, Hong Kong can provide one-stop financial services for the Asia-Pacific region and the global shipping market. When the Hong Kong shipping industry develops and grows, it can in turn attract mainland and foreign investment to inject more liquidity into the Hong Kong capital market and accordingly lead the development of the financial services industry.
With the construction of “One Belt, One Road”, Hong Kong’s shipping finance services should seize this rare opportunity and become the “super contact” for mainland China’s shipping enterprises to explore the international stage, as well as for international shipping companies to enter the mainland.
Edward Yang Liu is a registered foreign lawyer at Reed Smith Richards Butler