Hong Kong needs to attract more real estate investment trusts and allow new types of investment funds as it seeks to compete with other Asian financial centers, the city’s Financial Services Development Council said.
Hong Kong should amend its rules on REITs, including giving them an exemption from profit tax on rental incomes, according to one of six reports published by the council today. The city should also allow the establishment of open-ended investment companies, encouraging fund management firms to choose the city as their domicile, the reports said.
The recommendations bolster efforts by the former British colony to strengthen its role as an international financial center, as rivals emerge around the region. Singapore has an edge in areas including foreign exchange and commodities, while Shanghai is establishing a free-trade zone in its bid to become a global financial center.
“Hong Kong’s leading position as international financial center is not entirely secure,” council Chairman Laura Cha said today at the presentation of the reports. “Hong Kong is facing challenges arising from evolving global macroeconomic forces and emerging local threats.”
The city’s asset management industry, now dominated by unit trusts, need to add variety by introducing alternative investment vehicles, according to the recommendations. Of the 1,845 authorized funds in Hong Kong as of June 30, only 318 were locally domiciled. Open-ended investment companies differ from unit trusts by having a separate legal personality and not requiring a trustee, according to the reports.
The city also needs to grow its REIT market, as only 10 of the trusts started trading in Hong Kong in the past decade, lagging behind other regional centers, according to the report.
The opening of China’s economy is bringing both opportunities and competition for Hong Kong, with Singapore and Taiwan emerging to challenge the city’s dominance in offshore trade in the yuan, the reports said.
Hong Kong is the largest offshore yuan center, with savings in the currency rising 34 percent from a year earlier to a record 730 billion yuan ($120 billion) in September, data from the Hong Kong Monetary Authority showed. Yuan deposits began accumulating in the city in 2004.