Guarded welcome for Hong Kong moves to stem brain drain, but critical border issues remain
While Hong Kong fund managers may have welcomed a series of government measures to address the brain drain and bring talent back to Hong Kong, there was disappointment that the long-awaited border reopening between Hong Kong and China was not among them.
The remarks came as Hong Kong’s new chief executive John Lee Ka-chiu on Wednesday (October 19) released his first Policy Address since taking office on July 1.
In the grand plan that determines Hong Kong’s key policies for the next few years, Lee acknowledged that the financial hub had lost about 140,000 of its working population over the past 24 months.
Under the new measures, the government will relax visa and hiring rules for non-resident talent, reduce the stamp duty on them to buy property and set up dedicated teams and funds to attract people and businesses.
“There is keen competition globally for talent and being proactive and ensuring that we are at least as competitive, if not more so, on talent policy is imperative,” said Sally Wong, chief executive officer of the Hong Kong Investment Funds Association (HKIFA).
“The basket of measures announced today demonstrates the government appreciates the urgency and the need to reach out as soon as possible - (it's) moving in the right direction,” she told AsianInvestor.
HOUSING RUN
Currently, non-permanent residents in Hong Kong need to pay 30% in stamp duty on first home purchases compared with 4.25% for permanent residents.
In Singapore, the stamp duty for non-locals is 33%. In other jurisdictions such as the UK and Australia, the tax is between 3% to 15%.
Hong Kong has been among the top spots as the world’s least affordable housing market, despite recent sagging house prices caused by a gloomy economic outlook.
To trawl talent, the government said it will refund the extra stamp duty paid by non-permanent residents for home purchasing upon getting permanent residency after seven years.
Marcos Chan, head of research at CBRE Hong Kong, said the planned tax refund would be an effective policy in attracting high-calibre mainland Chinese and overseas expats to remain long-term in Hong Kong. He said it would also strengthen the city's talent pool.
“High initial investment, however, will remain a hurdle for non-local talent with less financial capital,” Chan said in a note.
"Not too sure if that's attractive enough, and what if I don't want or can't afford to buy a property? Then what's in it for me?" said a senior director at an asset management firm in Hong Kong.
Agreeing with them, PwC China tax and business advisory partner Rebecca Wong, said the stamp duty measures would probably only be a short-term measure and that the actual number of beneficiaries is not large.
"The government should also develop other effective and long-term supporting policies to allow people coming to Hong Kong to put down roots," she told AsianInvestor.
A WELCOMING CITY
The government is also relaxing visa rules, including a Top Talent Pass Scheme for two years to woo individuals whose annual salary reaches HK$2.5 million ($318,473) or those who graduate from the world’s top 100 universities.
While historically it has not been a big issue for people to get a working visa in Hong Kong, Pauline Wong, head of Hong Kong SAR at State Street, believed any measure that streamlines the process to bring in talent would be beneficial to increase Hong Kong's attractiveness and competitiveness.
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She stressed that attracting talent is not just about financial incentives, but also about how Hong Kong presents itself to the world and how people see the lifestyle in the city.
Hence she welcomed the government's effort to set up dedicated teams and a HK$30 billion ($3.8 billion) co-investment fund to attract enterprises and talent to pursue development in Hong Kong.
“Talents is a diversity of different people, and people tend to be attracted by different things. So, I think the most important thing is to create an environment where they know they can move freely,” she told AsianInvestor.
THE BORDER, THE BORDER
The one much-awaited, but crucially missing part, of Lee’s policy address was the timeline for reopening with mainland China as well as further relaxation of rules for overseas arrivals.
Hong Kong’s Hang Seng Index dropped 2.4% on Wednesday.
Currently, it takes at least seven days of hotel quarantine plus three days of home quarantine for anyone, including those from Hong Kong, to enter any mainland Chinese cities.
Upon taking office, Chief Executive John Lee said one of his priorities was to work with mainland authorities and strive for the border reopening. But as the mainland side showed no signs of further relaxation under its zero-Covid strategy, Lee later switched direction to open up Hong Kong for overseas arrivals first.
ALSO READ: Hong Kong quarantine: asset managers buoyed as city finally opens up
“If people see business and career opportunities, they will naturally want to go there. Hong Kong’s unique position as a connector between the mainland and the rest of the world can’t be replicated,” said HKIFA’s Wong.
“What’s probably more important is to address something basic, yet fundamental - extricate Hong Kong from Covid. If we are still stuck with 0+3 [for overseas arrivals], we still put ourselves at a competitive disadvantage in relation to talent,” she said.
“I think [the talent measures] may help, but probably it may not be sufficient by itself to reverse the trend,” said one Hong Kong chief investment officer at a life insurance company.
The biggest catalyst would need to be both relaxed Covid restrictions and border reopening with mainland China, he told AsianInvestor.
Other highlights from the 2022 Policy Address:
- Set aside HK$30 billion ($3.8 billion) from the government’s reserve fund, Future Fund, to establish the Co-Investment Fund to attract and invest in enterprises to set up operations in Hong Kong;
- Set up a new Hong Kong Investment Corporation Limited (HKIC) to further optimise the use of fiscal reserves to invest in strategic industries and support more enterprises to develop their business in Hong Kong. The HKIC will consolidate the Hong Kong Growth Portfolio, the GBA Investment Fund and the Strategic Tech Fund established under the Future Fund in recent years, as well as the new Co-Investment Fund;
- The Hong Kong Exchanges and Clearing Limited (HKEX) will revise the Main Board Listing Rules next year to facilitate fundraising of advanced technology enterprises that have yet to meet the profit and trading record requirements.
- Allow companies to hire non-local talent for vacancies falling under professions with a shortage of local supply, such as asset management, ESG, actuary, fintech, or for vacancies with an annual salary of HK$2 million or above, without the need to prove local hiring difficulties;
- Establish the Talent Service Unit, led by the Chief Secretary for Administration, for formulating strategies to recruit talent from the Mainland and overseas and co-ordinariate with the Immigration Department, providing one-stop support; launch electronic services for all visa applications within 2022.
- Set up Dedicated Teams for Attracting Businesses and Talent in the Mainland Offices and overseas Economic and Trade Offices of the Government to proactively reach out to target enterprises and talents and encourage them to pursue development in Hong Kong.
Additional reporting by Natalie Koh.
This article has been updated to add two paragraphs about Covid policies to enter mainland China.