Hong Kong possesses a wide range of competitive advantages that have long established the city as one of the world’s most attractive destinations for investing and doing business. It has played a pivotal role in Mainland China’s economic expansion of recent decades, and has offered ample business opportunities to local and foreign investors.
However, Hong Kong’s privileged position has not gone unchallenged. Amid ongoing uncertainties in the global economy, we have seen a rising tide of trade protectionism and growing competition from neighbouring markets. These factors are coupled with internal constraints that sap growth, such as high land prices and a shortage of technology talent. The recent protests and novel coronavirus outbreak have also taken a heavy toll on the local economy. The Financial Secretary reported in the 2020/21 Budget that there had been a fiscal deficit for 2019/20 – the first in fifteen years – and that deficits are forecast for the next five years. The 2019/20 deficit is estimated to be about 1.3% of GDP. The economy is contracting for the first time since 2009.
Given this background and the forecast fiscal deficits in the coming years, we believe it is time for the Government to take bold and swift action to drive economic growth and explore new sources of revenue. The Government needs to be visionary and map out a set of clear strategies to attract funds, businesses and talent to the city.
At PwC, our purpose is to build trust in society and solve important problems. This is the very reason why we issued this paper. The paper is intended to arouse public interest, provoke discussion and encourage exploration of different options and most importantly, to revitalise Hong Kong’s economy.
“With the challenges ahead, we believe it is time for the Government to take bold, swift action to drive economic growth and explore new sources of revenue. The Government needs to stay visionary and map out a set of clear strategies to attract funds, businesses and talent to the city.”
Our key recommendations
Attract funds and businesses to Hong Kong and capitalise on Greater Bay Area (GBA) opportunities
- Strengthen Hong Kong’s role in RMB internationalisation and as an offshore RMB centre. Further facilitate trading on the Hong Kong stock exchange in RMB and promote more IPOs in RMB.
- Develop competitive business and tax incentives to attract multinational companies (MNCs) to set up regional headquarters (RHQs) in Hong Kong.
- Extend the super deduction for R&D expenditure to R&D activities conducted outside Hong Kong but within the GBA.
Redefine the Government’s role in driving economic development and revenue growth
- Go beyond the current ‘facilitator and promoter’ role and act as a ‘driver’ in fostering industries with high growth potential.
- Adopt a holistic rather than piecemeal approach to formulating and implementing policies. Ensure effective policy execution across different bureaus and departments.
Nurture, attract and retain talent
- Attract more high-tech enterprises, venture capital funds and overseas talent to Hong Kong to build a vibrant local innovation and technology ecosystem.
- Use financial incentives to attract overseas talent to work and stay in Hong Kong. Establish an employment matching programme for local STEM graduates with employers in Hong Kong and the GBA.
Make Hong Kong’s tax system more competitive
- Conduct a comprehensive review of the tax system. Ensure tax incentives are business-friendly, commercially viable and actively promoted. Conduct regular reviews to enhance their effectiveness.
“The Government needs to move beyond its established role as a facilitator and promoter of economic growth and evolve into an active driver of business opportunities. Government departments should adopt a more commercially-oriented mind-set in policy execution. Above all, efficient and effective execution is key.”
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