Hong Kong seems to have lost out amid the boom in internet finance in other parts of the world.
As a global financial centre, Hong Kong connects the mainland with the global market. There are three ways for the city to tap into the big tide of internet finance.
First, it should lure mainland internet finance companies to list in the city.
Last year, Hong Kong took second place, behind New York, for funds raised in initial public offerings.
Mainland firms accounted for 86 percent of the funds raised in Hong Kong and did nine of its top 10 IPO deals last year.
Hong Kong remains an attractive listing destination for mainland firms, because of its geographical proximity, ability to communicate in the same language, numerous Chinese and foreign financial institutions and transparent and highly efficient listing system.
Nevertheless, the city’s advantages have been increasingly challenged by its mainland rivals.
Market rumors say the mainland may adopt an IPO registration system within this year that would substantially reduce the lengthy delays in obtaining government approval for a listing.
Also, the A share market has posted whopping gains in recent months, and the daily turnover on mainland exchanges is about 10 times that of Hong Kong.
That has also encouraged some firms interested in a Hong Kong listing to remain on the sidelines.
Second, Hong Kong firms, local financial institutions in particular, should be encouraged to enter the internet finance sector.
Haitong International (00665.HK) recently launched Hong Kong’s first internet financing platform.
It matches individual borrowers with licensed finance companies while building up a proprietary database of the borrowers’ credit information.
Before that, WeLend, an online lending start-up, attracted Hong Kong tycoon Li Ka-shing as an investor.
The city has numerous financial institutions, listed companies and small and medium-sized brokerages. These firms usually have a long history, good reputation and abundant offline resources.
Company leaders need to figure out how to leverage these advantages and make innovations.
For example, Hong Kong’s property firms could learn from the online lending platforms on the mainland, which encourage homebuyers to invest their installments in the peer-to-peer lending program for their property project.
That could help homebuyers to make a satisfactory return on their investment and property firms to lock up potential demand and obtain massive financing.
And there is a vast potential market to be tapped if popular insurance products are put online.
Third-party payments, bid data, supply chain financing and WeChat all offer great opportunities.
Third, the city needs to breed professionals who have expertise in internet finance.
Hong Kong is home to several world-class universities and international financial institutions, and it also has a mature regulatory system as well as a large talent pool of financial professionals.
By contrast, mainland internet finance companies are struggling with a talent shortage and quick turnover rate as salaries soar.
The sector badly needs senior management and top-tier product development and risk management experts.
Hong Kong should take advantage of its educational resources and cultivate more talent for the internet finance industry.
Also, the city should encourage the younger generation to start up their own businesses.
Jack Ma Yun, the founding chairman of Alibaba Group Holding Ltd., has spent HK$1 billion to create the Alibaba Hong Kong Young Entrepreneurs Foundation to help the city’s start-ups march into the mainland market.
Hong Kong has its geographical advantages and plays a unique role in globalization.
The city has top-tier financial institutions, the rule of law and good universities that have cultivated many high-caliber students, who just lack the drive or motivation to take a bold step, as Ma noted in a recent speech in Hong Kong.
This article appeared in the Hong Kong Economic Journal on Feb. 11.
Translation by Julie Zhu
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