Bullish investors are pushing up stocks in mainland China and Hong Kong.
Financial technology (also known as fintech, the use of software to provide financial services) and the internet are two of the most popular sectors in the current rally.
But although Hong Kong is a global financial hub, the development of fintech in the city lags the world.
The Hong Kong Economic Journal’s StartUpBeat jointly organized the Internet Finance Technology Summit on Wednesday last week with the Office of the Government Chief Information Officer to discuss the problem.
Total worldwide investment in fintech reached US$3 billion in 2013, triple the amount in 2008, Victor Lam Wai-kiu, the deputy government chief information officer, said.
Globally, fintech has become popular with the growth of e-commerce.
Let’s take peer-to-peer (P2P) lending for example.
This new form of borrowing and lending funds is booming in the mainland.
Using internet-based P2P platforms, savers in China can earn better returns for their spare cash and borrowers who have limited access to bank loans can obtain funds.
However, these channels are limited in Hong Kong.
One of the main reasons why P2P lending has developed rapidly in the mainland is that Beijing is allowing different business models to emerge, Simon Loong Pui-chi, founder and chief executive of WeLend, a Hong Kong-based peer-to-peer lending site, said.
The total amount of P2P lending transactions in the mainland reached US$41 billion last year, hugely surpassing the US$7 billion in the United States, Loong said.
Rather than imposing tight restrictions from the beginning, the mainland government tends to regulate an industry after the market has grown to a critical size.
Hong Kong, meanwhile, is much more risk-averse.
Problems and frauds certainly exist in the sector.
Many P2P lending platforms closed down suddenly because the owners absconded with the company funds.
But the rapid growth indicates strong underlying demand for this type of financial intermediary.
Rather than dismissing the P2P industry, the government and the private sector should instead learn from examples elsewhere and develop a proper system to accommodate P2P lending.
Charles Mok Nai-kwong, an internet entrepreneur who serves as a member of the Legislative Council, said there are two main obstacles to the development and expansion of fintech in Hong Kong.
To begin with, he said, the financial regulators have become too conservative after the Lehman Brothers minibond crisis.
The financial industry, especially the fintech segment, can make no progress because of the regulators’ aversion to risk.
Moreover, traditional financial institutions may feel threatened by fintech, which aims to be a game changer for the finance industry.
One example of Hong Kong’s risk aversion toward new technology is how the city perceives bitcoin — a decentralized virtual currency with limited supply.
Coinnect is a bitcoin exchange kiosk distributor in Hong Kong. The group’s chief executive, Jase Leung Wing-hei, admitted that the virtual currency does not have a good image in the city — especially after the sudden closure of MyCoin, a bitcoin trading company that may have left as many as 3,000 local investors with combined losses of HK$3 billion, in February.
But that doesn’t necessarily mean bitcoin is a bad thing, or is just a tool for speculation, he said.
Bitcoin has a history of a little more than six years. People are using bitcoin for daily transactions in western countries such as United States and Britain, Leung said.
For example, bitcoin has been legally approved and accepted by the state of California for transactions, and the British government is planning to turn London into one of the bitcoin trading hubs, he said.
Even the authorities in Singapore have added the virtual currency to the agenda of the government’s financial meetings, Leung said.
The Hong Kong government should spearhead the education of the public about the new financial sector.
This is essential for the city to increase its competitiveness.
As in most cases, fear is based on ignorance.
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