在2002年8月的可持續發展世界首腦會議上，可持續公共採購（Sustainable Public Procurement）概念首度被提出。此後，這一概念逐漸成為可持續生產和消費領域的關注焦點，並被納入公共採購制度的嶄新政策方向和推動全球可持續發展的重要實踐範疇。聯合國環境規劃署和聯合國經濟與社會事務部更將之視為馬拉喀什全球氣候行動夥伴關係（Marrakech Partnership for Global Climate Action）的關鍵一環。
【註1】 Hong Kong Institute for Monetary and Financial Research. “Decentralised Finance: Current Landscape and Regulatory Developments”. HKIMR Applied Research Report No.1/2024.
【註2】 Aramonte, S., Huang, W., & Schrimpf, A. （2021）. “DeFi risks and the decentralisation illusion”. BIS Quarterly Review.
Perhaps unbeknownst to the locals, Hong Kong is already entering the Web 3.0 era. Not only has the SAR Government been actively promoting its development in recent years, but in May 2024, Cyberport also announced the establishment of the “Web 3.0 Investors Circle” under Cyberport Investors Network to facilitate related investment. These progressive initiatives hinge on web security and protection for online consumers and investors.
How will the advent of Web 3.0 impact the ways people live and invest? The virtual-asset market is the holy grail for financial cities around the globe. With its status as an international financial centre, Hong Kong is set to secure its place in the market. In addition to supporting the sector’s development, the SAR Government, for its part, should formulate a custom-made regulatory framework.
Beware of virtual-investment traps
Virtual assets are part and parcel of the Web 3.0 ecosystem. Recent years have seen an upward trend of virtual-asset scams. Data for December 2023 of the Anti-Deception Coordination Centre of the Hong Kong Police Force illustrates that the top three most common investment frauds are investment fraud, employment fraud, and telephone fraud, with investment fraud showing a soaring rate of increase (see Figure).
The recent occurrence of a series of serious fraud cases in the virtual-asset market has been cause for alarm for some investors. The massive financial fraud case involving JPEX in 2023 turned out to be a crash course in virtual-asset investment for Hongkongers. The Securities and Futures Commission thus regularly publishes a list of suspicious virtual-asset trading platforms and a list of service providers applying for a licence to operate a virtual-asset trading platform.
Advantages of new financial products
On a traditional financial market, investment activities rely on interpersonal interaction. In order to avoid imitation by competitors, companies have the right to refuse disclosing details of their business models, leading to asymmetric information. Owing to high-efficiency operations and complexity of the modern-day financial market, it is necessary to integrate contractual trust into investment relations, which is the trust in the other party to fulfil their contractual obligations. A contract enables investors to accurately evaluate risks and returns, assisting all parties in assessing risks, including potential profits and losses of trustees.
The rapid advancement of technology has also brought about earth-shattering changes to the financial sector. As an emerging financial technology, decentralized finance (DeFi) can provide financial services without relying on traditional financial intermediaries, offering more cost-effective and safer alternative solutions to the conventional financial system. DeFi retains various traditional financial services, including exchange, lending, insurance, and asset management, yet it is unbeholden to any central authority. In addition, the trust mechanism of DeFi is based on smart contracts, which are program codes used to formulate contracts. By minimizing costs and potential human errors, it helps to address inadequacies of the conventional financial system.
Overnight change from summer to winter
Thanks to high expected returns and flexible investment options, DeFi became the fastest growing sector of crypto assets from 2020 to 2021, referred to as the “DeFi Summer”. The market capitalization of DeFi products and services skyrocketed from US$4.5 billion in June 2020 to US$166.5 billion in November 2021, marking a historical high. Meanwhile, the total number of crypto-asset wallets leaped from about 200,000 to around 5 million (see 【Note 1】).
However, the bankruptcy of major crypto-asset service providers one after another revealed how easily retail investors could be lured by the promise of unrealistically substantial returns. The complete anonymity of cryptocurrencies makes them exploitable by criminals, progressively exposing the underbelly of the market. As a consequence, the negative shift in investor sentiment ushered in the “Crypto Winter”.
The price of crypto assets plummeted by 75% from the peak in late 2021 while Defi’s market capitalization fell to US$32 billion by the end of 2022 (see Figure). Nevertheless, DeFi so far represents but a relatively small portion within the crypto-asset ecosystem. With its market value standing at US$113.7 billion as of March 2024, DeFi merely accounted for 4.1% (US$2.73 trillion) of the total market capitalization of crypto assets.
Figure Market capitalization of crypto assets and DeFi
Source: Statista and Trading View; authors’ calculations
Inherent flaws and potential risks of DeFi
There is evidently a lack of comprehensive investor-protection measures for the DeFi market. While DeFi and the crypto-asset market have been undergoing rapid growth, regulatory measures have yet to be standardized across countries because of their cross-border nature. Characterized by its access to high leverage from lending and trading platforms (see 【Note 2】), DeFi enables investors to purchase more assets after making an initial investment. However, when it becomes necessary to decrease the debt, due to investment loss or collateral depreciation, investors would be forced to sell their assets, exerting further downward pressure on prices. That explains why investors suffered huge losses when the DeFi market crashed in 2022.
At the same time, the cross-border nature of blockchain has also given rise to compliance and legitimacy issues while there is a lack of cohesion in legislation and law enforcement in different jurisdictions. The worldwide nature of DeFi and the crypto-asset market means that DeFi entities, participants, and related activities often straddle national borders, with varying rigidity of regulatory standards among them. Operators and service providers failing to comply can thus seek to take advantage of loopholes and relocate to countries with minimal or zero regulation. This also makes it difficult for financial institutions to gather relevant information, posing a big hurdle to investor protection.
The absence of standardized definitions and classifications of crypto assets has created enormous challenges for the world’s financial regulators in analysing and verifying the authenticity of different crypto-assets products. Given the immutability of smart contracts, any errors or loopholes in the contract’s programming code could have dire consequences. Besides, legal recourse is elusive in the event of disputes derived from financial smart contracts.
Regulatory approaches and investor protection
With regard to DeFi and the entire virtual-asset market, financial authorities around the world are upholding the principle of “same activity, same risk, same regulation”. By affording the same treatment to business activities of the same nature and with the same risk, this practice ensures fair competition for all companies. Governance issues often arise with DeFi agreements which claim to be decentralized but are in fact centralized, resulting in false claims and moral hazards. All DeFi platforms have a central management framework which outlines how to formulate strategies and operational priorities. The centralized element, based on governance token holders (usually platform developers), can serve as the basis for recognizing DeFi platforms as legal entities similar to companies.
In addition, international organizations have made specific recommendations regarding the unique nature of the DeFi market to minimize financial stability risks. The Financial Stability Board and the Organization for Economic Cooperation and Development stress the importance of constant monitoring of Defi’s development and stringent prevention of its spillover risks. The International Organization of Securities Commissions requires key participants with significant control of or impact on DeFi arrangements to resolve conflict of interests, major risks, and disclosure-related problems. Since DeFi is still in its infancy, there have been few regulations targeting DeFi activities. A relevant example is the “DLT Foundations Regulations 2023” introduced by the Financial Services Registration Authority of the Abu Dhabi Global Market in 2023, consisting of provisions related to DeFi.
The Hong Kong SAR Government embraces the legitimacy of virtual assets and their role in the financial sector. Service providers are welcome to establish operations here, ensuring they have timely and necessary preventive measures in place. According to Mr Enoch Fung, CEO of the Hong Kong Academy of Finance, emerging technologies related to DeFi and the metaverse, which are inextricably linked to the growth of virtual assets and Web 3.0, are likely to bring opportunities to the financial services industry. To market participants, a clear regulatory framework, powerful financial infrastructure and networks, and people with blockchain-related skills are crucial to the future prospects of DeFi and the virtual-asset market in Hong Kong.
【Note 1】 Hong Kong Institute for Monetary and Financial Research. “Decentralised Finance: Current Landscape and Regulatory Developments”. HKIMR Applied Research Report No.1/2024.
【Note 2】 Aramonte, S., Huang, W., & Schrimpf, A. （2021）. “DeFi risks and the decentralisation illusion”. BIS Quarterly Review.
Dr. Maurice K.S. Tse Principal Lecturer in Finance
Ms. Vivian Cheung HKU SPACE College Senior Lecturer
Mr. Clive Ho HKU SPACE College Lecturer
(This article was also published on July 24, 2024 in the “Lung Fu Shan” column of the Hong Kong Economic Journal)
EF English First在去年年底公布2023年EF英語能力指標測試報告，在不包括英國、美國、加拿大、澳洲的113個國家和地區當中，香港名列29，在亞洲23個國家和地區中則排名第4，遠遜新加坡（全球排名第2，亞洲居首），也落後於菲律賓（全球排名第20，亞洲第2）和馬來西亞（全球排名第25，亞洲第3）【註1】。
揶揄新加坡人說英語「土氣」，筆者並非始作俑者，更無貶損之意。英國廣播公司在1986年推出頗為流行的電視系列，名為The Story of English，還曾獲得艾美獎。其中一集內容有關英語在亞洲的命運，稱新加坡英文為Singlish。據說，當時不少新加坡人頗為憤慨，引以為恥。建國總理李光耀在1999年的公開演說中，大力鼓勵國民學好標準英語，藉此加深新加坡人了解世界，也便於世界加深了解新加坡【註2】。
英國人對Singlish的揶揄，成為刺激新加坡人改善英文的動力。政府官員被要求上特別培訓班，學好標準英文，《海峽時報》請英文專家寫語言專欄，旨在推廣標準英語學習；舉國上下，掀起了學英語的熱潮。與此同時，英文在新加坡本土化，新加坡人對「土氣」英語也毫不在意了。有文化人還寫起「新」式英詩，以「car here, car there」之類的Singlish入詩，趣味盎然。
這讓筆者想起著名數學家、日本首位菲爾茲獎（Fields Medal）得主小平邦彥的傳記。小平因為解決數學上的一些難題，在二戰之後應邀到普林斯頓高等研究院（Institute for Advanced Study）訪學。此君無論怎樣努力也說不好英語，上課時只在黑板上寫公式、推證明，不給學生做口頭講解。沒料到這種獨特的無聲勝有聲的授課風格，竟然大受學生歡迎，因為英美教授講得太快，學生跟不上節奏。小平在其傳記中還提到一個笑話，說另外一位旅美日本科學家，朝永振一郎（1965年諾貝爾物理學獎得主）的英語變好，是因為把牙齒都拔光，換成一副美國製造的假牙。
Over the past few decades, thanks to its prime geographical location, open access to international trade and investment, robust banking sector, sound regulatory framework, and vibrant stock market, Hong Kong has facilitated the demand for local financial services from investors and foreign companies. The city has thus successfully evolved into an international financial centre.
Pressing need for financial adjustments amid geopolitical challenges
Under the influence of the Linked Exchange Rate System, Hong Kong’s money supply and interest rate movements mostly mirror the US Federal Reserve’s monetary policy decisions (see Figure 1).
Figure 1 Hong Kong monetary base and money supplies M1, M2, M3 (HK$ in trillions)
In other words, to maintain the stability of Hong Kong’s exchange rates, the SAR Government has relinquished its monetary policy autonomy. This in turn compromises its ability to address economic fluctuations and the potential risk of asset price inflation. In addition, the exchange rate of the Hong Kong dollar to other currencies will also fluctuate with the US dollar (see Figure 2), thus influencing the SAR’s import and export performance.
Figure 2 Trade-weighted exchange rate and HK-RMB exchange rate
At the turn of the 21st century, against the backdrop of globalization and its integration with the Mainland stock markets, Hong Kong continued to lure investors with the help of its status as the main gateway to China for foreign investments. This is evidenced by the rising trends of the SAR’s Hang Seng Index, stock trading volume, and market capitalization (see Figure 3).
Figure 3 Hang Seng Index
Furthermore, Hong Kong’s role as China’s window for international liquidity has also contributed to the growth in loans and advances. Hong Kong is well-equipped to provide intermediary services for Mainland enterprises seeking international financing as well as for foreign companies looking to invest in the Mainland. This has been conducive to the establishment of local lending platforms and expansion of cross-border financing activities. The sophisticated legal system and ideal regulatory environment have boosted the confidence of lenders, thus fostering an increase in loans and advances. These financial services have in turn supported the development of Hong Kong’s trade, real estate, and manufacturing industries.
Hong Kong boasts the status as an international financial centre, a strategic location as the bridge to Mainland China, and the constructive role of the Hong Kong Monetary Authority and the HKEX as a twin engine of the debt securities market. Hence, securities issuers and investors including multinational corporations and financial institutions have been flocking to the city in search of funding for business expansion, acquisitions, refinancing, etc. This has enabled Hong Kong to become a major debt issuance centre for the Southeast Asia region (see Figure 4).
Figure 4 New issuances of HKD debt securities (HK$ in billions)
It is noteworthy that recent years have seen China-US geopolitics pose a potential impact on Hong Kong’s standing as an international financial centre. The local financial market has undergone consolidation in recent years, as evidenced by the relatively steep fall of the total market value and total funds raised in the stock market. The extent of adjustment by the financial sector and the future development of Fintech and asset management will determine whether Hong Kong can reinforce and maintain its status as a leading international financial centre in Asia.
Social media-induced change in tourist spending patterns
With its historical development as a city where East meets West, its accessible transport infrastructure, and its reputation as a shopping paradise and international convention and exhibition centre, Hong Kong has been a preferred destination for leisure and business travellers from all over the world for decades, fuelling the growth of the local tourism industry. These factors are reflected in the long-term upward trend in inbound visitors, who are primarily from the Mainland (see Figures 5–6).
Figure 5 Monthly overnight visitor arrivals (in thousands)
Figure 6 Monthly same-day visitor arrivals (in thousands)
Since the 2010s, however, the emergence of social media has made it more convenient for visitors to obtain travel information about Hong Kong and to share their experiences. Fierce competition from neighbouring regions has also effected a gradual change to the travel and consumption patterns of inbound visitors.
From the mid-2010s onwards, per-capita spending of visitors to Hong Kong began to show an adverse trend mainly due to a continued decline in per-capita shopping expenditure (see Figures 7–8).
In the aftermath of the social incident in 2019 and the COVID-19 pandemic in 2020, which dealt a serious blow to the local tourism industry, Hong Kong has yet to see a return to the peak levels of visitor arrivals and per-capita spending recorded during the 2010s.
It is foreseeable that Hong Kong’s tourism industry is bound to face challenges, ranging from its image and positioning, the attractiveness of tourist facilities and services to global travellers, to industry policy and management structure, and the international political environment. For the industry to get back on track, a concerted effort between the government and the general public is indispensable.
Dr. Chi Pui Ho Lecturer in Economics
(This article was also published on July 18, 2024 in the “Lung Fu Shan” column of the Hong Kong Economic Journal)
In face of a mountain of data, how best to dissect the macroeconomic situation of Hong Kong? With the prevalence of data science today, different data and methods are adopted by individual researchers, together with different reference points for comparison, ultimately leading to a range of divergent conclusions. In order to get a full picture of economic development, it is essential to begin with economic time series, augmented with clear diagrams and tables. By applying relevant theories, we can chart the growth trends and forecast future prospects in various economic sectors. Due to the limited space of this column, I will concentrate on analyzing the historical performance and future challenges of the property market, utilizing graphs based on market data. In the next article, I will delve into the financial sector and tourism industry.
Long-term upward trend of housing prices
It is widely acknowledged that the local residential property market has undergone rapid growth in the past few decades. Despite periods of fluctuation, both housing demand and property prices have kept increasing in the long term. Figure 1 shows that from its low point in 2004 to its peak in 2021, the overall housing price level surged by six times. One of the driving forces behind the property price hike was economic growth. As an international financial centre and business hub, Hong Kong has attracted a large inflow of foreign enterprises and talent, creating a strong housing demand that has kept pushing property prices up.
Figure 1 Residential property price index
Another rationale behind the price rise is limited land supply. With a population exceeding 7.5 million and still on the increase, Hong Kong is plagued by not only space shortage for new housing developments but also a decline in the number of housing units completed (see Figure 2). Local housing prices have been soaring due to undersupply of housing units and intense competition among buyers. For decades, the homeownership rate has remained at around 50% (see Figure 3).
Figure 2 Total completions of residential flats
Figure 3 Share of domestic households by housing type (%)
During the 2010s, to stem the housing price hike driven by a red-hot market, the SAR Government introduced several rounds of so-called “spicy measures” and regulatory responses aimed at curbing housing demand. Subsequently, residential transactions shrank significantly (see Figure 4). However, all these “harsh measures” were scrapped in 2024.
Figure 4 Number of sale and purchase agreements of flats
Market fluctuations could result from such factors as interest rate movements, market sentiment, government policy, etc. In the long run, economic growth and land undersupply are bound to drive up housing prices in Hong Kong. Given that housing market development is still a major economic growth engine, the SAR Government must ensure that steep property prices do not put homeownership beyond the reach of the general public while also minimizing the risk of a long-term economic recession similar to the one triggered by the housing market crash in 1997.
Non-residential market under near-term pressure
As for the non-residential property market, Hong Kong being an international financial centre offers a string of advantages, ranging from a low tax-rate regime, a sound legal system, to a transparent regulatory framework. These have been a magnet for attracting Mainland corporations, multinational companies, and financial institutions to expand their businesses in the SAR, thus lifting the demand for office space.
In terms of retail premises, retailers from around the world are drawn to set up shop in Hong Kong by its strategic location as a gateway to the Mainland and Southeast Asian markets. Inbound visitors (especially those from the Mainland) are instrumental in stimulating demand for retail outlets, particularly in shopping hot spots such as Causeway Bay and Tsim Sha Tsui. In addition, the high income of Hongkongers is also conducive to the development of retail premises for high-end and luxury brands.
Owing to limited land supply and high property costs, private flatted factories that accommodate light industrial activities, including manufacturing and warehousing, provide affordable and convenient premises for small and medium enterprises (SMEs), creative and cultural industries, innovation and science enterprises, etc. All these factors contribute to the demand and long-term price rise in the non-residential market (see Figures 5–7).
Figure 5 Private offices price and rental indexes
Figure 6 Private retail price and rental indexes
Figure 7 Private flatted factories price and rental indexes
With the continued surge in non-residential property prices, companies (particularly SMEs) will find the property rent more unaffordable than ever. Moreover, deteriorating business environment due to geopolitics, changing consumption pattern among Mainland visitors, and intense competition from the Guangdong-Hong Kong-Macao Greater Bay Area have put pressure on non-residential property prices in recent years. Amid this backdrop, Hong Kong has experienced increased vacancy rates in both offices and retail outlets (see Figure 8).
Figure 8 Total vacancy rate of non-residential properties (%)
Dr. Chi Pui Ho Lecturer in Economics
(This article was also published on July 17, 2024 in the “Lung Fu Shan” column of the Hong Kong Economic Journal)
