Hong Kong must change fund rules to compete
HONG Kong needs to attract more real estate investment trusts (REITs) and allow new types of investment funds as it seeks to compete with other Asian financial centres, the city's Financial Services Development Council said.
Hong Kong should amend its rules on REITs, including giving them an exemption from profit tax on rental incomes, according to one of six reports published by the council. The city should also allow the establishment of open-ended investment companies, encouraging fund management firms to choose the city as their domicile, the reports said.
The recommendations bolster efforts by the former British colony to strengthen its role as an international financial centre, as rivals emerge around the region.
Singapore has an edge in areas including foreign exchange and commodities, while Shanghai is establishing a free-trade zone in its bid to become a global financial centre.
"Hong Kong's leading position as international financial centre is not entirely secure," council chairman Laura Cha said at the presentation of the reports. "Hong Kong is facing challenges arising from evolving global macroeconomic forces and emerging local threats."
The city's asset management industry, now dominated by unit trusts, needs to add variety by introducing alternative investment vehicles, according to the recommendations.
Of the 1,845 authorised funds in Hong Kong as of June 30, only 318 were locally domiciled. Open-ended investment companies differ from unit trusts by having a separate legal personality and not requiring a trustee, according to the reports.
The city also needs to grow its REIT market, as only 10 of the trusts started trading in Hong Kong in the past decade, lagging behind other regional centres.
The opening of China's economy was bringing both opportunities and competition for Hong Kong, with Singapore and Taiwan emerging to challenge the city's dominance in offshore trade in the yuan, the reports said.