Issue 3 Volume 20 July 2024 DRIVING BUSINESS SUCCESS INVESTMENT ROLES The various ways accountants use their expertise and skills to unlock corporate investment MIDDLE EAST Growth opportunities driven by stronger China-Middle East ties SECOND OPINIONS How can family offices overcome due diligence challenges? PLUS: THE PULL FACTOR Christopher Hui, Secretary for Financial Services and the Treasury, on Middle East investments, family offices, virtual assets, and why accountants are the musicians of business
Unlock your sustainability potential with our new initiatives! Sustainability Information Centre A revamped hub for easy access to the latest sustainability developments, thought leadership, and learning resources. 1-2-7 Sustainability Capacity Building Framework Enhance your sustainability knowledge with our new capacity-building framework, focusing on IFRS S1 and S2*. Sustainability Community Connect with like-minded professionals and stay informed on sustainability trends and regulations. Enjoy priority access to newsletters, articles, events, webinars, and exclusive training sessions. Explore these initiatives and elevate your sustainability journey with us! * Some courses are approved under HKMA’s Pilot Green and Sustainable Finance Capacity Building Support Scheme. Please visit here for more details.
PRESIDENT’S MESSAGE APLUS DEAR MEMBERS July 2024 1 Roy Leung, President “ These collaborations reinforce Hong Kong’s position as a worldwide frontrunner in the accounting field, creating a cooperative atmosphere that provides our members with advantages from exchanged expertise and possibilities.” As we enter the second half of 2024, I would like to share with you some of the highlights of the Institute’s efforts since the last issue, which demonstrate our commitment to enhancing the value and relevance of the accounting profession in Hong Kong and beyond. One of our strategic priorities is to strengthen our relationships with key stakeholders in the international and Mainland China accounting arena, and to promote the high standards and quality of Hong Kong CPAs. In June, I led a delegation of the Institute’s leadership to Beijing, where we met with representatives from the Ministry of Finance (MoF), the Chinese Institute of Certified Public Accountants (CICPA), the China Securities Regulatory Commission, and the IFRS Foundation’s Beijing Office. We also signed a Memorandum of Understanding with CICPA to enhance cooperation between the accounting sectors of the Mainland and Hong Kong in the area of continuing professional development, aiming to nurture top-tier accounting talents for an innovation-driven economy. Back in Hong Kong, we welcomed delegations from various organizations, with the MoF paying us a visit, as well as the Chartered Accountants Australia and New Zealand, the Association of International Accountants, the Qianhai Authority, and representatives from Shandong’s finance, tax, and legal institutions. These collaborations reinforce Hong Kong’s position as a worldwide frontrunner in the accounting field, creating a cooperative atmosphere that provides our members with advantages from exchanged expertise and possibilities. Another strategic priority is to engage our members and provide them with the resources and support they need to excel in both their careers and personal development, to help them meet the evolving demands of the profession and to foster a strong, supportive community. In June, we launched the HKICPA Sustainability Community, a dedicated hub for individuals and organizations from diverse backgrounds, extending beyond CPAs, who specialize in and are passionate about sustainability. The primary objectives of the community are to facilitate connections between like-minded professionals, provide comprehensive insights into sustainability trends and regulations, foster inspiration and knowledge sharing, drive collective efforts in sustainability practices and climate action, and offer valuable networking opportunities with esteemed sustainability leaders. I encourage you to join the community and participate in its activities, which will help you to enhance your sustainability knowledge and skills, and to make a positive impact on the environment and society. We also organized several events to foster a sense of belonging and camaraderie among our members, such as the Movie Night, while our members took part in a number of sporting events, including great success in the Integrity Cup 2024. These events reflect the Institute’s commitment to engaging our members and providing them with platforms to network, socialize, and have fun. I would like to thank all the participants, volunteers, and sponsors for their support and enthusiasm. A third strategic priority is to promote financial education and engage the younger generation, who are the future of our profession and our society. The goal of our initiatives is to build a strong foundation for the next generation of CPAs, ensuring they possess the skills and knowledge to succeed. In July, we published a “Financial Education Teaching Manual” for senior primary school students, in collaboration with the Hong Kong Institute of Vocational Education Childcare, Elderly and Community Services, our strategic partner. The publication is part of our initiative to enhance our “Rich Kid, Poor Kid” programme, and aims to equip teachers to enhance the financial literacy and awareness of students, igniting interest in an accounting career. We hope that the manual will be widely adopted by schools and teachers, and that it will benefit students and their families. Moreover, we have organized numerous initiatives to captivate secondary school students earlier and to clearly articulate the excellent opportunities a career in accounting provides. A recap of our activities for the 2023/24 academic year was distributed in a communication this past July, detailing our engagement with nearly 10,000 secondary school students throughout this time. I would love to hear your ideas and suggestions on how we can better serve members.
CONTENTS Issue 03 Volume 20 July 2024 NEWS 01 President’s message 04 Institute news 07 Business news FEATURES 08 Bringing the world to Hong Kong: Interview with Christopher Hui The Secretary for Financial Services and the Treasury of Hong Kong on his view on virtual assets, and how accountants are the musicians of the business world 14 East meets east: Mutual benefits of growing Middle East-China ties The Mainland’s expanding trade ties with the Middle East is creating opportunities for Hong Kong’s financial experts 20 Experts in unlocking value From a due diligence analyst to an investor relations professional, Institute members share how their expertise serve specific functions in investment SHORT PROFILES 30 Q&A with a PAIB James Cheung, General Manager – Corporate Finance at Century City Group 31 Q&A with a PAIP Tiffany Wong, Managing Director at Alvarez & Marsal 38 Young member of the month Jerica Chan, Regional Finance Manager at Bausch and Lomb COLUMNS 27 Thought leadership: Melissa Fung The Consulting Business, Southern Region Managing Partner at Deloitte on how to build sustainable supply chains 28 Second opinions How can family offices overcome due diligence challenges? Interviews with Institute members who reflect the various ways CPAs add value to investment decisions for companies or clients 30 Q&A with a PAIB 31 Q&A with a PAIP 20 Experts in unlocking value
DRIVING BUSINESS SUCCESS About our name A Plus stands for Accounting Plus. It represents a profession that is rich in career options, stays relevant amid rapid changes, and adds value to business. This magazine strives to present the global mindset and varied expertise of Institute members – Accountants Plus. Editor Gerry Ho Email: gerry.ho@mandl.asia Managing Editor Jemelyn Yadao Contributor Gigi Wong Registered Office 2/F Wang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong Advertising enquiries Advertising Director Derek Tsang Email: derektsang@mandl.asia ISSN 1815-3380 President Roy Leung Vice Presidents Edward Au Stephen Law Chief Executive and Registrar Margaret W. S. Chan Director of Corporate Communications Rebecca Tam Publication Manager Michael Wong Editorial Coordinator Maggie Tam Office Address 37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Tel: (852) 2287-7228 Fax: (852) 2865-6603 Member and Student Services Counter 27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Website: www.hkicpa.org.hk Email: hkicpa@hkicpa.org.hk 40 Institute insights: China Taxation Conference 2024: Panel insights Panellists share insights and experiences relating to Mainland tax issues at the annual tax event SOURCE 32 HKFRS 18: a paradigm shift in financial performance presentation A n overview of new accounting standard HKFRS 18 Presentation and Disclosure in Financial Statements 35 Institute’s response to the proposed IESSA D etails on the Institute’s response to the IESBA’s Exposure Draft on Proposed IESSA 36 Technical news 38Young member of the month A Plus is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine. © Hong Kong Institute of Certified Public Accountants July 2024. The digital version is distributed to all 47,724 members, 11,528 students of the Institute and 2,183 business stakeholders every quarterly. 14East meets east: Mutual benefits of growing China-Middle East ties How Hong Kong and certain industries could gain from the developing financial co-operation between China and the Gulf region
An Institute delegation, led by President Roy Leung, Vice-Presidents Edward Au and Stephen Law, and Chief Executive & Registrar Margaret Chan, visited Beijing on 10-13 June, to meet with key stakeholders including the Ministry of Finance, the Chinese Institute of Certified Public Accountants (CICPA), the China Securities Regulatory Commission, and the IFRS Foundation’s Beijing Office. The visit aimed to foster deeper collaboration between the accounting professions in Hong Kong and the Mainland. A Memorandum of Understanding with the CICPA was signed to enhance cooperation between the accounting sector of the Mainland and Hong Kong in the area of continuing professional development, aiming to nurture top-tier accounting talents for an innovation-driven economy. Other focus areas include healthy development of capital markets and business growth, while also contributing to global sustainability efforts. Read the press release for more details. The HKICPA Sustainability Community launched The Institute has launched to the HKICPA Sustainability Community, a dedicated hub for individuals and organizations, including CPAs, who specialize in sustainability. As the sustainability reporting standard setter in Hong Kong, the Institute is an active contributor to the capacity building efforts to support stakeholders in areas related to sustainability. The community facilitates connections between likeminded professionals, provides comprehensive insights into sustainability trends and regulations, fosters inspiration and knowledge sharing, drives collective efforts in sustainability practices and climate action, and offers networking opportunities. In the first phase of its launch, community members will gain access to sustainability-related resources, specialized training and knowledge-sharing sessions, as well as newsletters, articles, face-to-face events, and webinars. The Institute also provides the 1-2-7 Sustainability Capacity Building Framework, a detailed learning framework that incorporate key principles of IFRS S1 and S2, and has also launched the new Sustainability Information Centre, a hub that provides access to sustainability-related resources, including guidelines, case studies, and industry updates to help members enhance their sustainability advisory capabilities. NEWS Institute news Business news 4 July 2024 HKICPA Council visits Beijing to foster deeper ties The Institute delegation, comprising the Institute’s leadership team and Council members, in Beijing meeting various Mainland government departments, including the Ministry of Finance.
APLUS Disciplinary finding Chan Ho Yin Graham and Chan Suk King Complaint: Failure or neglect by Mr. Chan to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 230 Audit Documentation; HKSA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements; HKSA 500 Audit Evidence; HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures; and HKSA 570 Going Concern. Failure or neglect by Ms. Chan to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. Graham H.Y. Chan & Co. was subjected to a full-scope practice review which was conducted between August 2019 and May 2020. In reviewing the working papers supporting the audit of the consolidated financial statements of Client A and its subsidiaries for the year ended 31 December 2018, in which Mr. Chan was the audit engagement partner and Ms. Chan was the engagement quality control reviewer, the practice review team identified audit deficiencies in a number of areas which indicated that Mr. Chan and Ms. Chan had failed to obtain sufficient appropriate audit evidence to support the auditor’s opinion expressed. Decisions and reasons: Mr. Chan and Ms. Chan admitted the complaints against them. The Disciplinary Committee reprimanded Mr. Chan and Ms. Chan and ordered Mr. Chan to pay a penalty of HK$150,000 and costs of the disciplinary proceedings in the sum of HK$78,555; and ordered Ms. Chan to pay a penalty of HK$50,000 and costs of the disciplinary proceedings in the sum of HK$45,233. Details of the disciplinary findings are available on the Institute’s website. BCG and ESG Awards 2024 open for entries The Institute’s Best Corporate Governance and ESG Awards (Awards) 2024 is now open for entries. The Awards reflect the importance of both good corporate governance (CG) and environmental, social and governance (ESG) reporting and practices for listed companies and public sector/not-forprofit organizations (PSOs), and their investors and stakeholders. Through the Awards, the Institute aims to encourage companies and PSOs to achieve high standards of CG and ESG, and to integrate good CG and ESG into their values, strategies and operations. Listed companies and PSOs that are seeking recognition from their peers and the wider market for their commitment to high-quality, sustainable practices and reporting should consider entering the Awards. Participation is free. Interested organizations are invited to participate in one of the most prestigious and sought-after awards competitions, by submitting an entry form by 9 August. The HKICPA Charitable Trust supports members and community The HKICPA Trust Fund, HKICPA Charitable Fund and HKIAAT Trust Fund have been consolidated into the “HKICPA Charitable Trust”, and operations commenced on 8 July. The Institute established the HKICPA Trust Fund and the HKICPA Charitable Fund in 2001 and 1998 respectively, with the aim of providing timely support to our members facing severe financial hardship and contribute to social services and emergency relief projects in the community. Since the inception of these funds, the Institute has made cumulative donations of nearly HK$7,000,000, benefiting over 70 non-governmental organizations and nearly 200 Institute members. The HKIAAT Trust Fund, established by HKIAAT in 1999, also provided financial assistance to its members before it ceased operation. The consolidated trust carries out the functions of the three previous funds, providing support to social services and emergency relief projects, and financial assistance, in particular, to members facing bereavement, old age, unemployment due to ill-health, or poverty caused by accidents. The trust also plays an important role in supporting education such as awarding scholarships to individuals studying the Qualification Programme offered by the Institute and taking examinations held by the Institute. Paving the way for future accountants The Institute hosted more events to engage secondary school students in June and July, including a career seminar with Hong Kong Association for Business Education on 5 July, and a career talk under the “Smart Way Forward” programme for around 30 secondary school BAFS students on 29 June. More details about the Institute’s initiatives to engage secondary school students in the past year are available on the Institute’s website. Council meeting minutes The abridged minutes from the April and May 2024 Council meetings are now available on the Institute’s website. July 2024 5
NEWS Business 99% The percentage of United Kingdom-based accountants who have used artificial intelligence (AI) to assist clients and improve business operations over the last 12 month, showing that accountants are embracing AI to boost efficiency, according the 2024 Intuit QuickBooks Accountant Technology Survey. Data entry and processing, real-time financial insights, and financial forecasting top the list of client services where AI is leveraged. Hong Kong’s economy grew 3.3 percent in the second quarter year-on-year, according to the Census and Statistics Department, led by strong goods exports. It compares with the 2.8 percent growth in the first quarter. Goods exports rose by 7.6 percent from a year earlier, compared with a 6.8 percent in the first quarter. The government said “the economy should continue to grow in the remainder of the year, but performance of different economic segments may vary amid uncertainties.” July 2024 7 55% The percentage of chief financial officers who cite long-term planning and resource allocation as a top priority for the finance function, according to a recent survey report by McKinsey, up from 30 percent in the 2023 survey. Similarly, 60 percent of CFOs now say strategic planning is a top priority, compared to 38 percent who said the same last year. The Accounting and Financial Reporting Council said on 10 July that it had not found evidence to support the allegations by whistleblowers against PwC Hong Kong made over the firm’s work for collapsed property developer Evergrande. The investigation into the quality of the audits is still ongoing. The limit on the number of board seats independent non-executive directors may hold, proposed by the Stock Exchange of Hong Kong Limited (Exchange) in a bid to improve board effectiveness. The Exchange issued on 14 June a consultation on its proposed enhancements to the Corporate Governance Code and related Listing Rules. Starting from January 2025, listing applicants would be barred from appointing a director who already sits on six boards if the proposal is implemented. 6 APLUS PwC – International Sustainability Standards Board (ISSB) Chair Emmanuel Faber. In June, the ISSB published its Feedback Statement as it embarks on a new two-year work plan. During the next two years, the ISSB will deliver further harmonization and consolidation of the disclosure landscape in response to market demand. “As we embark on our new two-year work plan that will see us strengthen and build out the global baseline of sustainability-related financial disclosures, I am grateful to our partners in the sustainability reporting landscape for their commitment to delivering an efficient, effective sustainability disclosure system for capital markets.” 7 The number of Financial Action Task Force (FATF) members that fell below the score of 50 percent in the FATF’s Horizontal Review of Gatekeepers’ Technical Compliance Related to Corruption, which assesses the actions that FATF members have taken to apply important aspects of the FATF Recommendations to lawyers, accountants, trust and company service providers, and real estate agents. Hong Kong was ranked among the highest for technical compliance. US$2.3 billion CBiz, the only publicly traded accounting firm in the United States, said it would pay US$2.3 billion to acquire U.S. firm Marcum. The combined group would reportedly become the seventh-largest U.S. accounting firm with annual revenues of US$2.8 billion. Marcum audits hundreds of U.S. public companies, including special purpose acquisition companies.
PROFILE Christopher Hui BRINGING THE WOR T 8 July 2024
APLUS From developing family office services, to enhancing access to emerging investment opportunities, Hong Kong is relentless in retaining its position as a global financial and investment centre. Christopher Hui, Secretary for Financial Services and the Treasury, talks to Jemelyn Yadao about initiatives being explored, and the accounting profession’s role in bolstering Hong Kong’s appeal On 16 July, a memorandum of understanding (MOU) was signed between Invest Hong Kong (InvestHK) and the Abu Dhabi Chamber of Commerce and Industry of the United Arab Emirates, pledging cooperation in promoting inward and outward investments in both Abu Dhabi and Hong Kong. It is one of many MOUs signed, exemplifying stronger-than-ever relations and two-way capital flows between Hong Kong and the Middle East. Keen on further deepening those ties is the Financial Services and the Treasury Bureau (FSTB), which views Hong Kong as offering the Middle East plenty of opportunities to tap its developed financial and professional services sectors, as the Gulf Cooperation Council (GCC) economies seek to reduce its reliance on oil. It also views these investments as an important opportunity for Hong Kong. “We want to diversify in terms of either the source of our funding and the source of our collaborative opportunities. And, at the same time, to broaden the market for our services sector. Because after all, the clientele that we are supposed to serve sees no borders,” says Christopher Hui, Secretary for Financial Services and the Treasury. Opportunities also lie in complementing the Gulf RLD Interview with Christopher Hui, Secretary for Financial Services and the Treasury TO HONG KONG July 2024 9
PROFILE Christopher Hui Christopher Hui has been Secretary for Financial Services and the Treasury since 2020. He previously held a number of public roles including member of the Hong Kong Institute of CPAs’ Disciplinary Panel. 10 July 2024
APLUS region’s ambitious development plans and focus on innovation technology. Hui brings up Saudi Arabia’s linear city, The Line, as an example, a glass-walled smart city under construction that is meant to stretch across the Saudi desert by 2030. “Hong Kong boasts very robust fintech and also fintech ecosystem, and we are famous for being an efficient infrastructure builder. This brings a host of opportunities for our professional sector because we are very wellversed in terms of undertaking these huge infrastructure projects, and many of them attain global sustainability standards, which is exactly what the Middle Eastern countries want,” says Hui. He says Hong Kong can also address talent needs. “Traditionally, the economy has been relying on the oil sector. So, if they want to diversify, they need people who understand their market, and at the same time can bring something new to the market. We are quick learners and are well-versed with international global standards.” Looking at the strategic goals of these countries, such as Saudi Arabia’s Vision 2030 agenda, Hui points out that the countries are building long-term plans that aim to grow their economies, and enhance society in line with global trends around green sustainability, technology and an aging population. “They focus their planning around these challenges so that they can be well prepared infrastructure-wise or societal-wise,” says Hui. “Hong Kong has long been facing the issue of a large aging population, so there’s so much that we can offer in terms of experience on how to develop their health sector or biotech sector, to better serve an aging population.” According to Hui, Hong Kong has so far signed Comprehensive Double Taxation Agreements with five of the six GCC countries, bringing business sectors in both economies greater tax certainty and more incentives to conduct business or make investments. The pitch for family offices Showcasing the appeal of Hong Kong to global family offices, and encouraging more of them to set up here, is also important to Hui. Around 2,700 single family offices were operating in city, as of the end of 2023, according to a market study published by Deloitte in collaboration with FamilyOfficeHK, the dedicated family offices team under InvestHK. Over half of these family offices have assets under management exceeding US$50 million. “I think it’s very telling of what we already have. But, we need to do more. That’s why InvestHK, through the global network, has been engaging different sectors regionally and globally,” says Hui. One of the things Hong Kong can help wealthy families do is diversify their assets. “Of course, diversification has been an eternal theme [for family offices] but I think the need for diversification is more acute now because we are facing a very uncertain, insecure world,” he says. “We have a worldclass financial infrastructure, be it hard infrastructure on banking, on payment settlement, etc., but also on the soft infrastructure, financial regulation, accounting standards, so on. I think this whole area of professional services provides a very solid foundation for wealth to be accumulated here. They are here not just for the short-term growth or returns, but also for generational transfer of wealth.” The inspiration behind naming the FSTB’s annual summit of family offices “Wealth for Good in Hong Kong,” came from recognizing the diverse needs of wealthy families, explains Hui. “It’s not just about money for them. It’s also about the passage of their values to the next generation, and also the appreciation of artwork, charities, and making sure it’s not just returns for themselves, but also social returns to the broader community.” This, he adds, plays into Hong Kong’s attraction as a global family offices hub, given the city’s diverse society, long-standing giving culture, and more than 10,000 registered charities. Last year, the government outlined eight initiatives in its Policy Statement on Developing Family Office Businesses in Hong Kong. Hui describes the statement as being a “combo” of measures, reflecting the diverse needs of family offices. Most of them have already been implemented, says Hui, including a tax concession provided to familyowned investment holding vehicles managed by single family offices in Hong Kong, and the enhanced application process for recognition of tax exemption status of charities. “It seems that right now, I receive less enquiries about that process because people have been given more certainty and more transparency on how this whole approval process is being conducted,” says Hui. The Network of Family Office Service Providers has also been launched under InvestHK, providing a two-way channel between the government and the industry. All of the measures, he adds, come together to reinforce the robustness of Hong Kong’s family office ecosystem, and to send out a key message. “They make sure that not just Hong Kong, but the whole region, even the world, will know what we can serve them as a family offices hub.” Risk-based approach A question that Hui gets asked often is about the government’s policy positioning amid a rapidly growing and volatile virtual asset industry. “People always challenge us whether there is a U-turn. But in fact, we haven’t had any U-turn at all. We have been taking on a tentative path in terms of growing this segment sustainably. “After all, it is an evolving sector, so we need to be ensuring that whatever the risk that we’re going to generate from these sectors can be managed well through our financial regulation. That’s why the principle that we adopt has been very consistent throughout, which is ‘same risk, same regulation’.” “ This whole area of professional services provides a very solid foundation for wealth to be accumulated here.” July 2024 11
PROFILE Christopher Hui Hong Kong’s approach, says Hui, reflects an international consensus. “The emerging global consensus is that these sectors need to be regulated. And also to ensure that they are regulated in a way that investor protection will be taken into account.” While the licensing regime for virtual asset trading platforms has been implemented since last June, the government continues to gradually build a regulatory framework that covers key segments. It is currently working on licensing requirements for virtual asset operations, including over-thecounter trading services and the issuance of stablecoins. That “same risk, same regulation” principle will continue to permeate throughout. “Virtual assets exhibit themselves in different forms – in the form of a virtual asset for trading, or virtual asset ETFs, or virtual asset futures ETFs. That’s why as we try to grow this, we really look at what are the specific risks that we need to consider, and also try to regulate well to ensure that the whole sector can grow sustainably,” says Hui. “With stablecoins, we have to look at it from the payment angle to ensure that the virtual or the stablecoins being created will be underpinned by sufficient reserves, to ensure that they are well-backed by fiat currencies. This is just one of the many measures that we have in place to ensure that whatever new products that we offer to the market in the virtual asset space, there will be commensurate risk management and regulatory measures in place.” Musicians of the business world With the view of bringing more investment opportunities to Hong Kong, the FSTB has been looking at establishing an inward re-domiciliation regime that draws in foreign companies. In July, it published the public consultation conclusion and latest legislative proposals for the company re-domiciliation regime, incorporating the views collected. Underpinning the need for such a regime is a global trend of offshore companies facing increasing regulatory pressure to ensure that they have economic substance, Hui explains. “With the need for economic substance to be demonstrated, and with the future introduction of the global minimum tax rate, many of the companies which originally opted for re-domiciliation in these offshore jurisdictions may no longer see the benefits of doing so,” he says. To Hui, the ultimate pull factor for non-Hong Kong enterprises to transfer their domicile to the city, is Hong Kong being a robust financial and commercial centre. “Now, more than 9,000 companies with international headquarters have a presence in Hong Kong. We have very low taxation. We have very competent professionals including accountants. We have everything it takes for companies to grow and to develop their business here,” he says. Another key advantage that the regime can bring for companies is certainty on their profits tax obligations after re-domiciliation. “If they want to do their business here in Hong Kong, step into Mainland China, while domiciling their companies here, this regime will afford them much convenience, as they just have to deal with Hong Kong alone, in terms of taxation and their businesses. That’s why I feel this makes a lot of sense.” One of the respondents of the consultation was the Hong Kong Institute of CPAs. Hui considers the Institute as a key source of constructive advice when forming policies to generate opportunities for the overall economy. “Accountants are like musicians who understand the notes on the scores. So in a sense, it is something needed in different industries and companies. No matter what musical instruments you play, you need the scores,” says Hui. “But not very often people know how to read the notes and interpret them in a way that will allow them to make proper investment or business decisions. So I see accountants as a very important conduit here, who are able to understand these complexities, and explain them to the business world.” Because of this, the accounting profession’s growth and continuous relevance in the business world is immensely important to Hui. “Looking at the Accounting and Financial Reporting Council, we have entrusted them by law to develop the profession, to make sure this is one of the very missions that they have,” he says. “At the same time, with the reform already in place to our accounting regulatory system, we’re also very much looking to the HKICPA for more efforts in terms of enriching the talent and expertise of the sector. And, more broadly, to accountants to better leverage their expertise and experience to help us to grow Hong Kong together.” Growth of green fintech In the financial services space, sustainable and green finance is growing in significance. And with that, Hui says that the financial services agenda is changing. “As that evolves, our fintech solutions and fintech agenda also need to evolve to serve the needs of financial services sector. And in recent years, you can see that sustainability or green finance has taken increasingly strong foothold in the financial services agenda.” It’s believed that the integration “ Accountants are like musicians who understand the notes on the scores. So in a sense, it is something needed in different industries and companies.” On 7 February, the Hong Kong government announced the offering of around HK$6 billion worth of digital green bonds, attracting subscription by a wide range of institutional investors globally. This marked the second digital bond issuance following the government’s inaugural tokenized green bond issued in February 2023. 12 July 2024
APLUS of green finance and fintech, or green fintech, has a significant part to play in supporting transition finance, which allows for the shift toward decarbonization. “Infrastructure or the traditional businesses also need to embrace green. And as these types of activities become more prevalent, people will ask about how they can ensure that the money going into these sectors, or these new projects, are really green,” Hui explains. This all reflects the importance of assurance certification, he adds, and therefore the role of the accounting profession. “That’s why the government sees HKICPA as a very key stakeholder here. We already have HKICPA on many of our government committees to make sure the roadmap that we are going to develop on green disclosures will be something that accountants can provide assurance on,” he says. Staying relevant Hong Kong takes the lead in green finance and innovation, highlights Hui, mentioning the government’s second green bond issuance earlier this year. “Leveraging our role as an international financial centre, we’ve issued green bonds in multiple currencies: Hong Kong dollar, US dollar, euro, and renminbi,” he adds. However, Hui has his sight set on the future, and wants to see Hong Kong continue to be relevant in the global green ecosystem. It is why he values the professional input of the Institute, and believes that another key role the profession can play is as an ambassador for Hong Kong’s green agenda. “So that regionally and globally people will be aware of what’s being offered in Hong Kong, and that what we are doing is up to international standards,” he says. “After all, for a small economy like us to thrive we need to command trust regionally and globally. And trust basically is derived from the robustness of our regulation and professional standards. And here, accountants, or specifically the HKICPA, play a key role.” Hui has often seen the strengths of the profession play out when it comes to facilitating foreign investment and bringing in family offices to Hong Kong. “Many of these companies, the financial intermediaries, or even general investors, come to accountants first in terms of seeking advice about some of the fundamentals of investments,” says Hui. “A lot of these business activities do carry with them risk, and a lot of the decisions accountants make are underpinned by a very articulate risk and benefit analysis. So that’s why I think growing the profession, having the next generation of accountants is very important.” To young people weighing up future career options, Hui shares why he thinks accounting could be a meaningful choice. “Increasingly, with this uncertain world, people will look for an anchor, in terms of business standards and also professionalism. Accountants have always been an upholder of very high standards,” says Hui. “What you are doing here as accountants is not just something confined to your room, but carries a much broader meaning for Hong Kong’s continued relevance on the global stage.” The theme of the upcoming Hong Kong FinTech Week 2024, organized by the FSTB and InvestHK, will focus on charting pathways, says Hui. July 2024 13
MIDDLE EAST Gulf opportunities EAST BENE CHIN 14 July 2024
APLUS The 24th edition of the Institute’s prestigious business awards highlighted that corporate governance standards seemed to have plateaued, and clear improvements in the ESG reporting of Mainland enterprises. Winners share the factors of their success with Jolene Otremba. China’s Belt and Road Initiative and expanding trade ties with the Middle East have spurred investments in sectors like renewable energy, infrastructure and technology. This has led Gulf nations’ sovereign wealth funds (SWFs) to substantially increase their investments in China, creating opportunities for Hong Kong to leverage its strengths as a superconnector between these key markets. SWFs in the Middle East have two major objectives when investing in China: tapping into China’s vast market potential for financial returns and gaining access to cutting-edge technologies that can accelerate the growth of their domestic non-oil sectors, says Ben Simpfendorfer, Partner at consultancy Oliver Wyman, who has experience in both the Middle East and China. Industries like clean energy, artificial intelligence (AI) and robotics in China are high on the list, as are more traditional plays, such as selective real estate. While there is much untapped potential for Chinese investors in markets in the Middle East, and vice versa, Simpfendorfer notes some key distinctions in the strategies and approaches between the two pools of investors. “Middle Eastern investors often look for technologies that can be put to work in the Middle East itself. Many of the region’s wealthiest families have made their money by licensing or distributing foreign products domestically,” explains Simpfendorfer. “That’s different from Chinese investors who tend to focus more on building businesses within the Middle East market through their investments.” Gulf investments surge In 2023, state-owned enterprises and SWFs from the six Gulf Cooperation Council (GCC) countries, including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE), collectively poured over US$2.3 billion into the Chinese market, a staggering 23-fold rise from the previous year, according to data from Global SWF, a data platform that tracks SWFs and public pension funds. When assessing investment opportunities in China, SWFs thoroughly research Chinese laws around foreign investment, taxation policies and industry regulations to minimize risks, according to Dustin Ball, Partner and AsiaPacific Financial Services Strategy Leader at EY-Parthenon. This diligence is essential to T MEETS EAST: MUTUAL EFITS OF GROWING NA-MIDDLE EAST TIES Family offices and sovereign wealth funds are flocking to Hong Kong to tap surging opportunities along the ChinaMiddle East corridor. Gigi Wong looks at the growth potential for certain sectors as the relationship between China and the Middle East continues to strengthen July 2024 15
MIDDLE EAST Gulf opportunities avoid obstacles that could jeopardize an investment’s success, he says. Government support is highly appealing, Ball notes. SWFs typically seek deals that can benefit from backing from Chinese authorities, such as those aligned with national development goals or strategic priorities in sectors like fintech, healthcare and biotech, which Ball notes are seeing rising interest. In April, global investment firm Investcorp announced the launch of a US$1 billion platform with China Investment Corporation (CIC), a SWF that manages part of China’s foreign exchange reserves, to invest in high-growth companies across the GCC region and China. Targeting sectors like consumer, healthcare, logistics and business services, the platform has already made three investments in the countries of the GCC through Investcorp’s Saudi Pre-IPO Growth Fund. “SWFs often target opportunities with sizable addressable markets. This [government] endorsement provides stability and improves the chances of earning profitable returns,” says Ball. “Partnering with strong local firms through joint ventures can help navigate China’s intricate business environment by more easily dealing with regulatory, political and cultural dynamics,” he adds. Hong Kong’s expertise “China is a big and often confusing place for foreign investors,” says Simpfendorfer, suggesting that domestic players have a natural advantage compared to international peers. “Seek out good local private equity partners or major companies,” he advises Middle Eastern investors. “Local partners understand the nuances of the market, can navigate government relations and tap existing business networks – all are critical for success.” Hong Kong-based accountants play an important role in facilitating this kind of understanding, says Simpfendorfer, as they can help Middle East investors identify opportunities, conduct due diligence on partners and navigate local regulations. “There’s a huge amount of work needed to help Middle East investors move up the learning curve. That’s to Hong Kong’s gain,” he adds. As both a special administrative region of China and a gateway to the Greater Bay Area (GBA), Hong Kong serves as an attractive springboard for entering Mainland Chinese markets, thanks to its status as China’s most international city, a robust legal system and sophisticated financial infrastructure, said the Hong Kong Trade Development The Dubai skyline. On 16 July, Invest Hong Kong announced that it had signed a memorandum of understanding with the Abu Dhabi Chamber of Commerce and Industry of the United Arab Emirates, pledging mutual cooperation on investment promotion exchanges and support. 16 July 2024
APLUS Council (HKTDC) in a written statement. Hong Kong pegs its currency to the US dollar, reducing exchange rate risk for major trading partners in the Gulf. The city also has a wellestablished, trusted reputation for commercial mediation and dispute resolution, which are essential functions for smooth international trade, according to InvestHK’s Associate Director-General of Investment Promotion Charles Ng. The recent establishment of the International Organization for Mediation in Hong Kong, combined with unique enforcement recognition between Hong Kong and Mainland Chinese courts, gives Middle Eastern companies greater certainty when pursuing expansion opportunities across Hong Kong, says Ng. Government cooperation between Hong Kong, Mainland China and the Middle East has also taken off. In 2023, agreements between the Saudi Central Bank and the Hong Kong Monetary Authority (HKMA) aimed to promote financial innovation by collaborating on regulatory approaches. On top of a landmark strategic partnership between China and Saudi Arabia, Hong Kong’s Chief Executive signed 13 memorandums of understanding with their Saudi and UAE counterparts. Hong Kong’s accounting and auditing professionals have much to offer SWFs and other investors from the Middle East looking to capitalize on the city’s financial expertise, according to Dr. King Au, Executive Director of the Financial Services Development Council (FSDC), and government-appointed lay member of the Institute’s Council. “Hong Kong accounting firms have deep capabilities in areas like initial public offerings (IPOs), fundraising and portfolio management — all are of interest to institutional investors in the Middle East,” Au notes. Furthermore, mapping out and streamlining regulatory differences between Hong Kong and various Middle Eastern countries would be essential, he says. Firms such as EY-Parthenon, for example, works closely with Middle Eastern companies to establish successful presences in Hong Kong and Mainland China. This includes ensuring regulatory compliance through services such as company incorporation, applications for licenses and permits, and ongoing reporting, explains Ball. Family offices eye Hong Kong Hong Kong has seen surging interest from family offices in the Middle East looking to establish or expand their presence in the region. This comes as the Hong Kong government has made attracting and facilitating family offices a policy priority. As of May 2024, the FamilyOfficeHK team under InvestHK has assisted 89 family offices in establishing or expanding their businesses in Hong Kong, with an additional 136 family offices confirming their intention to set up operations, some of which originate from the Middle East, according to Polly Tang, Senior Vice President, FamilyOfficeHK, and an Institute member. “Hong Kong’s strategic position as a gateway to China has been a significant draw for family offices, particularly for those interested in technology investments in cutting-edge fields like artificial intelligence, data science, and fintech. The city’s vibrant fintech sector has garnered growing interest, driven by demand for innovative cross-border payment solutions to facilitate the region’s trade flows,” says Tang. “Additionally, Middle Eastern investors have shown interest in Hong Kong’s mega projects, such as the Northern Metropolis, with the government exploring the establishment of an infrastructure bond scheme for public subscription.” Lured by large real estate developments and IPOs, as well as the ability to partner with local firms, high-net-worth individuals and wealthy families can benefit from what Hong Kong has to offer, says Ng. With over HK$30.5 trillion in locally managed assets, Ng observes that the city’s wealth and asset management industries give wealthy investors access to Hong Kong’s well-established expertise in private banking, investment and related fields. CPAs play a key role in helping these wealthy families from the Middle East in a number of ways, notes Tang. “From our past experiences, many Middle Eastern high-net-worth individuals would have complex financial structures involving multiple jurisdictions. Hong Kong CPAs are skilled in managing these complexities, providing clarity and strategic advice to optimize asset protection and tax planning.” The global experience of CPAs is also valuable. “In the design of equity investment structures, CPAs can utilize their professional experience in Hong Kong, Mainland China, the Middle East, and other jurisdictions to comprehensively consider factors such as tax incentives, tax treaties and regulatory requirements, so as to achieve the overall optimization of structure,” Tang adds. “ Middle Eastern investors have shown interest in Hong Kong’s mega projects, such as the Northern Metropolis, with the government exploring the establishment of an infrastructure bond scheme for public subscription.” July 2024 17
MIDDLE EAST Gulf opportunities Sustainable Islamic investing As the economic and financial ties between Hong Kong and the Middle East continue to deepen, Islamic finance presents an attractive opportunity for growth. Islamic finance refers to financing activities that comply with Sharia (Islamic law) and its religious prohibitions on interest, uncertainty and gambling. Yet, Islamic law differs significantly from Hong Kong’s common law system, making crossborder banking processes complex and time-consuming. “Regulatory compliance with Islamic finance in the Middle East can be unfamiliar territory for many Hong Kong companies,” Au says. This is where professional accountants and auditors can come in, says Au, to guide companies in understanding regional rules and requirements, reviewing contracts, handling day-to-day administration and navigating cross-border operations smoothly. Islamic finance shares many of the same principles and goals as sustainable investing. At its core, it’s about generating shared and equitable prosperity for all stakeholders. The oil-rich nations of the Middle East are “eager to become the largest providers of renewable energy to meet their ambitious climate targets and reduce reliance on oil and gas,” the Hong Kong General Chamber of Commerce told A Plus. Attracting foreign investment is a key part of Saudi Arabia’s “Vision 2030” plan. Saudi Arabia, the largest economy in the Gulf region, launched the plan in 2016 to transform its economy from oildependent to one driven by modern, digital industries and services, with a focus on boosting its nuclear and renewable energy capacity and production of clean hydrogen and electric vehicles. The UAE, the second largest Gulf economy, has parallel goals under its Net Zero by 2050 strategic initiative. As part of this, the country has earmarked US$160 billion for renewable energy investments to help achieve carbon neutrality by 2050. The Middle East’s national commitment to sustainability and religious emphasis on corporate social responsibility has made clean technology and renewables in China high on the list of priorities. “China is a leader in the sector, valuations are reasonable, and Middle East investors are less likely to be concerned with geopolitical tensions,” Simpfendorfer says. As a premier hub for green bonds and other climate-focused financial instruments, and with its large pool of skilled professionals supported by robust financial infrastructure, Hong Kong possesses the capabilities to finance many of the major energy transition projects underway across the Middle East, according to Au. Enhancing food security For many Middle Eastern countries, a near-term challenge is their dependence on food imports, as they import more food than they export, making their food systems vulnerable to supply chain disruptions. The need for agricultural technology (agritech) solutions became stark during the COVID-19 pandemic. According to PwC, Saudi Arabia imported US$10.5 billion worth of key agricultural and food products in 2019 while only exporting US$1.7 billion, resulting in a US$8.8 billion trade deficit. Crop yields in the Middle East are also significantly lower than global averages due to climate change impacts like soil salinity and limited access to resources such as arable land, water and agricultural labour. In a bid to enhance long-term food security and develop more sustainable, productive agricultural sectors, there are opportunities for Hong Kong to help bridge the gap in helping the Middle East adopt cutting-edge agritech at scale. Despite the small size of domestic agriculture, higher education institutions in Hong Kong have developed strong expertise across the agritech field, from crop genomics research to analytical food testing, said the HKTDC. There is untapped potential for Hong Kong agrictech companies and trained workforce to export their knowledge and services. The Middle East is one promising export market where Hong Kong’s agritech experts can commercialize their research while aiding the development of local farming, added the HKTDC. Flourishing digital economy The digital economy in the Middle East is expected to grow exponentially from US$180 billion in 2022 to US$780 billion by 2030, according to estimates from UBS. However, digital penetration rates in the region remain well below global levels, at just 4.1 percent in 2022 compared to 10.5 percent worldwide, indicating huge potential in software, internet and data centres as the Middle East works to close this gap, as per UBS analysis. This presents an opportunity for Hong Kong’s robust innovation ecosystem to engage with the region. Ng says that InvestHK has observed growing interest from the Middle East in Hong Kong’s vibrant fintech sector, driven by demand for innovative cross-border payment “ As a premier hub for green bonds and other climate-focused financial instruments... Hong Kong possesses the capabilities to finance many of the major energy transition projects underway across the Middle East.” 18 July 2024
RkJQdWJsaXNoZXIy MTkzNjgzNg==