City well-placed to take lead in the digital economy

This article appeared originally in China Daily on 12 Oct, 2023.
Authors: Jane Lee, President of Our Hong Kong Foundation

Hong Kong’s resilience and ability to redefine its role in an increasingly disconnected international order reflects our vision to embrace the digital economy, agility, determination and a strong work ethic supported by access to capital, a sound regulatory framework and an advanced technology environment. 

Although Hong Kong is in the firing line of increased US geopolitical hostilities, the city’s unique status under “one country, two systems” provides distinct advantages and continues to support its progress, notwithstanding the headwinds it faces due to broader economic turmoil.

One interesting measure of Hong Kong’s consistent progress and position from a regional and global perspective is its ranking in the 2022 Smart Centres Index. The index encompasses metrics designed to enhance people’s understanding of the best science and technology policies, regulations, and implementation strategies, and it explores each center’s ability to develop and deploy technology. 

Hong Kong ranked first in the Asia-Pacific and among the top five centers globally, testimony to its unique advantages and strategic positioning in the age of digitization.  

Hong Kong takes the lead in critical areas of the digital economy. It has certainly benefited from the central government’s vision and the implementation of a research and development program by the People’s Bank of China (PBOC) for a central bank digital currency (CBDC). This was part of a 2014 national policy to build a new payment infrastructure to meet future economic growth. 

The PBOC program eventually enabled mBridge to conduct the world’s first multiple CBDC pilot last year involving 20 banks from four jurisdictions. mBridge is a collaboration between the Hong Kong Monetary Authority, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the PBOC, alongside the Bank of International Settlements Innovation Hub Centre in Hong Kong. As a result, we can confidently assume that a CBDC is on the horizon. 

We have long been at the forefront of digitization in financial technology innovation, particularly in payments, blockchain, regtech (regulatory technology), insurtech (insurance technology), and wealthtech (wealth and asset management solutions).  

At the same time, we are actively developing and implementing technology in other areas through smart city technologies and the internet of things, leveraging data analytics and cloud computing to enhance urban sustainability, transport systems, energy efficiency and public services. The city has invested in biotechnology research and development, focusing on genomics, personalized medicine, drug discovery, and digital health solutions. 

The development of Web3 and the metaverse presents new opportunities for content generation alongside cutting-edge technologies and has the potential to develop abundant employment opportunities within the field. The tokenization of physical or financial assets on a blockchain and decentralized finance, which aims to provide traditional financial services that eliminate the need for intermediaries, has gained significant traction.

One early example is the emergence of virtual banks, which result from technological developments enabling access to financial services to those most in need at a significantly reduced cost or for free, empowering people in the most marginalized communities. In Southeast Asia alone, Bain and Company estimates that the unbanked or underbanked represent over 70 percent of the adult population.  

In this ever-changing and rapidly developing techno-world, regulatory reforms have been implemented to proactively address emerging risks in digital finance, such as cybersecurity and data protection.  

Unfortunately, the unfolding scandal surrounding influencer-driven crypto exchange JPEX reminds investors and regulators that further work is required. To date, more than 2,500 individuals have been reported as victims, with an estimated HK$1.56 billion ($199.5 million) involved and 28 people arrested.

JPEX attempted to attract new investors and circumvent the authorities using alternative financial instruments, such as a “decentralized autonomous organization stakeholders dividend plan” promising guaranteed returns. Although there have been reports of a 70 percent approval through a public vote, investors should view such offers with skepticism and extreme caution.

As a result of public pressure, the Securities and Futures Commission has published details of four license applications in the pipeline. However, investors must remain vigilant and be aware that these companies are not necessarily fully compliant as yet. 

These events pose severe challenges for the regulators and diminish confidence in the sector in the short term. However, regulators must remain vigilant and take the lead to achieve the optimal balance and protect investors within a framework that provides stability, instills confidence, encourages healthy competition, promotes innovation, and safeguards all stakeholders’ interests. The situation will likely turn around in the medium- to long-term as retail investors come to better understand the risks and more regulated options become available.

Meanwhile, in a broader context, Hong Kong has been quietly repurposing over the last decade to take advantage of developments throughout the digital economy. As a result, the city is well-positioned to benefit from the next phase of transformative digital disruption, which is being enabled by advances in the interoperability of different systems or software applications to work together seamlessly. This will transform many aspects of our everyday lives.

Hong Kong’s position in the digital economy bodes well for the prospects and prosperity of its residents. 

Add to the mix the city’s significant position in the Guangdong-Hong Kong-Macao Greater Bay Area and an increasingly important role in the Belt and Road Initiative, alongside its regional and international connectivity, all of which set Hong Kong in a powerful place. 

I am confident that opportunities will be abundant. Hong Kong is well positioned to take advantage, prosper and reclaim its position as Asia’s World City for the benefit of its future generations.