business, banking & finance, china digital currency, digital currencies, beijing’s sovereign digital currency push to boost hong kong’s fintech start-ups

As Beijing pushes ahead with a sovereign digital currency and a national blockchain network, Hong Kong’s fintech community is using the city’s role as a bridge between mainland China and the rest of the world to seize opportunities for innovation.

China has been at the forefront globally in the development of a central bank digital currency, with 70.75 million retail transactions worth 34.5 billion yuan (US$5.3 billion) having been completed in a pilot trial as of the end of June this year. The People’s Bank of China has also been working with the Hong Kong Monetary Authority on a bridge project that will link up the digital yuan with sovereign digital currencies in Hong Kong, Thailand and the United Arab Emirates.

The project could lead to opportunities for the more than 3,300 start-ups in Hong Kong, allowing them to service importers and exporters using fintech. It could provide incentives for innovation in fintech and trade finance solutions, said King Leung, head of fintech at InvestHK, the government body promoting foreign direct investment.

“For fintech start-ups focusing on business-to-business solutions, there are only a handful of major cities that have a strong base of financial institutions,” said Leung. “Fintech needs to be where the financial hubs are, and if you are not in Hong Kong then there are only a few [remaining] options.”

Ping An OneConnect Bank, one of Hong Kong’s new virtual banks backed by China’s largest insurer, shows how fintech could help small and medium-sized businesses, Leung said.

Through a partnership with Tradelink, a trade and custom documents filing service provider, Ping An OneConnect has introduced an SME loan service that approves loans within five days. The new service leverages Tradelink’s decades of custom clearance data to determine a borrower’s credit health.

business, banking & finance, china digital currency, digital currencies, beijing’s sovereign digital currency push to boost hong kong’s fintech start-ups

From left, Vishal Kapoor, Citi’s Hong Kong head of treasury and trade solutions, and King Leung, head of fintech at InvestHK. Photo: Edmond So

Another Hong Kong start-up, digiXnode Tech, which operates a marketplace for digital applications run on blockchain, this month launched its global portal connecting developers worldwide with the Beijing-led blockchain service network (BSN).

An ambitious project representing President Xi Jinping’s aim to make China a dominant player globally in information infrastructure, the BSN is led by a consortium that includes State Information Centre, China Mobile and China UnionPay. digiXnode is linking the network with offshore blockchain developers of cross-border trade and financing applications, easing the country’s trade with Belt and Road economies in the process.

“The next step is to get all the stakeholders in trade to get digitalised as well. These include all the shipping companies and logistic players,” said Vishal Kapoor, Citi’s Hong Kong head of treasury and trade solutions. “It will happen over time.”

business, banking & finance, china digital currency, digital currencies, beijing’s sovereign digital currency push to boost hong kong’s fintech start-ups

Signage for the digital yuan in a supermarket in Beijing. China has been at the forefront globally in the development of a central bank digital currency. Photo: Bloomberg

Cryptocurrency start-ups, on the other hand, fear that the city could lose out its hard-earned advantage, built upon a strong regulatory framework, to Singapore. Unlike in China, where cryptocurrency trading is banned, in Hong Kong a regulatory framework is being put in place to enable cryptocurrencies to coexist with central bank digital currencies.

This is because the city’s virtual asset regulatory regime, which bans participation by retail investors and allows only professional investors, is considered restrictive. This could stifle entrepreneurs’ desire to innovate in Hong Kong, said Alessio Quaglini, CEO of Hong Kong-based digital asset custodian Hex Trust.

“If you have a framework with requirements that are cumbersome and stringent for young fintech companies, there is a risk that Hong Kong might start losing business activity to other markets that are aggressively trying to win them,” said Quaglini.

A professional investor is defined under Hong Kong securities law as someone with a portfolio of at least HK$8 million (US$1 million). The Singapore regime for payment tokens does not have a ban on retail investors.

In August, Hex Trust received its capital markets services licence from the Monetary Authority of Singapore, which allows it to expand its custodial service to the city state. The new licence is in addition to its trust or company service provider licence obtained in Hong Kong.

Still, with the city ranking fifth in terms of the density of high-net-worth individuals – one in very 125 Hong Kong residents have a net worth of at least US$5 million – InvestHK’s Leung said Hong Kong’s regime serves to balance investor protection and innovation.

“There is still a lot of wealth in Hong Kong. If a start-up just focuses on servicing professional investors, by dollar amount this is already a sizeable market,” he said.

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