Chan Promotes Hong Kong's Private Equity Credentials
Monday, November 14, 2011

During a speech to the Asian Venture Capital Journal (AVCJ) Hong Kong’s 2011 Investment Summit, the Secretary for Financial Services and the Treasury, Professor K C Chan, confirmed that Hong Kong will continue its efforts to create a business-friendly environment for private equity and venture capitalists.

He disclosed that private equity is a very important part of Hong Kong’s asset management business. Total capital under management (CUM) in private equity in Asia has been rising steadily, with data provided by AVCJ showing that the total CUM in private equity reached USD290bn in 2010, representing an increase of 14.6% over 2009, and that total CUM in just the first half of this year had reached over USD310bn.

Within that market, in terms of total CUM in 2010, Hong Kong was ranked second, accounting for 21.6% of the Asian total, only slightly behind mainland China's 22.6% and ahead of Japan's 14.2%. Therefore, China and Hong Kong together manage nearly half of the total private equity in Asia.

Furthermore, of the USD33bn raised in Asia last year, Hong Kong accounted for 15.2%, ranking second in Asia, behind China (43.9%) and ahead of South Korea (11.8%). As at end of June this year, 259 out of Hong Kong's 375 private equity firms had chosen Hong Kong for their Asia regional headquarters.

“As China's global financial centre,” Chan said, “Hong Kong is an ideal launching pad for private equity funds eyeing the business potential in China. Hong Kong is located in China, but yet we have our own legal system and financial infrastructure. We enjoy deep and extensive means of connection with the Mainland and an intimate knowledge of how Chinese businesses operate, and yet we operate under our system.”

He emphasized that the Chinese government has kept up its encouragement of Hong Kong's offshore RMB business. New measures, to include allowing investments in the Chinese equity market by means of the RMB Qualified Foreign Institutional Investor scheme, will further facilitate the development of Hong Kong into an offshore RMB centre, and also help promote the development of the asset management industry in Hong Kong.

“With these policies in place,” he disclosed, “Hong Kong is the ideal place to launch RMB private equity funds. The potential here is evident in the rate of increase in RMB funds raised.” For the past five years, the total amount of private equity funds raised in RMB increased six-fold from just under USD2bn in 2006 to over USD12 billion in 2010. In 2010, there were 97 RMB private equity funds in Hong Kong.

In addition, the fact that, in 2010, 113 newly listed companies raised USD58bn in Hong Kong’s stock market shows that it remains “well known for its liquidity, attractive valuations and access to investors in Asia,” and very attractive to private equity funds.

Chan pointed out that Hong Kong has a favourable tax system for private equity business - having no capital gains tax on the sale of shares of private companies, while dividend income is not subject to withholding tax. The government is also providing fiscal incentives to the industry, such as an exemption for offshore funds from tax on profits derived from specified transactions in Hong Kong.

He added that the abolition of estate duty since February 2006 has encouraged people, including local and overseas investors, to hold assets in Hong Kong, and the government has been establishing a network of comprehensive agreements for the avoidance of double taxation.