Press Release

HKU Business School today announced the “Hong Kong Economic Policy Green Paper 2024” (“Green Paper”). The Green Paper was prepared by HKU faculty members, researchers and other internationally renowned scholars, who have conducted in-depth policy analysis and proposed recommendations for various pressing issues in Hong Kong. Topics include the city’s future as an international financial centre, maintaining the linked exchange rate system, income inequality and wealth gap, the impact of ageing population in health spending, reducing public housing waiting time, talent retainment and attraction, commercialisation of intellectual property as well as strengthening Hong Kong’s position as an international aviation hub.

Professor Hongbin Cai, Dean and Chair of Economics of HKU Business School said, “HKU Business School, with its deep roots in Hong Kong, has consistently endeavoured to examine the city’s economic challenges and provide policy recommendations by harnessing its wealth of expertise and research excellence. Since 2021, the School has been collaborating with like-minded scholars who share a vested interest in Hong Kong’s future development to co-author the annual “Hong Kong Economic Policy Green Paper” and orchestrate the “Future of Hong Kong Economy” Conference. Building on the success of the past two years, we have expanded our collaboration this year to include scholars from School of Public Health and Faculty of Law, as well as renowned experts from across the globe, facilitating vibrant discussions and intellectual exchanges with policymakers, business leaders, and respected community luminaries. Together, we strive to contribute insights and strategies from various perspectives to advance Hong Kong’s diverse economic development.”

Professor Richard Wong, Provost and Deputy Vice-Chancellor of The University of Hong Kong, Chair of Economics & Philip Wong Kennedy Wong Professor in Political Economy, and Director of Hong Kong Institute of Economics and Business Strategy stated, “In the wake of the global pandemic and amidst rising geopolitical tensions, it is more critical than ever for our city to forge a clear and strategic path forward. This year’s Green Paper provides invaluable insights and guidance to help us navigate these uncertain times. The sustained efforts and unparalleled expertise of the scholars at the University of Hong Kong are both timely and welcome, as they contribute to shaping a prosperous and resilient future for our beloved city.”

Professor Heiwai Tang, Associate Dean (External Relations) & Victor and William Fung Professor in Economics of HKU Business School and Associate Director of Hong Kong Institute of Economics and Business Strategy added, “In the context of the Fourth Industrial Revolution, the success or failure of various economies in the fierce global competition may depend on their ability to establish efficient Intellectual Property (“IP”) systems, thereby maintaining a leading position in innovative technologies. Hence, institutional innovation remains crucial for Hong Kong’s future economic development. Despite Hong Kong’s respectable international reputation in IP protection, it must still accelerate the progress of IP commercialisation to amplify the economic benefits of the IP system.”

Professor David Bishai, Clinical Professor in Public Health and Director of the School of Public Health, The University of Hong Kong said, “Health spending in Hong Kong will continue to grow faster than GDP for the next half-decade. It is urgent for Hong Kong to deliberate on the best options to cope with population ageing and rising health spending without suffering degradation of the publicly provided health services. The longer Hong Kong waits for a course correction, the harder the reform will be.”

Professor Douglas Arner, Kerry Holdings Professor in Law, The University of Hong Kong, RGC Senior Fellow in Digital Finance and Sustainable Development, and Associate Director, HKU-Standard Chartered FinTech Academy said, “To enhance its role as an international financial centre, Hong Kong should focus on maintaining and reinforcing its existing strengths: free movement of capital, information and people, supported by a predictable legal, monetary, financial and regulatory infrastructure. It is important for Hong Kong, as an equity market, to also focus on new clients for fundraising and investment, while attracting international and Chinese institutional investors as and when they are able to invest more widely. In addition, the city should enhance multipolar payment and treasury management frameworks, with the aim of benefiting from China’s continuing development and flows of funds in and out, including supporting RMB internationalisation and use of other currencies for trade, finance and investment, as well as enhancing Hong Kong’s role as a central hub in the emerging multipolar financial system.”

Click HERE to view the key points of the Green Paper

(From left) Professor Douglas Arner, Kerry Holdings Professor in Law, The University of Hong Kong, RGC Senior Fellow in Digital Finance and Sustainable Development, and Associate Director, HKU-Standard Chartered FinTech Academy; Professor Heiwai Tang, Associate Dean (External Relations) & Victor and William Fung Professor in Economics of HKU Business School and Associate Director of Hong Kong Institute of Economics and Business Strategy; Professor Richard Wong, Provost and Deputy Vice-Chancellor of The University of Hong Kong, Chair of Economics & Philip Wong Kennedy Wong Professor in Political Economy, and Director of Hong Kong Institute of Economics and Business Strategy; Professor Hongbin Cai, Dean and Chair of Economics of HKU Business School; and Professor David Bishai, Clinical Professor in Public Health and Director of the School of Public Health, The University of Hong Kong

Professor Hongbin Cai, Dean and Chair of Economics of HKU Business School

Professor Richard Wong, Provost and Deputy Vice-Chancellor of The University of Hong Kong, Chair of Economics & Philip Wong Kennedy Wong Professor in Political Economy, and Director of Hong Kong Institute of Economics and Business Strategy

Professor Heiwai Tang, Associate Dean (External Relations) & Victor and William Fung Professor in Economics of HKU Business School and Associate Director of Hong Kong Institute of Economics and Business Strategy

Professor David Bishai, Clinical Professor in Public Health and Director of the School of Public Health, The University of Hong Kong

Professor Douglas Arner, Kerry Holdings Professor in Law, The University of Hong Kong, RGC Senior Fellow in Digital Finance and Sustainable Development, and Associate Director, HKU-Standard Chartered FinTech Academy

Key Points of the Hong Kong Economic Policy Green Paper 2024

The Green Paper comprises eight articles, the key points are as follows:

Hong Kong: Structural Evolution and Future as an International Financial Centre

• One could argue that the first half of 2019 will historically be the high point for Hong Kong’s role as an international financial centre, after which – as with so many other financial centres throughout history around the world and in Asia – its role declines, to be taken by another. Moreover, 2019 was not thus the highwater mark but rather the inflection point for Hong Kong.
• To enhance its position as an international financial centre, Hong Kong must first focus on maintaining and reinforcing its existing strengths vis-à-vis the Mainland: free movement of capital, information and people, supported by a predictable legal, monetary, financial and regulatory infrastructure. These are the areas where – without continued attention – Hong Kong is potentially at greatest risk of weakening its differentiation and comparative advantage against other competitors. At the same time, it must continue to reinforce its access with its hinterland – on which all financial centres ultimately depend – in this case, the Mainland. But Hong Kong’s role is fundamentally as an intermediary. This in turn requires increasing connections with corridors of continuing financial and economic linkages between the Mainland and the rest of the world (including Europe, North America and ASEAN/East Asia, particularly the RCEP region) but also seeking to identify emerging areas of potential opportunity (such as the Middle East, Africa and Latin America).

The Linked Exchange Rate System of Hong Kong Dollar: A Benefit-Cost Evaluation

• There have been discussions suggesting that the linked exchange rate system may not be sustainable or should be adjusted or even replaced, especially in the current context of frequent economic and political tensions between China and the United States. Indeed, the economic and trade frictions have diminished the benefits of the linked exchange rate system for Hong Kong. However, we believe that these frictions are temporary compared to long-term development, and the perseverance in maintaining the linked exchange rate system in this challenging environment will instil greater confidence in the stability of the Hong Kong dollar among investors in the future.
• Hong Kong’s exchange rate system, in addition to the existing linked exchange rate system and floating exchange rate, can also adopt other forms of fixed exchange rates. Some viewpoints support Hong Kong’s pegging to the renminbi, mainly based on several reasons such as trade and the internationalization of the renminbi. However, pegging the Hong Kong dollar to the renminbi could also present operational challenges and mishandling could lead to systemic financial risks. International capital would be hindered by capital controls, making it difficult to engage in currency speculation targeting onshore renminbi. The Hong Kong dollar pegged to the renminbi, has greater market depth, better liquidity, and more comprehensive development of financial derivatives, making it a more direct target for speculation. In such a scenario, the government would need to use more foreign exchange reserves to maintain the value of the Hong Kong dollar, potentially creating hidden risks within the financial system.

Income Inequality in Hong Kong

• We find a growing income inequality that is driven by faster income growth of high-income earners. Despite the rising median household income, our findings suggest that the income of the poorest households is regressing. We also find that government transfers and investment in higher education have played significant roles in reducing poverty and wage inequality between high-skilled and low-skilled workers, respectively.
• These findings suggest that without government intervention, inequality in Hong Kong may be even higher. We also note that over reliance on low-skilled and real estate services in creating jobs has limited job opportunities and income growth of younger generations of college graduates in Hong Kong. Finally, we should emphasize that due to high price of housing, wealth inequality are likely to be significantly higher than the income inequality we have measured in this study. Therefore, to reduce inequality in Hong Kong, the government should invest more in public housing and promoting job creation in high-skilled services by reducing entry barriers.

The Impact of Aging on Hong Kong’s Future Health Spending

• The prospect of growth in Hong Kong’s health spending will put an increasing strain on government finances. Health spending growth will outpace GDP growth at least until 2028. If Hong Kong can achieve net immigration of about 50,000 younger people per year in the coming decade, it could bend the curve and restrain health spending’s share of the GDP to 7% by 2040. However, without the benefit of immigration to soften population aging, Hong Kong’s health spending will rise to 9% of GDP by 2040.
• Policy options to improve Hong Kong’s health system have been extensively discussed, but major reform has been elusive. Solutions need to be multi-faceted. Principal options are 1) Invest more in keeping people out of the hospital through prevention, health promotion, and comprehensive primary health care; 2) Improve efficiency in the use of current health care resources through demand and supply side utilization controls; 3) Manage the entry and pricing of new drugs and technologies; 4) Help citizens plan and pay for culturally appropriate long term care; 5)Help Hong Kong’s health insurance markets play a larger role in financing health care ; 6) Create new government funding by hypothecated revenues or social insurance.

Using Data and Algorithms to Reduce Public Housing Wait Times

• The Government has launched the Transitional Housing and Light Public Housing programs, aiming to swiftly construct affordable housing options for those waiting for public rental housing. However, there are concerns about the underutilization of Transitional Housing, especially in the New Territories, and the Government’s ability to meet its target of eliminating subdivided units by 2049. The utilization of Transitional Housing is relatively low, mainly due to spatial mismatch between residents and housing, as well as inefficient application process.
• To improve Transitional Housing allocation and utilization, we turn to Alvin Roth’s groundbreaking work in market design, which earned the Nobel Prize in Economics in 2012. The fundamental concept behind this work is to gather data about individuals’ preferences regarding a given set of options, and then use computer algorithms to create matches that optimize overall utility. To illustrate, let’s consider the case of TH applicants with varying preferences for different locations. These individuals would submit their preferences through a centralized portal, and the algorithm would then facilitate the matching process.

Brain Drain, Brain Gain, and The Future of Hong Kong:  Evidence from LinkedIn Profiles

• In this article, we draw on publicly available individual profiles from the professional networking platform LinkedIn and Government data to assess shifts in Hong Kong’s population structure and economic prospects. We find that Hong Kong is experiencing brain drain, but is also seeing considerable in-flow of talent. The arriving population is older and better-educated, but less globally connected and less ethnically diverse than the departing population. A large fraction are highly educated populations from Mainland China, but there is also talent in-flow from other regions, including the United States. Overall, the narrative of a brain drain belies the more nuanced picture that Hong Kong remains a powerful magnet comparable to other major metropolitan cities.
• Hong Kong can consider labour policies to retain younger residents. In the data, we find that young people are the group most likely to emigrate. This is because they are less established and have the longest career trajectory to consider. To reduce these departures, the Government may implement policies targeted at retaining these groups over a longer horizon, such as subsidies for continuing education or overseas scholarships that require recipients to return for work.

IP Commercialization Benefits High-Quality Economic Development of Hong Kong

• In recent years, the HKSAR government has made significant efforts to promote IP commercialisation. For example, the government developed the “Original Grant Patent” system, facilitated the local implementation of the Madrid Protocol (the Madrid Agreement Concerning the International Registration of Marks), and introduced tax incentives through the “Patent Box” scheme. The Patent Box scheme provides tax concessions for profits sourced in Hong Kong from qualifying patents generated through R&D activities. Despite these efforts, Hong Kong’s progress in IP commercialisation has not been as satisfactory due to intense regional competition. Therefore, it is necessary to consider how to more efficiently enlarge the “cake” and mobilise stakeholders to develop Hong Kong into a regional hub for IP trade.
• Hong Kong could consider enhancing its ecosystem for IP commercialisation, including using the green finance framework as a model, developing standards to encourage companies to disclose IP-related investments and projects and support enterprises using IPs as collateral for financing, establishing valuation criteria, establishing an IP stakeholder alliance, strengthen cooperation with the Mainland to combat infringement, provide annual financial support and develop an IP trading platform to stimulate stakeholder participation and build an IP commercialisation ecosystem, collaborate with universities and international organisations to provide local courses related to IP, deepen cooperation with the Mainland, join the Patent Prosecution Highway, and expand the international network of IP platforms and 8. The Government procures IPs in advanced industries such as life and health technology through investment funds.

Great Cities: The Importance of enhancing Hong Kong’s international aviation hub status

• The aviation industry is closely related to various sectors in Hong Kong. It not only involves retail, catering, and hotel industries, but also plays an important role in the service sector. The reason why London has become a major global shipping centre lies in various supporting businesses, such as legal services, finance, insurance, arbitration and mediation, registration, design, procurement, information technology, and so on. There is no reason why Hong Kong cannot develop related industries, especially when the aviation industry in China (and Hong Kong) is expected to grow rapidly, and the strong local international airlines play a significant role in promoting their base as a tourism, travel, service, and business centre, making a considerable contribution to the local economy.
• One vital factor for ensuring the future role of Hong Kong as a leading aviation centre is Mainland China. The Chinese mainland is already a large market and an important aviation hinterland for Hong Kong and its importance will only grow. The number of Chinese flying, and the fleet sizes of mainland airlines have a lot of room for growth relative to the US today. China’s high growth rate means we must continue to enhance Hong Kong-Mainland China links. This will depend on the effective role the Hong Kong Government, the home carriers, the strength of the hub, and the interests of the travelling public.

Click here to download “Hong Kong Economic Policy Green Paper 2024”