Hong Kong will launch a new round of inflation-linked retail bonds this year, the city’s financial secretary, John Tsang, announced in his government budget speech yesterday.
He also pledged to secure an increase in Hong Kong’s offshore renminbi quota after it was exhausted late last year. However, Tsang gave no firm commitment on the introduction of mutual fund recognition.
Tsang stated that a new three-year iBond of HK$10 billion ($1.3 billion) would be issued, although he was non-specific on timing. The iBond scheme has proved popular with retail investors since it was introduced in 2011 as a hedge against inflation. Last year’ s tranche of HK$10 billion was 28.8 times oversubscribed, while in 2013 it was 39.6 times oversubscribed and 49.8 times in 2012.
Tsang said expansion and improvements were coming to the Shanghai-Hong Kong Stock Connect scheme, which launched last November. He also briefly mentioned that a Shenzhen version was in the pipeline.
“We shall review the experience of the implementation of this project, and discuss with the relevant authorities of the central government the launch of the Shenzhen-Hong Kong Stock Connect and enhancement of the Shanghai-Hong Kong Stock Connect,” he pledged.
On the Hong Kong-China mutual recognition scheme, Tsang stated that the government would strive for early implementation. That compares to recent comments made by Alexa Lam, the deputy chief executive of Hong Kong’s Securities and Futures Commission (SFC), who retires this week.
Speaking earlier this month, she stated that work on mutual recognition had been completed and the SFC was merely waiting for its mainland counterpart to approve it, saying it was now just a case of choosing an appropriate date for launch.
On the city's growing RMB business, Tsang noted that renminbi trade settlement conducted through Hong Kong banks had risen 60% year-on-year to Rmb6.3 trillion ($1 trillion) in 2014, while renminbi bond issuance had increased 70% year-on-year to Rmb200 billion.
He said the government would work with mainland authorities to increase the quota for the renminbi qualified foreign institutional investor (RQFII) scheme. Hong Kong’s RQFII quota was exhausted late last year.
The financial secretary also reiterated his desire to see more overseas firms establish corporate treasury centres in Hong Kong. He said the government would allow interest deductions under the profits tax for corporate treasury centres while also reducing the profit tax on certain treasury activities by 50%.
Tsang confirmed implementation of the stamp duty waiver on exchange-traded funds, a law for which was passed in the Legislative Council this month. He also confirmed legislative plans to allow private equity funds to enjoy a profit tax exemption available to offshore funds, and said he was working on proposals for open-ended fund company structures.
Hong Kong's budget speech came just days after Singapore’s own government budget raised the income ceiling on its national pension scheme, the Central Provident Fund (CPF), thereby increasing contributed assets.
On Monday, the interest rate was raised by 1% for the first S$30,000 of CPF savings held by individuals aged 55 and above. In addition the income ceiling, when CPF contributions begin, has been raised to S$6,000, from the current S$5,000.