Hong Kong’s financial services secretary would welcome a private industry pension scheme to run alongside the city's MPF system, and views Shanghai's free economic zone as creating opportunities rather than competition.
Speaking at the Hong Kong Investment Funds Association (HKIFA) summit this week, professor KC Chan admitted that Hong Kong’s Mandatory Provident Fund (MPF) “was not really thought through properly when it was set up [in 2000]”.
He said most scheme members don’t really know how to invest and have a hard time knowing which funds to pick from the more than 300 offered in the system.
He acknowledged that there was an education challenge, but pledged that the system would be transformed to get more buy-in from the public.
“This is usually one of the stumbling blocks, how to get the average guy to believe they are leaving their money [where it will be] well managed at reasonable cost,” he told the forum.
“That is something we [the government] could do more on, educating the public and coming up with an overall package of enhancing market confidence.”
He expressed his belief that the market should go back to basics to identify core industry funds well suited for long-term investment, pointing out that the MPF Authority is carrying out a consultation process on this.
Asked by HKIFA chairman Lieven Debruyne whether the public saw their MPF savings as money they would retire on rather than a trading account, Chan conceded this was a problem.
“What we would like is to have the MPF system being something the market has faith in, [with HK workers] not only contributing mandatory income, but also voluntary contribution,” he said.
Asked by Debruyne whether there was room for a private industry pension scheme to run alongside the MPF system, Chan responded, “I think so. The whole idea behind MPF [is] it should not be the one solution. A good solution would be for a private market solution, providing good products, good choices.”
He noted this would not require a government initiative, to which Debruyne remarked that tax incentives were a customary practice elsewhere but would be difficult to introduce in Hong Kong.
“A tax incentive – how important is that [when] tax rates [in Hong Kong] are so low?" Chan said. “But if there is something we can do to make fund retirement attractive, we will consider that.
“Generally we believe the current state of the world is not the best time in terms of the public sector. We need to do more to get public buy-in and then talk about expanding.”
Chan suggested the bigger picture was about understanding where the Chinese economy was opening up, reforms being introduced, and how to position Hong Kong to capture these opportunities.
“When I joined the government six years ago, we were dreaming of how Hong Kong could be more integrated with the China market,” he said. “But I tell you, it would only be dreaming unless China [had] decided it wanted to make a move in its capital account opening.”
He said no one knows when the renminbi will be fully internationalised, but underlined Hong Kong’s advantage as the market Beijing turns to for testing out liberalisation.
“When China is engaging in big reform, they like to use Hong Kong,” he said. “If it works, we can do more and we can ask for more initiatives that can benefit the mainland and Hong Kong. That is the way we approach it.”
He acknowledged that Hong Kong was not the only option for China’s internationalisation, but added: “If we can get the reform opening process quicker and get Hong Kong on the front seat of that process, we can benefit. In terms of initiatives, I can tell you there are more coming.”
He denied Hong Kong would lose its competitive edge as China’s global financial hub because of the free economic zone (FEZ) in Shanghai, suggesting local media had not known how to interpret the zone when it was first announced.
“I happen to believe there will be more FEZs coming. Let the whole of China become an FEZ,” Chan suggested. “There will be more opening in China and I believe that will help Hong Kong because Hong Kong firms will get deeper access to the Chinese market.”
Asked by Debruyne whether the city was exclusively focused on working with the mainland to the detriment of other opportunities, Chan suggested there was nothing wrong with Hong Kong specialising on its relationship with its major economic partner in the region.
At the same time he acknowledged “exciting growth” from the Association of Southeast Asian Nations (Asean), saying the government was keenly aware of their potential.
“We are working on increasing our presence in the region,” Chan noted, adding that the government was keen to enter into a pact with Asean. “By raising the profile of Hong Kong in the [Asean] region, we hope to get more attention.”