By Henny Sender for Financial Times
Some months ago, when Joe Tsai of Alibaba addressed a seminar in Hong Kong on his firm’s financial strategy, the first hand that shot up when he invited questions belonged to a Hong Kong insurance regulator. “You say you are interested in internet insurance,” the bureaucrat said. “I want to make sure when you come to Hong Kong, you get a proper licence.”
On the YouTube recording of the event, the shocked laughter of the audience is clearly discernible as Mr Tsai graciously responds: “If we do come, we will get a licence — and seek your advice.”
Then, just a few days ago, Mr Tsai’s partner, Jack Ma, criticised the listing rules for the Hong Kong Stock Exchange as “designed decades ago for property developers, financiers and traditional retailers and … not relevant to start-ups and new businesses”. He may have been motivated, in part, by his own run-ins with the local rules: the territory refused to amend its regulations to permit Alibaba’s proposed structure, so it listed in New York. But his remarks still resonated with investors in the territory.
Similarly, the co-founder of a fintech firm in Shanghai with Alibaba links recently gave an interview to a Shanghai paper in which he noted that, at some point, his firm might consider establishing an office in Hong Kong. To his surprise, he soon received a message from a different bureaucrat in the Hong Kong government, reminding him of the licences he would require. The message he took from this, he says, is: “You are not welcome here.”
Yet this same fintech firm is likely to receive a big equity cheque from Singapore Inc in its next funding round, which will value it at over $1bn.
To the wider Hong Kong community, these frosty exchanges between corporates and regulators are signs that the Hong Kong government is unimaginative and unsupportive when it comes to encouraging innovation in finance — an area in which the city has had a competitive edge. Some warn that rival cities, such as Singapore and Shenzhen, are now doing far more.
Hong Kong has nurtured start-ups in the past but has then seen the founders move elsewhere — often to Shenzhen, across the border in China, where human capital and physical space is more abundant and affordable.
For example, DJI-Innovations, the world’s largest drone company, was first conceived at Hong Kong University of Science and Technology but now calls Shenzhen home. Indeed, Shenzhen has leapfrogged Hong Kong in attracting new-economy companies, in part because of its plentiful supply of engineers, its supportive local government policies and its distance from the sometimes toxic politics of Beijing. It is home not only to internet companies like Tencent, but also data mining firms and medical technology.
Similarly, a list of fintech start-ups in Singapore compiled by CLSA using data from website Tech in Asia includes almost 180 firms. By contrast, a comparable list for Hong Kong would have fewer than half that number. Singapore’s local regulator appears “to be highly supportive of fintech and has a clear view of when and under what conditions it will regulate the industry”, says Jonathan Galligan, CLSA’s head of Singapore research.
That, of course, brings risks for existing players. In Singapore, Mr Galligan’s colleague, Christopher Wood, refers to “the threat of disruption from government-prompted efforts to promote a new digital economy — be it in fintech, ecommerce, data technologies, transport, cleantech or the so-called sharing economy in general”. Still, Singapore appears to realise that a government that defines its mission as protecting the interests of the establishment will merely accelerate the decline of that establishment. So far, its stance is paying off. “Supportive government policies and the strongest ecosystem in Asia have already spawned the early stages of a new economy,” Mr Galligan says.
To be sure, there are some initiatives in Hong Kong that are attempting to kick-start innovation. In July, Sequoia Capital China partnered with a group of Hong Kong-based professors and the heads of its three major universities to launch the so-called Hong Kong X-Tech Startup Platform. It will recruit professors to serve as mentors for students in robotics, artificial intelligence, big data, pharma, medical devices, electronics and fin tech. Sequoia China’s founder Neil Shen has donated HK$300m as a catalyst. But it will take far more than that to reinvent Hong Kong.
First appeared at FT