Rocky Tung, Hong Kong Financial Services Development Council director and head of police research, is on the show this week.

A seasoned professional, Mr Tung says Hong Kong's financial hub status is still healthy despite many local and expatriates having left. He says fintech and other virtual tech application such as NFT and cryptocurrencies are going to drive the industry going forward and the government should embrace these changes.

Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Dr Rocky Tung.

Chan: This is Eugene Chan, and welcome to Straight Talk. Our guest tonight is Dr Rocky Tung, the Director of Head of the Policy Research for the Financial Services Development Council. He leads the team responsible for conducting policy research and industry surveys to inform the formulation of proposals to the Hong Kong SAR government and financial regulators. We have invited Dr Tung tonight to tell us if he thinks Hong Kong status as a financial hub is at risk. Welcome, Rocky.

Tung: Thank you very much for having me, Eugene.

Chan: So Dr Tung. In the last few years, Hong Kong has been facing a lot of challenges because of the pandemic, and also the heightened geopolitical situations. As you know, some of the media outlets and the key opinion leaders are of the opinion that Hong Kong's role as a financial hub between the East and the West is being lessened. So on that rhetoric, do you agree? And also, how actually, are we faring at this point?

Tung: Thank you. Thank you very much. So there are two parts to that question. One of those is whether or not we're doing well, or we're actually losing our edge. The other part is whether or not we should keep asking ourselves how we should do better. So for the first part of the question, we would make reference to the global financial center index, which is released on a semi-annual basis, it has been the same for the last 16 years. And Hong Kong in the last reading, back in March 2022, we are doing just fine. We were ranked at number three. So we were neck and neck to the peers such as New York and London, obviously, ranked number three, we are doing just okay. Compared to the other financial centers such as Shanghai, Los Angeles, Singapore, and San Francisco, we're better. However, the differences are only marginally, we were only one point apart from each other. So there's a need for us to keep reviewing and seeing how best we can do better going forward.

Chan: So when they’re saying the rhetoric of people saying we're losing our edge, you can't say they're really wrong in making that assumption. 

Tung: Yes. It's not correct at this juncture. 

Chan: Right. But when we are close, we might be at risk of losing it if we don't do it properly. 

Tung: Absolutely. 

Chan: And, you know, in the last few years, has Hong Kong's banking industry. I mean, has it developed? Has it grown from the last few years?

Tung: Yes. So if we look at the saving deposits, and things like that, you know, we're doing just fine. Compared to what we're seeing right now, for the last few years, we didn't see any changes in interest rate, and therefore the net interest margin within the banking industry was faring quite... what normally, if that said, you know, we are seeing a little bit of changes these days, with inflation picking up in developed countries, and Hong Kong, with our Hong Kong dollar being pegged to the US dollar, there may be a need for us to see the need of adjusting our interest rate locally. And with that, there could be some shocks to the banking industry in the near term, or over the medium term,

Chan: Right. I mean, one of the things you just mentioned is our Hong Kong dollars pegged to the US dollar, and having a lot of tension in the world right now. What happens if there's any drastic fall in the US dollars? For example? How is it going to affect the Hong Kong dollar? 

Tung: The peg has served us just right, Hong Kong is a small, but open economy. So there's a need for us to be... or the currency we use here in our city to be pegged to a country… a currency I mean that is stable. And so you know, throughout the years, that we were pegged to the US dollar, we're doing okay, right now with inflationary rate rising and interest rates also going up. There's a need for the US dollar to adjust their interest rate. And so I think in the short term, the US dollar will be relatively strong, and therefore, the Hong Kong dollar will be on the strong side, compared to the other currencies. 

Chan: One short question. There's always been talk in the community, saying the Hong Kong dollar, we should consider whether we should be pegged to the US dollar or to renminbi or maybe a basket of currencies. So is it in your opinion that at this moment, pegging to the US dollars, it will still serve us the best at this moment?

Tung: I think so. 

Chan: Alright. So let's move on to the next thing. I'm sure that many people who have watched our show have repeatedly mentioned the implementation of the national security legislation, which is over the last two or three years now. And this is one part of the rhetoric of the media, saying that Hong Kong is losing our edge. So how has that affected the financial industry?

Tung: Actually, the financial services industry has seen, you know, the stabilization and actually slight improvement over time. Remember that there's social unrest in 2019, this is when our global financial center index ranking dropped to number six back in early 2020. And that really shows that the instability of a city will affect the competitiveness of a country or a city. And therefore, you know, since the implementation of the National Security Law, we have seen the stability of the society. And this is when we have seen a steady and stable increase in our ranking in the last few editions. And you know, as I mentioned earlier, we are now ranked at number three. And so I think this is quite an illustration of how the National Security Law has helped us.

Chan: You know, with the two minor areas when I asked you with the travel restrictions, although it has been shortened to a week now, and also with the US sanctions. How have all these two factors affected the current financial market in Hong Kong?

Tung: Well, financial services is a people business. And therefore, I think interaction with people not only in Hong Kong, but also in other markets, such as the Chinese mainland market, as well as the international market is very important. I think the restriction has imposed a lot of pressure on the local practitioners and businesses. And therefore, I think that the current term of the government as well as the next term of government has positioned the opening of borders and reengagement with the rest of the world as a key priority. And hopefully, we can see some good news very soon. 

Chan: Just now, you mentioned that Hong Kong still maintains number three on the global financial center index. But with the recent... I mean, it was in late March that the report came out, with the recent fifth wave of pandemic that really affected Hong Kong, and also with the Omicron outbreak on the mainland right now, do you anticipate we can maintain number three in the next survey?

Tung: It is a hard guess. Because the survey comprises of two key metrics. One of those is the key economic data that it tracks on a daily basis or a monthly basis. Then the other part is the sentiment and opinions we received from other survey respondents based in other markets. And therefore, you know, on the first part, I see that the Hong Kong economy was not faring as well, in the first quarter comparing to previous times, then the second part of this is about the opinions and you know, like how people perceive Hong Kong, especially those in other markets, and therefore, I think it is quite a hard guess. But to me, I think there are also other cities receiving negative publicity over time. And such as you know, like I mentioned, and New York and LA and San Francisco, they are seeing huge amount of pressure in terms of inflation, and therefore I think it will be up in the air.

Chan: Right. You just mentioned now, the risks we're facing... one of the risks that we hadn't had was, we had a recorded number of expatriates and locals leaving the country, leaving the city, Hong Kong. How is that perceived brain drain affecting the financial market?

Tung: Yeah, well, this is a very difficult part. For Hong Kong, we have the great infrastructure, we have the right reputation, and we have a lot of firms' presence here in Hong Kong, from banking, to insurance to asset management firms. To us, you know, without talent, you know, the financial services industry is almost empty. We need people to operate. And therefore, it's not only about the expatriates, we also need to focus on how our local talent is servicing our industry as well. So even though some people have moved out of the city, at least reportedly so, we hope to attract others to come in and serve the city.

Chan: Right, about people then we talk with the corporations. You also hear stories about corporations wanting to move their headquarters to Singapore, will we lose our Asia financial hub to Singapore in simple terms?

Tung: If the regional headquarters were to move to other cities, I think it will absolutely dent our competitiveness. However, I do feel that if you know we can lessen the restrictions… travel restrictions and others, I think our reputation and our proximity to the Chinese mainland market will serve us well.

Chan: Right. One another area, I'm sure people are going to ask you, it’s with the heightened geopolitical situation tension that we talked about. I mean, in Hong Kong actually we don't feel it that much. So can we say that business is as usual?

Tung: Not quite. So from geopolitical tension to inflation to the changing investment behavior, or investor behavior, I think it's not business as usual, we are seeing changes and we are, you know, in the face of needing some changes. So reacting to the geopolitical tension, there's very little that we can do. However, we need to anticipate what's coming next. And therefore, this is something that we have to position ourselves. Then secondly, in terms of inflation, I think it is going to change our demand for various investment products. Hong Kong has served the investors very well as a capital formation center. We are hosting a lot of listings from the Chinese mainland market and also international markets. But I think we need to boost up our capability in terms of bond and fixed income offerings. This is something that we have to work on.

Chan: Alright, before we move to the break. The Greater Bay Area right next door, we have to be integrated. It gives us unprecedented opportunities for the city. But at the moment, because of the border closure, we aren't getting that. I mean, there's no free flow of people, or goods and services. So do you anticipate because of this pandemic, has our position changed? Or have you seen advancement in quite the contrary?

Tung: I think there's, first of all, there's no border closure, so to speak, but then there's inconveniences for us to travel within the Greater Bay Area. However, like I mentioned earlier, traveling without people's touch, I think it's not going to do us any good. And so I do hope that the border opening or border lessening of the restrictions will be back.

Chan: Let's have a break, and we'll be right back. 

Tung: Sure. 

Chan: Welcome back. Thank you for staying with us. We have been talking with Dr Rocky Tung about Hong Kong’s status as a financial hub. So Dr Tung, before the break, we had touched on the current market, the risk that you have mentioned, about the geopolitical tension, and that we have to be very careful because even at number three of the financial index, we are very close to those who are following us. So let's talk about a common term called FinTech. I have read on the Monetary Authority “FinTech 2025 Strategy”, that we are want to drive the FinTech development in Hong Kong. So what exactly is FinTech? And why do we need it in Hong Kong?

Tung: Well, FinTech in short is technology that are used in the financial services industry, to enable people using the financial services in Hong Kong, but also those outside of Hong Kong. How we are doing in Hong Kong would be just right, we have the competitive advantage of being a business center, and therefore for us we have the competitive edge of delivering our services in the B2B segment. While we have 7.5 million population, our consumer market is relatively smaller than the others, and therefore it was in our paper back in 2018 that we should not devote… we should be devoting more resources to the B2B segment.

Chan: Right, apart from the FinTech, and how about all the ESG? Environment, social, and governance. We obviously hear those 3 letters as well, so what is it?

Tung: So in short, we have to… going forward, investors are not going to talk about profits and profits only, we are going to be more mindful of the consequences of our investment decisions to the environmental issues, to the social issues, as well as the governance issues. In Hong Kong, we being an International Financial Centre, we also host a lot of these asset management companies, banks, and civil society organizations. And therefore, we do see that Hong Kong will be able to catch a lot of such opportunities. In fact, the government is now devoting quite a bit of resources to green and sustainable finance. There is a cross agencies steering group chaired by SFC and HKMA, and I think it is meant to do better coordination within various departments.

Chan: Right. Dr Tung, amongst others, locals and overseas investors have become increasingly interested in so-called cryptocurrency-based investment products. And having said that, the government has launched a consultation exercise, but it appears those are only restricted to the profession investors only. So maybe you can tell us, what are actually all these cryptocurrencies? And are they safe?

Tung: Right. Whether or not they are safe is reflected in the volatility of such cryptocurrencies. And so that's one part. The other part is what are these? In Hong Kong, we generalized them and call them virtual assets. And that they are the currencies, at least reflected in some of their functions….

Chan: Sorry to barge in, virtual assets meaning they are not real assets but virtual?

Tung: It's virtual, so we don't see paper, virtual assets. We don’t actually touch it.

Actually the funny point is that there are physical components or prototypes of such assets to a certain extent, but they are used in the virtual world, you know, in buying e-products, such as NFTs and the others. But then I think in a nutshell, this is a type of currencies that are not backed by a single central bank, like many other currencies in our real world.

Chan: So you just mentioned all these new markets. What is the ecosystem in Hong Kong? How are people…is it popular?

Tung: It is actually very popular. In Hong Kong we have one of the largest ecosystems, so we do not only host the exchanges, there are a lot of investors based in Hong Kong, there's also one issuing insurance policies for those cryptocurrencies. And obviously there is a huge professional and legal community serving the supply chain as well. So we have a huge ecosystem. That said, over the years, we have seen some various regulations and consultation exercises issued by the government. And some of the points listed in such documents may not be in line with what the industry was thinking. And therefore we have seen some of those operators deciding to move to other markets. It’s quite appealing to hear that the government is now looking into it, it’s on a listening mode. And I think there will be legislation coming out in just 1-2 months’ time. Hopefully it will reflect some of the industry’s feedback and views.

Chan: Dr Tung, it’s interesting when you mentioned that because Hong Kong has been known as a very good place of rule of law and regulations. Recently there's an incident, I read in the papers called ‘Terra, Luna’ where it faulters and a lot people lose a lot of money. But when you said the business industry itself is less emphasized on regulations, so how do we balance, as a financial center, we want the businesses… but we need regulations to protect our investors. But on the other hand, the business…you have to be business friendly. How do you strike a balance?

Tung: Yes. So this is extremely important. So back in the days when it first started, there was no regulation, not in Hong Kong, not in anywhere else. But as it grows, it has come to a point that we cannot just let the industry grow without any regulation. And I think going forward, it will be a convergence of regulations within the entire globe. So going forward, these operators will be choosing where they are going to operate, not because of the regulatory, arbitrary charge they can potentially take, but rather how friendly, or at least like pro-business the government and regulators appear to be. And I think this is exactly why we need to ensure that we not only are going to protect investor interest, but also going to listen to how these operators are faring, whether or not they are seeing any challenges and whatnot. 

Chan: So can I say, Hong Kong being in Asia, with mainland at our doorstep, this is a huge business? This is something that we should be putting all the emphasis on?

Tung: It is a huge business, but it's not only the business that matters to us. It’s the technologies embedded there. You know like the use of smart contracts, the use of blockchain technologies, that allows businesses to operate without the traditional way of using paper, fax, Excel, and whatnot. So then that kind of system and that kind of technology will be the face of the future of finance going forward, I think. And hopefully you know we can retain such talent in Hong Kong to serve the future of Hong Kong’s financial services industry.

Chan: So Rocky, it looks like the financial universe is becoming more and more complex, and you just mentioned NFTs, non-fungible tokens. Last week we said we had Ms Poman Lo came up and she mentioned even the hotel corporation entering into the Metaverse. So I am sure the viewers are all going to be bombarded with all the new terms, maybe you can tell them what are the terms they should know, and what are the basic they should know when they hear about NFTs, Metaverse, Bitcoin, cryptocurrencies, all that? Let them be able to learn more about this field.

Tung: Right. Perhaps I should talk a little bit about the Metaverse. Metaverse to me is a display of how people are behaving on various platforms. So you know, you and I may be behaving like a very professional person in this real world, but on a virtual world, we are different people. So that's the basic concept of Metaverse or Multiverse. And I think, to me, it is result of the emergence of technologies, such as AR, the augmented reality, virtual reality, mixed reality, or extended reality. So to me, it is not going to replace what we're doing in our real life, but as a matter of fact, going to change how people will feel and act in a different world.

Chan: Right. Rocky, there are more companies, apart from hotel industry, from real estate developers, from social media enterprises are doing it. I mean some of the companies are issuing NFTs to sell art pieces of 7 digits of Hong Kong dollars. So how should we look at all these? They are virtual.

Tung: Being virtual doesn't mean that it’s bad. But to me it's just different. So NFT is very much like the other alternative investments we have been dealing with, wine, antiques, art pieces, paintings. You know they are art pieces, something that is of value. But you know over time we are going to see some frauds, some people sell fake wines, fake paintings. I guess investors needs to be mindful of their choices of investment, and do proper research.

Chan: Dr Tung, we’re now coming to the end of the show. We have talked about the current status of Hong Kong and the regulations we have. So I’ll ask you one very direct question - Can you tell our viewers what is one thing that you have in your mind will be the key for Hong Kong to maintain as a financial hub and being competitive?

Tung: We are living in a very different era right now, so businesses don't come to us, we need to approach them and make sure that we are proactively pursuing potential business. And therefore, I think the public sector and private sector have to make sure that they know what the Hong Kong story is, and to engage our external stakeholders, such as that they know what we're doing, what we are offering. And so the pro-market development attitude is very important for both the private and the public sector.

Chan: Right. Dr Tung, that is all the time we have. And thank you for reassuring our viewers that Hong Kong’s status as a financial hub remains healthy, and for giving us an overview of the opportunities ahead with the virtual asset industry. Stay healthy and goodnight.