HONG KONG – Finally, Hong Kong is going to have its own sovereign wealth fund (SWF) to promote the development of industries and the economy, signaling the city will take a more proactive and aggressive approach in managing its fiscal reserves and promoting economic growth, instead of fixating on the laissez-faire market doctrine.
In his maiden Policy Address, Hong Kong Chief Executive John Lee Ka-chiu announced in October that the special administrative region will consolidate the Co-Investment Fund (HK$30 billion), Hong Kong Growth Portfolio (HK$22 billion), GBA Investment Fund (HK$5 billion) and Strategic Tech Fund (HK$5 billion) into a single investment-holding entity – Hong Kong Investment Corporation (HKIC).
Hong Kong has traditionally been late in the game of sovereign wealth fund. Singapore established two SWFs – Temasek Holdings and Government of Singapore Investment Corporation – decades ago to earn long-term higher yield returns by investing its fiscal reserves in a full spectrum of financial assets.
Some argue that the Hong Kong Monetary Authority’s Exchange Fund is already a SWF but its positioning is more like a foreign currency reserve asset fund that primarily serves the purpose of maintaining stability of the Hong Kong currency. It should be distinguished from SWFs which seek to maximize long-term returns.
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An SWF is a state-owned investment fund comprised of various sources, such as state-owned natural resource revenues, trade surpluses, budgeting excesses, foreign currency operations, money from privatizations, and governmental transfer payments. SWFs are playing an increasingly important role in the global financial market as an institutional investor.
According to Statista, as June this year, Norges Bank Investment Management was the world’s largest SWF in terms of assets under management, followed by China Investment Corporation and State Administration of Foreign Exchanges of China. GIC and the HKMA was ranked the fifth and the eighth respectively.
“For the first time, Hong Kong government will have a dedicated entity to operate its own investment and I am bullish on this concept,” a partner from a global renowned international law firm told me.
The establishment of HKIC will drive the upgrading of industries in Hong Kong and, hence, bestow benefits to the city’s long-term economic development by directing resources to develop the economy and attracting more strategic industries to Hong Kong, the partner added.
While the Co-Investment Fund does not seek the highest financial return, it will gauge the long-term social and economic benefits brought by the investment, Financial Secretary Paul Chan Mo-po emphasized.
The government should therefore design key performance indicators, such as specifying the measurement of social and economic benefits, for evaluating the performance of HKIC. For example, it should specify how many strategic companies that HKIC has successfully attracted, or how many jobs it has created.
In addition, the administration should design some kind of institutional mechanism of ensuring accountability in case the investment entity incur investment losses.
Oswald Chan is a veteran business journalist and joined China Daily as a senior business news reporter in 2010. He covers various issues pertinent to the development of Hong Kong economy. He can be reached at firstname.lastname@example.org .
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