Hong Kong Strengthening Ties with Middle Eastern Investors as Crypto Challenges Emerge

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In the year 2023, Hong Kong witnessed a notable increase in connections with Middle Eastern investors, driven by Chief Executive John Lee’s delegation visit to the Gulf region. The Belt and Road Summit in September further solidified these ties, incorporating a dedicated session on the Middle East, emphasizing investment opportunities and collaborations.

Capital Markets Surge:

Despite initial turbulence in the Hang Seng Index, Middle Eastern funds are expected to engage more actively in Hong Kong’s stock market this year. Sovereign wealth funds from Saudi Arabia, Abu Dhabi, and Qatar have notably participated as seed investors in listings of high-quality Chinese companies on the Hong Kong market. Sectors such as renewable energy and advanced manufacturing, along with high-tech industries like semiconductors and AI, are gaining traction among Middle Eastern investors.

With traditional US investors exiting due to geopolitical tensions, Middle Eastern funds have emerged as vital funding sources for Chinese companies. The influx of Middle East funds into China’s onshore market is anticipated, providing significant funding through Hong Kong.

Crypto Challenges:

In addition to traditional investments, the crypto world has attracted attention from Middle Eastern investors. Hong Kong’s progressive regulatory regime has drawn Middle Eastern funds, recognizing the SAR as a hub with a clear digital asset regulatory framework. The SAR’s distinct regulatory stance, separate from mainland China’s strict ban on certain crypto activities, has contributed to this trend.

The Securities and Futures Commission’s (SFC) licensing regime for crypto exchanges, implemented in June, has provided a regulatory framework. However, challenges persist, including controversies around the regulatory classification of “virtual assets” and tax-related hurdles. Crypto’s exclusion from Hong Kong’s tax regime poses challenges for the city to become a preferred jurisdiction for crypto funds.

Ongoing Discussions:

While Hong Kong’s attractiveness grows for traditional investments, the crypto landscape requires further clarity. Discussions and consultations with regulators and tax authorities are expected in 2024. The focus lies on revising the tax regime to cover crypto assets and establishing a licensing regime for crypto exchanges in Hong Kong. These developments could enhance the city’s appeal as a hub for both traditional and crypto-related fund activities.