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“We can accommodate 1,000 more startups in Web3”

But how to draw them to Hong Kong? Legislator Duncan Chiu wrestles with the city’s fintech paradox.

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Duncan Chiu, Legislative Council

Hong Kong’s success as a financial center would, you think, make it the ideal place for fintech.

And in some ways, it is. There are more than 400 fintech companies operating in the city. The regulators have paved the way for virtual banks and virtual insurers, a domestic faster-payments system, and licensing for virtual-asset service providers. Etc.

It’s a financial hub because it’s a rule-of-law entrepot serving the vast hinterland of China. Banks can do things in Hong Kong they can’t in mainland China, and its role as part of the People’s Republic make Hong Kong a trusted place for Chinese enterprises to raise capital, borrow, save, and invest.

Tech minnow

But when it comes to technology, Chinese companies are world leaders. Their internet businesses rely on scale, so Hong Kong’s 7.3 million people don’t matter to them. Tech giants use Hong Kong for financial needs but not as a commercial springboard: if they want to operate or invest overseas, they go direct.

While Hong Kong has plenty of financial and legal acumen, it doesn’t have much tech talent. The city has perhaps 200,000 people employed by tech companies, of whom 40,000 are highly skilled researchers, systems integrators, and other sophisticated tech workers.

“That’s the same amount as Huawei, which is just one company,” said Duncan Chiu, a member of Hong Kong’s Legislative Council (LegCo) who represents technology and innovation companies.

He gave a talk at the Hong Kong Foreign Correspondents Club on February 28 asking what it would take for Hong Kong to become a leading fintech hub. Another way to ask this question is how the city can attract more startups, more mid-career workers, more post-doctorate researchers – and the big technology companies that would employ them.

The fin and the tech

Chiu embodies the paradox that Hong Kong has lots of fin and too little tech. He’s the youngest child of the late Deacon Chiu, a tycoon known for running the broadcaster ATV and the real-estate conglomerate Far Eastern.

Duncan Chiu has spent most of his career in the family businesses or as a venture capitalist (at Radiant Ventures), investing in Greater China and Israeli startups. He’s taken an interest in tech, noting that he was attracted to it partly because, as the youngest son, he’s the only one in the family who decided to make it a career. But he’s not a coder or a researcher. He’s a financier. Traditional Hong Kong!

He was appointed to the LegCo role last year, and he’s keen to advance the tech sector, especially fintech. B2B fintech companies should be a natural fit for the city’s large financial sector.



He’s already learned that politics moves at its own pace, noting LegCo recently passed an amendment to the Copyright Ordinance after 14 years of logjams. It continues to grapple with legislation meant to strike a balance between ingenuity and sensible regulation (crypto is one example; so is defining ownership of activities involving generative artificial intelligence, a new subject for the Copyright Ordinance).

He argues that this sluggish pace is a threat to Hong Kong’s ambitions to be a leading fintch hub.

“We can’t be a follower, like normal,” he said. “We can’t wait for the US to do it first, and then revisit the subject, and think about it, and then ten years go by. To be a tech center, we have to be adventurous.”

Gauging fintech successes

By some measures, Hong Kong is already a fintech hub.

Hong Kong today is home to 3,755 startups, of which 472 are fintechs (that’s 12.6 percent of the total), according to LegCo data (as of end 2021). This is a substantial expansion, considering the city had only 86 fintechs in 2015.

But in terms of startups, the city lags Singapore and other tech hubs such as Israel. Hong Kong’s population is about the same size as Israel’s, but with more than 8,000 tech companies, Israel is called the “startup nation” for a reason. Even one of its recent prime ministers launched his career in tech.

Meanwhile the past three years have seen Hong Kong lose its luster: political unrest, insanely prolonged and capricious Covid-related restrictions, an exodus of talent, and the loss of many crypto companies.

The city also suffered an external shock when Beijing canceled the Ant Group IPO, denying Hong Kong a blockbuster deal and squashing the pipeline in its trail.

The Web3 opportunity

Chiu is eager to revitalize the city’s appeal. The government is taking fintech more seriously, but he worries this isn’t enough to attract the people and companies that would give Hong Kong a critical mass.

He’s most optimistic about blockchain-based companies. He likens last year’s crypto disasters such as FTX’s collapse to the internet bubble that burst in 2001, a painful experience that cleared the way for giants such as Amazon, Tencent and Alibaba. Hong Kong has taken the global lead on licensing virtual-asset service providers (VASPs) and the Securities and Futures Commission is extending their activities to retail investors.

“We can accommodate another 1,000 startups in Web3,” he said. “Now’s the time to build infrastructure, attract talent, and invest.” Such an influx will drive overall efficiencies and competition in the city’s finance sector.

Slow incumbents

But the track record among Hong Kong financial institutions to adopt newfangled tech is not encouraging.

According to LegCo data, only about half the city’s banks use fintechs for payment and fund transfer, for savings or deposit account services, or for wealthtech. Only 15 banks use fintechs for risk management.

The HKMA has a sandbox but it is skewed to regtech, where there are 114 pilots. The next biggest category of pilots is mobile apps, with only 17 projects. The HKMA is now cajoling banks to integrate fintech strategies, as part of its “Blueprint 2025”.

Half measures

The latest budget by Financial Secretary Paul Chan has pledged funding for a few priorities: HK$500 million for “digital transformation” projects for SMEs; HK$200 million to upgrade iAM Smart, a database of government records; and HK$50 million to support Web3 projects.

This is small beer compared to the need to decisively attract people and companies in tech, including fintech.

As a legislator, Chiu is lobbying the government to be bolder in funding digital infrastructure, such as dropping incremental changes to iAM Smart in favor of building a digital ID system, comparable to Singapore’s MyInfo. Other ideas include funding supercomputing or broader government blockchain initiatives.

The government has recently announced the launch of a tokenized green bond, while the Hong Kong Stock Exchange is planning a carbon market. Chiu says a green bond has some genuine uses, such as compressing settlement times from T+5 days to T+1. But focusing just on tokenization ignores broader, systemic needs.

“We can create a Greentech industry with products, compliance, certifications and standards, and then export this,” Chiu said.

The enduring hold of culture

Governments can create conditions favorable to tech. Hong Kong has a lively venture capital sector. There are many experienced businesspeople from financial services who know what kind of fintech startups add value. There is the possibility of coordinating with tech developers in Guangdong (the “Greater Bay Area” strategy), although this tends to be harder than it looks.

Silicon Valley’s tech companies often succeed not because of government hiring programs or industrial policy, but by providing services to government buyers (such as NASA or the military). There isn’t a comparable “buy Hong Kong” tech strategy or budget.

But such changes take time. Hong Kong’s innate character has pros and cons, like anywhere else, but the pros still favor traditional finance and the cons make it challenging for startups or for large-scale tech companies to come here to do R&D and product development, not just sales and marketing.

Culturally, the city is traditional. This isn’t just about the prevalence of cash in society, although that’s one hallmark. To generalize, failure in startup ventures is not regarded as a valuable learning experience; it’s just failure. The city’s elite – families like the Chius – are focused on real estate, not on science and tech, except perhaps as investors (and often in the bits of tech, such as crypto, that appeal as get-rich-quick schemes). Neither banks nor government bodies are run by people steeped in tech entrepreneurialism.

Chiu doesn’t think the city has the luxury of making a gradual transition. He is wholly supportive of the city’s various programs for attracting talent post-Covid. If anything, he’s worried they could be too effective on the individual front, with various handouts, rewards, and promises, but fail to get corporates to come too.

“We need to do this quickly in the next two years,” Chiu said. “If we lure talent but they don’t find the jobs they want, they’ll leave.”


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