Beijing’s sovereign digital currency to boost Hong Kong fintech startups

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As Beijing moves forward with a sovereign digital currency and a national blockchain network, Hong Kong’s fintech community is using the city’s role as a bridge between mainland China and the rest of the world to seize opportunities for innovation. .

China has been at the global forefront of developing a central bank digital currency, with 70.75 million retail transactions worth 34.5 billion yuan ($ 5.3 billion) having been carried out as part of a pilot test at the end of June of this year. The People’s Bank of China has also collaborated with the Hong Kong Monetary Authority on a bridge project which will link the digital yuan to sovereign digital currencies in Hong Kong, Thailand and the United Arab Emirates.

The project could create opportunities for Hong Kong’s more than 3,300 start-ups, enabling them to serve importers and exporters using fintech. This could provide incentives for innovation in fintech and trade finance solutions, said King Leung, head of fintech at InvestHK, the government body promoting foreign direct investment.

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“For fintech startups focused on business-to-business solutions, only a handful of major cities have a strong base of financial institutions,” Leung said. “FinTech has to be where the financial centers are, and if you’re not in Hong Kong, there are only a few [remaining] choice.”

Ping a OneConnect bank, one of Hong Kong’s new virtual banks backed by China’s largest insurer, shows how fintech could help small and medium-sized businesses, Leung said.

Through a partnership with Tradelink, a provider of business and personalized document filing services, Ping An OneConnect has introduced an SME loan service that approves loans within five days. The new service leverages decades of Tradelink’s customs clearance data to determine a borrower’s credit health.

From left to right, Vishal Kapoor, Head of Treasury and Business Solutions at Citi in Hong Kong, and King Leung, Head of FinTech at InvestHK. Photo: Edmond So alt = From left to right, Vishal Kapoor, Head of Treasury and Business Solutions at Citi in Hong Kong, and King Leung, Head of FinTech at InvestHK. Photo: Edmond So

Another Hong Kong start-up, digiXnode Tech, which operates a marketplace for digital applications running on blockchain, this month launched its global portal connecting developers around the world with the Beijing-led company. blockchain service network (BSN).

An ambitious project representing President Xi Jinping’s goal of making China a dominant global player in information infrastructure, BSN is led by a consortium that includes the State Information Center, China Mobile and China UnionPay. digiXnode connects the network to offshore blockchain developers from cross-border trade and finance applications, thus facilitating the country’s trade with the Belt and Road economies.

“The next step is to digitize all stakeholders in commerce as well. This includes all shipping lines and logistics players, ”said Vishal Kapoor, Citi’s treasury and business solutions manager in Hong Kong. “It will happen over time.”

Signage for the digital yuan in a Beijing supermarket. China has been at the global forefront of developing a central bank digital currency. Photo: Bloomberg alt = Digital yuan signage in a Beijing supermarket. China has been at the global forefront of developing a central bank digital currency. Photo: Bloomberg

Cryptocurrency startups, on the other hand, fear the city could lose its hard-earned advantage, built on a strong regulatory framework, to Singapore. Unlike China, where cryptocurrency trading is prohibited, in Hong Kong a regulatory framework is in place to allow cryptocurrencies to coexist with central bank digital currencies.

Indeed, the city’s virtual asset regulatory regime, which prohibits the participation of retail investors and only allows professional investors, is considered restrictive. It could stifle entrepreneurs’ desire to innovate in Hong Kong, said Alessio Quaglini, CEO of Hong Kong-based digital asset custodian Hex Trust.

“If you have a framework with heavy and stringent requirements for young fintech companies, there is a risk that Hong Kong will start losing business activities to other markets that are aggressively trying to win them over,” Quaglini said.

A professional investor is defined by Hong Kong Securities Law as a person with a portfolio of at least HK $ 8 million (US $ 1 million). Singapore’s payment token regime does not prohibit retail investors.

In August, Hex Trust received its Capital Markets Services License from the Monetary Authority of Singapore, which allows it to expand its custodial service to the city-state. The new license is in addition to his trust or corporate service provider license obtained in Hong Kong.

Yet the city ranking fifth in terms of the density of wealthy individuals – one in 125 Hong Kong residents have a net worth of at least US $ 5 million – InvestHK’s Leung said the Hong Kong regime serves to balance investor protection and innovation.

“There is still a lot of wealth in Hong Kong. If a start-up focuses only on serving professional investors, in terms of dollar amount it is already a significant market,” he said. he declares.

This article was originally published in the South China Morning Post (SCMP), the most authoritative voice on China and Asia for over a century. For more SCMP stories, please explore the SCMP application or visit the SCMP Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.



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