Hong Kong cuts stock trading tax to revive role as hub

(Bloomberg) — Hong Kong is reversing an emergency stamp duty hike on stock deals as officials seek to revive the city’s status as a hub for financing and IPOs.

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Chief executive John Lee detailed the measures – which include cutting the tax to 0.10% again from 0.13% – during the second policy speech of his tenure on Wednesday. Efforts are on for the city’s leader to deliver effective support to the financial hub, which is struggling to recover from years of lifting pandemic restrictions as China’s economic woes and heightened geopolitical tensions take a toll.

Boosting the city’s financial markets is high on Lee’s list of challenges. Stock market listings have plummeted since 2021 and trade has fallen, raising concerns about whether other regional financial hubs can effectively overtake Hong Kong’s position as a key international trade hub.

In his speech, Lee is also expected to outline significant easing for the property market as falling demand and rising borrowing costs drive home prices to six-year lows. Developers and real estate agents had called for the removal of residential curbs to help this sector.

The tax on stock trades was raised at the height of the pandemic in 2021.

Average daily share trading on the city’s stock exchange fell 9% in the first nine months of 2023 from a year earlier. Total equity funds raised fell 67% in the period. Hong Kong’s measures also come after China halved its stamp duty on stock trades.

Since the tariff was increased in August 2021, the government’s income from stock trading has surpassed even that from property sales, its traditional cash cow. Hong Kong has also become the most expensive stock exchange among developed markets in the Asia-Pacific region, a survey showed.

The government had previously expressed reluctance to restructure its higher stamp duty. Before China’s reduction, Hong Kong’s government said it had found “no negative effect on trade” from the stamp duty hike and said stock prices were the biggest driver of trade.

Reversing the tariff to levels before the 2021 hike would cut Hong Kong government revenue by HK$12.3 billion, or about 2% of revenue, according to an official estimate released in July.

Attention will also be on what Lee is doing to quell property concerns. The authorities have room to adjust cooling measures introduced when the sector was red-hot. Lee will announce a reduction in the home purchase tax to 7.5% from 15% for residents buying a second home, local media reported, citing unidentified people.

Finance Minister Paul Chan last month also hinted at a potential easing, saying conditions have changed from when the government introduced cooling measures in the early 2010s. However, prices remain expensive by historical standards.

Officials have also tried to sell Hong Kong’s appeal to a skeptical world through various advertising campaigns to revive its international image and lure visitors. The number of tourists visiting the city has yet to return to pre-Covid levels, while retail sales remain depressed. Economists have cut their forecasts for the city’s economic growth this year as the post-pandemic recovery remains sluggish.

Yet the government has also stepped up efforts to protect national security, even as protests have long been quelled. In the summer, Lee handed out a bounty to eight pro-democracy activists living abroad, calling them “street rats” who would be hunted for life. The move sparked public criticism from Western governments, including the United States and Britain.

During his policy speech, Lee said the city must be alert to possible street violence and rebellion through “soft resistance” while keeping an eye on anti-government movements by dissidents abroad. He also said the city would create laws to prohibit actions that endanger national security, which he said would be more comprehensive than existing legislation.

Lee is also expected to tackle the city’s declining birth rate, which is contributing to a rapidly aging society. Local media have reported the potential for measures including a handout of HK$20,000 ($2,555) for each newborn, along with the addition of childcare services and cash assistance.

Other key messages from Lee’s policy address:

  • Hong Kong will make laws to prohibit actions that endanger national security under Article 23 of the Basic Law

  • Hong Kong will introduce a mechanism to attract overseas companies to resume domicile in the city, targeting those with a business focus in the Asia-Pacific region

  • The government will look into introducing private investors to support major urban development plans, such as the northern metropolis

  • Hong Kong will attract talent from Vietnam, Laos and Nepal, making it easier for people from there to get talent-related visas

–With assistance from Alan Wong, Richard Frost and Adrian Kennedy.

(Updates to include details from the policy address.)

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