What would it take to convince your company to open an office in Hong Kong?
Everyone’s needs are unique. That said, as the shipping industry adapts to the new economic realities of a sector plagued by overcapacity, increasingly complex regulations and lack of affordable capital, operating costs are a consideration few can ignore.
As such, it should come as no surprise that tax concessions are included in the latest series of initiatives aimed at attracting high value-added maritime services companies to Hong Kong.
Ship lessors, leasing managers and insurers are the current focus of new tax incentives and other measures that represent a pivotal chapter in the broader crusade to consolidate Hong Kong’s position as an international centre for shipping and finance.
Concessions to encourage more shipmanagers, brokers and agents to join the over 800 maritime companies with an established presence in Hong Kong are planned for 2020 as well.
A financial epicenter
In addition to its extensive maritime ecosystem, Hong Kong also serves as a centre of both regional and international finance, which makes it uniquely suited to play an increasingly active role on the capital side of shipping, as noted by financial secretary Paul Chan when he delivered his 2019-20 budget earlier this year.
“Shipping loans and advances in Hong Kong have more than doubled in the past 10 years,” he said. “In the face of keen competition [from other prominent maritime clusters], we must leverage our advantages to seize the business opportunities brought by the Greater Bay Area Development and the Belt and Road Initiative for the continuous development of high value-added maritime services.”
Chan also discussed ship leasing, which he described as an “emerging business model” in the realm of maritime finance. He went on to reaffirm the government’s interest in developing Hong Kong as a centre for ship leasing in the Asia-Pacific region.
Capital can be hard to come by in today’s market. As Western banks scale back their exposure to the sector, more and more shipowners are turning to Far Eastern leasing companies for fleet funding.
Lending by the world’s top 40 shipping banks fell to $300.7bn in 2018, according to the latest annual survey published by Petrofin Research. This represents a decline of 13% year-on-year to the lowest level the firm has seen since it started tracking the global portfolio in 2008. Meanwhile, Chinese leasing to shipping topped $51.3bn, versus $47bn in 2017.
Petrofin described Far Eastern leasing companies as the new protagonists in ship finance. “They offer long term finance option for often higher percentage loans and at a fixed rate,” it continued. “This, in today’s low USD interest rate environment, is quite attractive.”
While leasing hasn’t replaced bank finance, the firm pointed out that it has gained both in popularity and volume— particularly amongst small and medium-sized owners for which leases may be the only affordable source of finance available.
Petrofin and other market sources say the rising tide of leasing companies shows no signs of abating anytime soon. They note that some lenders, like Societe Generale and Piraeus Bank, have already formed strategic alliances with Far Eastern leasing outfits, or are actively considering it.
In her latest policy address, chief executive Carrie Lam indicated tax concessions for qualified ship lessors and leasing managers that establish a Hong Kong base will be adopted in 2020 as part of a bill that amends the Inland Revenue Ordinance.
An effort to court shipmanagers, shipbrokers, ship agents and other commercial principals to Hong Kong with tax incentives were included in Lam’s list of new initiatives for 2020 as well.
The International Chamber of Shipping (ICS) opted to base its first Asian office in Hong Kong. It timed the launch to coincide with this year's Hong Kong Maritime Week. An opening ceremony will take place during the Hong Kong Shipowner Association’s annual cocktail reception at the Conrad hotel.
Industry insiders will have an opportunity to press policymakers for further detail about these measures—as well as the government’s broader long-term maritime strategy—during Hong Kong Maritime Week, an annual trade conference that always convenes in the third week of November.
The event invites delegates from all over the world to participate in a diverse mix of activities that range from conferences and seminars to industry briefings, academic workshops, cocktail receptions, networking dinners, sports competitions and tours of local maritime landmarks.
East meets West
Secretary for transport and housing Frank Chan discussed how international trade has become increasingly intertwined with the global economy and politics when he delivered the keynote at an expo hosted by another maritime hub: London International Shipping Week.
“The trade dispute between the United States and China, the likelihood of a no-deal Brexit, as well as the emerging trade tension between Japan and South Korea have all made the sea rougher than ever,” he said.
Shipping hubs in the East and West are facing what Chan called “the common challenge of growing protectionism.” But at the same time, he remains confident that London and Hong Kong are well placed to weather the storm if they continue to embrace new markets—and global partnerships.
“Hong Kong is an international metropolis that is always responsive to changes,” he continued. “For those who are eager to tap into the Chinese and Belt and Road markets, Hong Kong offers the know-how and provides the market access. [We’re] well-positioned for the new opportunities that lay ahead.”
As one of the 11 cities in the Greater Bay Area of China strategically located at the heart of Asia, Hong Kong serves as a “super-connector” between China and the West. Nearly 10% of the global merchant fleet call Hong Kong home and more than 800 companies provide an extensive range of shipping services.