Hong Kong's enduring advantages as a treasury centre

Hong Kong has always had distinct capabilities as a corporate treasury centre (CTC). It’s geography, openness, wide range of supporting services and welcoming tax and policy environment have all made the city a go-to place for treasury teams interested in Asia. But as times changes, so too must Hong Kong’s “business case” in this area. It’s therefore a good time to revisit the city’s strengths to demonstrate why now, arguably more than ever, Hong Kong remains a choice location for regional corporate treasurers.

It's no secret that today’s corporate treasurers are facing a range of interconnected risks. Interest rate uncertainty, foreign exchange volatility, and inflationary pressures are all top of mind in the current context. Managing stakeholder concerns and priorities continue to pose their own difficulties. And for companies operating internationally, cross-border cash management can be especially complex and costly if not handled effectively.

This makes where businesses choose to have their treasury centres and who they work with for their treasury solutions all the more important. While Hong Kong has long been a natural choice for establishing treasury operations in Asia, other markets have been starting to show their strengths.

Competition rising

In recent years, competition has been increasing from regional peers such as Singapore as more corporates weigh the advantages between markets. The reasons for this are several, including slowing business from mainland China and talent migration during the Covid-19 years.

To overcome the change of perception among some corporates, Hong Kong must rediscover it’s advantages to reenergise its attractiveness as a CTC. The upside to doing this is immense, as opportunities continue to emerge and global interest in the region shows no signs of slowing.

Location, location, location

The old adage about location when buying real estate is absolutely applicable to the decisions around where to set up treasury operations. The right market can make growth easier, streamline cross-border expansion, simplify cash management, and facilitate the process of complying with regulations – all of which make effective treasury management a driver of business value.

This is particularly relevant now with a growing number of Asia corporates developing internationalisation plans. Not only can centralising treasury operations in Hong Kong help provide a strong foundation for expansion abroad, but working with a banking partner such as HSBC with an established global network is also a critical part of navigating the nuances of international markets.

But what is it exactly about Hong Kong’s location that makes it such a good fit for regional treasury operations?

Proximity to mainland China – As the gateway to mainland China, Hong Kong is the largest and most liquid offshore RMB market, processing 80% of global RMB settlements and possessing a RMB1tn liquidity pool.¹ For businesses in need of RMB pool structures or who are operating with a multicurrency notional cash pool, these benefits are significant and difficult to find to the same degree elsewhere.

Connectivity to the rest of Asia – Managing the risks associated with long supply chains originating in Asia can be complex, making Hong Kong’s location and links to the wider region a distinct advantage for businesses with footprints in both North and South Asia markets.²

Within key trade and investment corridors – For large corporates and MNCs with extensive global and regional footprints, Hong Kong enables access to bustling trade and investment corridors – for example, mainland China, ASEAN and the Middle East – that are key to Asia growth strategies.

While for smaller corporates, Hong Kong’s connectivity makes cross-border expansion easier by providing a reliable base for managing currency fluctuations and moving cash across markets.

Digital dynamism

Hong Kong’s strengths and capabilities as a CTC have taken on new value in this period of macroeconomic and geopolitical uncertainty. At the heart of renewed value is the city’s digital economy, which has continued to go from strength to strength.

As any corporate treasurer looking for an edge knows, digitisation is transforming how organisations manage cash flow, mitigate risk, and make financial decisions. The benefits are many, including improved forecasting and strategic planning from real-time access to cash flow data, increased efficiency from automated workflows, and data-based decision making from advanced analytics capabilities.

To capitalise on these benefits, treasury teams have an important decision to make about where to set up operations. Hong Kong stands out for several reasons:

At the forefront of tokenisation – The rise of distributed ledger technologies (DLT) such as blockchain have enabled the tokenisation of real-world assets and the ability for market participants to transact them. For treasurers, concepts such as tokenised deposits are being explored which could have benefits in terms of increased fungibility with other bank-issued deposit tokens and non-tokenized money.

With the support of banks such as HSBC, the Hong Kong Monetary Authority (HKMA) has been initiating projects to explore how tokenisation could be implemented in different contexts. One example is Project eHKD, which has been designed to explore retail Central Bank Digital Currency use cases. These and several other projects³ are pushing the boundaries of what’s possible in tokenisation and opening up new horizons for treasurers.

Doubling down on digital commerce – Payment innovation has a real and lasting impact on treasury operations, making the rise of new forms of digital payments and access to them a big benefit. In Hong Kong, not only are digital wallets growing in usage and popularity, but tokenised receivables and payables are opening up new opportunities in alternative financing.

Corporate treasurers therefore have a lot to gain by setting up in Hong Kong. The benefits include enhanced process efficiency, access to leading financial partners such as HSBC, seamless integration with digital payment platforms, and a better experience by offering diverse payment options tailored to customer preferences.

Hong Kong’s vibrant fintech ecosystem also offers tools such as such automated FX platforms, digital signing tools and cloud-based treasury applications that can help both large and small corporates remain agile, respond quickly to cross-border opportunities and optimise their regional cash flows.

It’s hard to overstate the importance of a well-designed tax regime for corporate treasurers, which supports cash flow optimisation, reduces risk and uncertainty, and gives momentum for internationalisation. These benefits are further enhanced with access to a strong ecosystem of professional service support.

Taxes as a competitive advantage – Hong Kong boasts a competitive tax environment, which for corporate treasurers is a significant value add. In addition to no indirect taxes and a concessionary profits tax rate of just 8.25%⁴ for qualified CTCs, the city also doesn’t levy many treasury management-specific taxes such as interest withholding tax.⁵

Access to sophisticated professional support – Complementing a straightforward tax environment is the support needed to easily comply and optimise accordingly. Whether it’s legal advice, tax guidance, or accounting support, Hong Kong’s professional services are well versed in both what businesses can expect and how they can operate in the most efficient way possible. For example, the city’s minimal FX controls are a huge advantage for corporates doing high volumes of cross-border business.

Hong Kong is at the centre of an exciting new era in Asia and globally, one where businesses desire the ability to pursue opportunities in new markets and regions quickly and efficiently. This requires a treasury function that is digitally-enabled and operating in a market that is fit-for-purpose – with access to globally-connected banking partners such as HSBC and financial infrastructure that is designed to make treasury management easier.

As corporate treasurers continue to look for new ways to add tangible value to their businesses, considering the benefits of being in Hong Kong should be an important part of their decision making. Because a good location is a great opportunity.