What Hong Kong’s Approach To Crypto Tells Us About China’s Own Ambitions

Wachsman Executive Director, Chin Ann Ho, explores.

Crypto’s regulatory turmoil in the US has captured much attention over the last couple of months. However, the increasingly unfavorable climate for crypto in the US belies the fact that it is fast gaining recognition and adoption in other parts of the world.

This was most clearly seen at the recent Hong Kong Web3 Festival, which drew over 10,000 attendees and more than 300 speakers including international policymakers. The event captured the zeitgeist of Hong Kong – an international hub that is known to apply smart regulations to stay on the cutting edge of finance and trade.

Hong Kong may have been seen to have ‘missed the boat’ on crypto compared to rivals such as Singapore and Dubai. But it would be unwise to count Hong Kong out because if there’s one thing the city is known for, it would be for its ability to catch up and surpass the competition. With the easing of COVID restrictions, Hong Kong is now back with a vengeance, eager to recapture its crown as the premier financial hub in Asia – a title that currently rests with Singapore.

Since the announcement of a more open and collaborative approach towards digital assets in October of last year, Hong Kong has received interest from more than 80 companies looking to set up business there. The clarity and consistency of Hong Kong’s regulatory regime point to an appreciation of the regulator’s support for crypto’s underlying promise: distributed ledger technology (DLT). This is exemplified by the government’s sale of US$102 million worth of tokenised green bonds – the first by any government in the world.

“Hong Kong is now back with a vengeance, eager to recapture its crown as the premier financial hub in Asia.”

Hong Kong regulators are well aware of DLT’s transformative potential and are counting on smart regulations to ensure the city continues to punch above its weight. While the Hong Kong Monetary Authority (HKMA) has signaled recently that the regulations will be anything but light-touch, this has not dampened the excitement for crypto firms eyeing growth there. For many of them, Hong Kong is a key gateway to the immensely lucrative Chinese market with its massive addressable client base, and abundance of capital. Many Chinese investors are looking for smarter and safer ways to invest, and Hong Kong is just the perfect market for them, even more so than regional rival Singapore. 

There may be some concerns that the Chinese government’s restrictive approach to crypto may unduly affect policies in Hong Kong in the long run. However, these worries are simply unfounded. Licensing regimes for virtual assets in Hong Kong are approved by the city’s Legislative Council (LegCo) – the apex decision-making body and power center for the city. Every LegCo member has been vetted and approved by Beijing, and it is safe to assume that every piece of legislation that is passed by the LegCo has the tacit approval of the Chinese Communist Party. 

In Hong Kong’s case, we can be sure that its approach to crypto is more than an experiment because policymakers in the mainland will be quietly rooting for its success. If Hong Kong succeeds in creating a robust and vibrant crypto ecosystem, it could serve as a model for other regions in China to emulate. From Shanghai to the Suzhou industrial park, this has always been the tried and true approach to Chinese policymaking: investigate, implement, and improvise. Hong Kong’s approach may well be a harbinger of China’s own crypto ambitions. With the full weight of Chinese policymakers behind it, Hong Kong’s emergence as an international crypto powerhouse is all but certain.