Straight Talk presenter Eugene Chan (left) interviews former secretary for financial services and the treasury Professor KC Chan during the show, Feb 21, 2023. (PROVIDED TO CHINA DAILY)

Former secretary for financial services and the treasury Professor KC Chan is on our show this week.

The Budget is out tomorrow, the public is debating whether the government should spend more. Professor KC Chan says the government should be careful as revenue is decreasing. 

He reckons the reopening of the border and the government’s "Hello Hong Kong" campaign would bring businesses and tourists back to Hong Kong that would help revive Hong Kong’s economy.

Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Professor KC Chan.

E Chan: Good evening! This is Eugene Chan on Straight Talk. Our guest this evening is Professor KC Chan, the former secretary for financial services and the treasury from July 2007 to June 2017. Prior to that, he was Dean of Business and Management in the Hong Kong University of Science and Technology. He is currently an Adjunct Professor and a Senior Advisor to the Dean at the HKUST Business School. He is also Chairman of WeLab Bank, a virtual bank of a leading Asia fintech company. Welcome, KC.

KC Chan: Alright, Eugene.

E Chan: Thank you for coming to the show. It is quite an important time because we're going to have the budget tomorrow. And as you know, Hong Kong is an open economy, where international trade of goods and services are very important to our financial health. But look at the events of last few years, in particular with COVID, Hong Kong is virtually closed off from the rest of the world. And where are we right now?

KC Chan: Well, first of all, thank you for inviting me to the show. I have been watching your show and I really think you have done a great job. So, it's very nice to be here. And at this moment, I think the Hong Kong community is very happy about the border reopening. And from my perspective, I can share with you that I can definitely see that the traffic is coming back. We have bankers coming back to Hong Kong to see a client and to see the associates, we have business people from mainland as well as overseas coming to Hong Kong. I think definitely, although it is still a beginning of the reopening, but definitely we are seeing the, you know, the traffic going back. So, of course, you know, the total recovery will take some time, because there are a lot of people who are still, you know, we're still trying to figure it out their next travel plan. And we hope that they will include Hong Kong in the travel plan.

E Chan: And actually, if you do have a chance to visit the Chek Lap Kok airport, I mean definitely a lot busier compared to months ago. Basically, you use deserted is the word to use. So, where are we heading, now since you said people are coming back?

KC Chan: Well, I think number one, I think, there are some, I would say, low hanging fruits or lower hanging fruits, such as the tourists spending. I think we should really try to encourage more tourists spending in Hong Kong that will be good for our retail industry, more of the shops and so on. I think that will be achievable because Hong Kong is still a wonderful place to visit, you know, family reasons, business reasons, as well as leisure reasons. I think the other part that we are doing, which the government is doing is really trying to reposition Hong Kong as the finance and trade hub for the world. Now, of course, that will take some time because we are now rebranding, reinventing ourselves. And that will take some time, but I think we are already having a good start on that.

E Chan: Right. So, KC, you know that we are kind of using the word, normalization of our travel policies right now. What will be your anticipated impact of this on our economic growth?

KC Chan: Well, it's number one, you know … travel is very important. You know, we mentioned tourists, it’s obviously tourist spending. It's very important. I think on tourism, you know, not only it accounts for a huge percent of our GDP, but actually accounts for a lot of employment. We want to see the hotel is back, we want to see the theme parks doing business, and restaurants doing business. The other part actually is more … is less tangible. But it's really, really about the business to business, human to human connection. In the past three years, because of the lack of travel, a lot of the fund managers and finance people, the bankers didn't come to Hong Kong. So, when you don't come to Hong Kong, you Hong Kong and miss out on a lot of potential investment opportunities. So, I definitely see that this reopening, normalization, we going out there and people coming back to Hong Kong will be good for business. We've called for deal making. Now give you one example, you know, for the WeLab bank that I am, you know, part of. We didn't go to mainland for three years, although we have business you know in mainland, we have potential investment in mainland. Now, last week, actually you know, our people started going back. And then that's a real, you know, definitely good for the business. 

E Chan: Right, KC. just now you mentioned that. Actually, a lot of people that may not know that, although tourism is our fourth pillar of our industry, it only accounted for only like 5 percent of our GDP, even in good times. But you're saying that, although it's only 5 percent, it’s still very important.

KC Chan: Yes, it's still very important because it's not a big GDP contributor, but it's a very good, important contributor to the employment. And also, you know, that people who work in the shops and in our restaurants, they are very… and in hotels… So, that's why it's a very important pillar to us. 

E Chan: Right. Now, recently, Mr Algernon Yau, the Secretary for Commerce, Economic and Development Bureau, predicted a revival of Hong Kong's economy in the second half of this year. And in the anticipation of our new "Hello, Hong Kong" campaign. Kevin Yeung, the Secretary for Culture, Sports and Tourism, was here a couple of weeks ago and explained to us about what the campaign is all about? So, what are your thoughts on this, "Hello, Hong Kong” campaign? Is it going to do the job that we really want to see?

KC Chan: I think, of course, I mean, tourism sector will come back, you know, at their own pace, I predict the pace will be rather fast, rather than slow. Because there a lot of pent-up demand for coming back to Hong Kong. But I believe the government campaign of "Hello, Hong Kong" and so on, is more than about tourism, is really about giving the world's image about Hong Kong's, you know, quote unquote, being back to business. And that's really for attracting potential investment back to Hong Kong. To get corporations from abroad to look at Hong Kong as a as a springboard into the mainland. I think there are a lot of messages, we are actually bringing to the world in our campaign. So, I don't think tourism is the only beneficiary of the campaign I see that to be more of an economy-wide campaign to bring back, you know, the new opportunities.

E Chan: They always use the term seeing is believing.

KC Chan: Yes.

E Chan: That's the reason why we have like half a million tickets inviting all the dignitaries coming to Hong Kong. So, yes, and also the government say they are having talks with some 100, I mean, foreign companies about expanding to work in Hong Kong by 2025. That's very encouraging. Would you say this is a turning point for Hong Kong's businesses?

KC Chan: Now, I think the going back to talk to many companies is part of the work, and you've got to do that. Okay. And I think the…finally, and then what is the major factor that will really benefit Hong Kong economy will be the new growth opportunities that company see in Hong Kong, in the mainland, mainly the Greater Bay Area, and in Asia. So, basically, we want to position Hong Kong, to be the centre for doing business in all these areas. Now, I think it's more than just telling people that Hong Kong is back, I think he's telling people, "Hong Kong is back to doing what". I think we are still continuing to be this important hub, you know, for, for this for this region. So, clearly, besides the talk we need to do, perhaps a lot more in terms of educating or bringing the messages more clearly to the corporations

E Chan: Right KC, I mean, let's have you give us an over bird's eye view of Hong Kong right now, things are coming back. But let's look at our niche. And our risk that we have in Hong Kong. I mean, often people say Hong Kong is very international. And actually, how international are we? Because if I look at… I did some homework, half the business that we do is with mainland, 50 percent, and even the 30 percent with Southeast Asia, and with the Western world somewhere like 10 to 20 percent. Do you call that International? Or do we have room to be even more international?

Former secretary for financial services and the treasury, Professor KC Chan attends the Straight Talk show on TVB, Feb 21, 2023. (PROVIDED TO CHINA DAILY)

KC Chan: Well, number one, I mean, those statistics actually talk about the strength of Hong Kong, because we are, you know, highly tied up to China. So, that's why we do have a lot of mainland exposure presence, you know, for our business. And that is why Hong Kong is you know, attractive to many corporations worldwide. I think the international part of Hong Kong is being welcoming to companies around the world, whether you are in Europe, Middle East or Southeast Asia, you can use Hong Kong as a hub. That's what makes Hong Kong International. Of course, the use of English language, you know, the customs, you know, you know, in Hong Kong and so on very familiar, to the foreign business that makes Hong Kong an easy place to really get started. Hong Kong is still the most international city, not only in China, but I also think, you know, one of the most international cities in Asia.

E Chan: Right, you know, when you were in charge in the government as a secretary, financial services are the area that you looked at? It accounts for roughly like 23 percent of our GDP.

KC Chan: Yes. 

E Chan: To say at least it is very important. But on the other hand, are we too dependent on this?

KC Chan: You know, Eugene I, I am one of the maybe rare, financial secretaries who actually make the point of saying that Hong Kong cannot rely on finance alone, right? You know, I remember I actually make, you know, a speech at LegCo on this subject. I think Hong Kong cannot just rely on finance, finance is important, but so is technology. So, it's, you know, innovation. And I think Hong Kong should really develop these new areas, because finance cannot grow beyond, I believe, 20 percent or 20 some percent, if you grow beyond that. I think that's not sustainable for Hong Kong.

E Chan: Okay, KC, before we go to the break, I want to ask you a question. This won't be an easy one to answer but hopefully, you can tell the viewers because all our viewers are very sophisticated, they're expecting more from our guests. So, you said that we have a strong fundamental in our economy that we are facing more and more competition within our country and the neighbouring city. The geopolitical tensions are at all-time high, interest rates are going up, therefore increasing costs of doing business. And also, we're facing significant manpower and talent shortages in Hong Kong. So, can our economy overcome all these challenges, in short?

KC Chan: Well, these are these are very long agenda, long item, many items, but these items, these kind of tasks and challenges are faced by many economies. Hong Kong not being alone. I think the short answer is that Hong Kong can overcome it, Hong Kong must overcome it. And we can talk more later on, you know, how we can do more in order to increase our chance of success.

E Chan: Okay, KC, let's go to a break now. And viewers do stay with us, we will be right back.

E Chan: Welcome back. We have been talking with Professor KC Chan about Hong Kong’s economy, our challenges, and the road to recovery ahead. So, KC, in the first part, you have given us a bird’s-eye view on what is happening, people are coming back, and you are confident that despite all the challenges are listed before the first part, you said all the countries are facing the same problem. 

KC Chan: Yep.

E Chan: So, people…you can be more assured we are in a good position. So, another thing we have noticed is during this pandemic time, you see the virtual offerings of financial services have really been arguably expedited during the years of COVID because people are more willing to use digital banking. And you have been the chairman of WeLab, one of the first virtual banks in Hong Kong, maybe you can tell us what has Hong Kong done right or wrong in this growing area?

KC Chan: Well, I think Hong Kong is right in terms of launching and championing fintech. I think Hong Kong is one of the few cities in the world that actually embraced this development of new technology. You know, in terms of the virtual banking licences or the digital insurance licences, Hong Kong is actually leading a wave among many cities. I think Hong Kong now, I can say that, Hong Kong now is a very sophisticated, efficient, financial service place. You can do your financial services easily on your mobile phone 24 hours a day, 7 days a week. I think that is…and the costs are very reasonable. I think Hong Kong is really speaking volume to a success of fintech.

E Chan: Right. But do you think Hong Kong government can do more or your trade can do more in this?

KC Chan: Well, we are working harder. I mean I think that we are not saying that we just stop there and we are already successful. I think Hong Kong can do more, I think in terms for us, for example, in WeLab Bank, we are trying to promote financial products, you know, how we can actually distribute financial products online digitally. Of course, our hope is that somehow, you know, in the future, we can expand our market to outside of Hong Kong, including Greater Bay Area. So, there is something that Hong Kong government, I am sure they have in mind in their agenda, but will probably include somehow expanding the market offerings for the Hong Kong financial institutions.

E Chan: Right. KC, while we have seen new challenges in virtual banks and even insurers to the market, but you see the traditional financial institutions also have stepped up their effort.

KC Chan: Yes. 

E Chan: And many of those have the advantages of owning a massive customer base. So, what challenges do these virtual banks and insurers face?

KC Chan: Well, number one, I think that I don't see…I don't think there is a single out virtual bank per se, I think virtual banks are really a part of the whole banking ecosystem. We are all part of banking industry. Each of the bank would have their history, their legacy, their opportunities, and their strengths and weaknesses. The larger banks have their strength, and so are the virtual banks because of the nimbleness of the virtual banks. We can bring out products faster, I hope, than the larger banks. So, I think Hong Kong is basically a very competitive ecosystem of banks and insurance companies. Now, the question is, should we just stay in Hong Kong? Or should we look beyond Hong Kong market? I think for all the banks in Hong Kong, as well as insurance companies in Hong Kong, everybody is trying to figure out what is the way to expand beyond the border. I mentioned the Greater Bay Area, in our case, in the WeLab case, we actually went into a joint venture in Indonesia because we see how we can leverage on Hong Kong’s reputation and risk management into launching a service in a very populous Southeast Asian country. In fact I would say that when you ask about the Hong Kong economic opportunities, I think Hong Kong really should focus on Southeast Asia.

E Chan: That is an area I want to discuss further on. But let me ask you this first. Because when I was preparing to have you on the show, we looked at the makeup of Hong Kong's GDP. Logistics used to be very high on the list, but now financial services account for like 23 percent, and logistics is under 20 percent, the next one is professional services, like from 13-15 percent, and of course, tourism is 5 percent. That makes about 60 percent. And as you said, Hong Kong should not just rely on this alone, but we are not a manufacturing base city. How can we value add our services to all these? Because I can see a great threat coming up. For example, with all the geopolitical tension, Hong Kong is basically as a middleman. If we are being sort of side lined, how can we do all the things I have mentioned well?

KC Chan: Number one, we cannot remake Hong Kong because being middleman is really Hong Kong’s destiny and personality because we are, another word to say, Hong Kong is a super-connector. We are connecting mainland and the rest, and all places. So, that is our strength, and I hope that it won’t change because it is how we make most of our money.

E Chan: The 14th 5-year plan has kind of reassured us on that matter, but my point is should we be worried because that is all we have?

KC Chan: Well, then in fact, I have been wanting to argue that we should also expand beyond our traditional industries. I am a very big believer in innovation and technology. Innovation and technology doesn’t mean that you have to have big factories or a lot of engineers and so on because these days you can actually be innovative, you can actually produce high value added industries using very little amount of space. You need talent, you need good amount of talent who can put it together. I think Hong Kong is not the leader in this. I definitely think that Hong Kong should become a leader, at least in certain areas, including leveraging on the Greater Bay Area. So, I am a big believer in that. But that would not replace finance. 

E Chan: Right. Just now you mentioned about Southeast Asia. 

KC Chan: Yes.

E Chan: I mean actually DAB was, I mean the party went there last August and September, and came back with very positive feedback from those countries. And actually, if you look at their population, they are right next to our doorstep.

KC Chan: Yes.

E Chan: Indonesia has 273 million people; Philippines 113 million; and Vietnam about 97 million. All totalling about 500 million in total, it is a very high number. Although the infrastructure is not as sophisticated as Hong Kong, are there opportunities for Hong Kong? Are we too advanced for them for businesses?

KC Chan: No, no, no. I think they actually can…we can actually find some investment opportunities in these places. I think these are the areas, these are the countries, where they are really growing up. They are…I would say, they are huge middle class, you know, in these countries. And when we talk about in the past, at least in Chinese development, we are talking about the population dividend. These are the countries with young middle class, and the kind of population dividend that we can expect to see…

E Chan: So, maybe Hong Kong should be concentrating on really developing this arm, especially with all the geopolitical factors. 

KC Chan: I think Hong Kong should go in there.

E Chan: Right.

KC Chan: I think, of course, through partnership it is maybe difficult for us to go in alone, but I think we should have partnership and go into these countries. 

E Chan: And with Greater Bay Area, it is something that we have talked about for a long time. In the past it was Pearl River Delta, we have always been talking about that for the past 10-20 years. But nothing really has been…in our view, it is more should have been done. So, with the blueprint being saying that we are going to move in with GBA, have you seen any notable bridges that has been built since all these?

KC Chan: Well, I think, if you are talking about bridges, I think we have much more physical bridges that have been built more than the soft bridges. I am talking about the…soft bridges is human to human.

E Chan: Yes.

KC Chan: Technology to technology. I think that is still to be built. I have a great hope on the development of the Hong Kong, the northern metropolis, all the science development area. I think that is important because this is one area where you can actually tie in with the Greater Bay Area. We have the manufacturing in the Greater Bay Area. Then if you have the research and then the marketing and the financing in Hong Kong, using the Northern Metropolis as a hub, we can actually make that happen. That is only, to me, the only potential, great opportunity of collaboration between the two. 

E Chan: KC, the budget is going to come out tomorrow.

KC Chan: Okay.

E Chan: I am sure a lot of it has been decided.

KC Chan: Of course.

E Chan: But one area I am sure the viewers will share the same view is that we have good reserve compared to many governments. And due to COVID, I mean it has been very for expensive for us, and we also have a decreasing income from land sales. Should the government still continue on their spending spree? 

KC Chan: You know, Eugene, I never want to comment on the budget because of my past association with the budget.

E Chan: But in direction wise, should we still spend?

KC Chan: Okay. Now, but in terms of the general area, perhaps I can offer my thoughts on this because right now there is a big debate in Hong Kong about whether the government should be giving money away, so on and so forth. 

E Chan: Let’s talk about the actual direction.

KC Chan: Let’s put it this way. I think Hong Kong definitely needs to be much more prudent in balancing and priorities because we do have…I do think we face some economic uncertainties this year, and even next year. And that means your revenue would not be as good as before. And then our expenditure has been rising in the past. So, definitely, I don’t…I don’t think Hong Kong should be…I think we should be more frugal.

Eugene Chan: Right.

KC Chan: More careful.

E Chan: You know, the government only has about 800 billion. It is still a lot of money of financial service reserve left, which is equivalent to 12 months of government spending. But we used to have 20 months of reserve, right? So, let me ask you the last question. I am sure the individual would say “right, Professor, you have told us things are looking good, you have confidence in Hong Kong”, and from a personal level, Hong Kong people have obviously been savvy investors. What is your advice to them? Should they hold on to the cash? Or they can spend and buy properties or equities or bonds or whatever? What is your say on that?

KC Chan: Difficult for me to give investment advice because everyone is different, right? But I think my own investment philosophy, which is very, I guess, prudent one, is that you try to diversified, you don’t want to put all the money in one asset or one market, you want to diversify so that when the market goes up and down, you are not…you are gaining exposure without taking too much risk. So, I would say that even though this year may look uncertain, but let me say that, I don't think this year is worse than any other many years. I think every year, even though the prospects are uncertain, it also bring about opportunities.

E Chan: Right. So, thank you KC, and we want to thank you again for shedding some light on the complex nature of our economy for us. And we look forward to seeing how tomorrow’s budget will navigate the recovery of our economy in 2023. In fact next week, we will have the financial secretary, Paul Chan, on the show, to share that with us personally, so viewers, we hope you can join us again. Till then, have a good week and good night!