New opportunities for Hong Kong's financial development

The Asian Financial Forum (AFF) is an annual influential event in Asia co-organized by the Hong Kong SAR Government and the Hong Kong Trade Development Council, and has been successfully held for more than 15 years, providing a platform for the exchange of ideas and investment matching for global government, financial and business leaders. On the morning of January 11, 2023, the 16th Asian Financial Forum opened at the Hong Kong International Convention and Exhibition Center, with the theme of "Promoting Transformation: Innovation, Inclusion and Innovation", inviting nearly 100 heavyweight political and business leaders, financial experts, investment authorities, business leaders, technology giants and economists to participate in the event, and share their views on hot topics such as global economic outlook, ESG and green finance, inclusive finance, Web3 and metaverse, and digital currency. Explore how to formulate impactful business development strategies in the new 2023, plan a blueprint for sustainable growth, and explore how global companies can work together to build a resilient economic landscape through the concept of financial innovation and inclusion.

On January 11, the IPIC Intellectual Property Innovation Alliance was invited to attend the "Asian Financial Forum Sub-session and Shenzhen-Hong Kong Science and Technology Innovation Cooperation and Exchange Conference", and Mr. Wu Gaolin, the founding chairman of the IPIC Association, delivered a speech on "New Opportunities for Hong Kong's Financial Development", focusing on Shenzhen-Hong Kong science and technology innovation and financial cooperation and exchanges. The following is the full text of Mr. Wu Gaolin's speech:

Friends and distinguished guests, I am very honored to be invited by Chairman Xiao Geng and President Xiang to participate in today's Asian Financial Forum. I was engaged in diplomatic work in Beijing in my early years, went to Chicago in the 90s, participated in the preparation of the world's first intellectual property exchange, came to Hong Kong in 2012, and established the Hong Kong Intellectual Property Exchange, whose purpose is to provide an efficient and standardized financial trading platform for the development of the global digital economy and the transformation of intellectual property rights, to serve the global digital economy and intellectual property trade, to actively explore the realization mode of new types of intellectual property rights, and to solve the problems of intellectual property asset trading and circulation of enterprises. It is necessary to extensively introduce international leading technologies to help enterprises develop and enable real economic development and innovation.

Over the past few decades, the global trade landscape has changed dramatically, with international trade gradually transitioning from trade in goods to trade in services, and now from trade in services to trade in intellectual property. In 2021, the total global trade in goods reached $285 trillion, while the total trade in intellectual property rights also reached $1 trillion. China is the world's fifth-largest economy in intellectual property trade. In particular, I would like to mention that Hong Kong has always played the role of a bridge in China's foreign trade. Mainland-Hong Kong/Hong Kong-Mainland bilateral trade has continued to reach US$1 trillion annually since 2012, and Hong Kong has reaped huge economic benefits from entrepot trade with China over the past 50 to 60 years. Hong Kong, as the bridge of China's relations with the outside world, should not ignore the major trend in international trade and economic development -- trade in intellectual property rights, and Hong Kong should make great preparations to meet the arrival of this tremendous development trend, and trade in intellectual property rights will certainly bring tremendous prosperity to Hong Kong's economy like trade in goods, and play a crucial and important role in consolidating Hong Kong's financial position in the world.

Beginning in 1975, the S&P 500 has been followed for 50 years on the composition of firm values, i.e., fixed and intangible assets (Figure 1). In 1975, 83 percent of corporate value was made up of fixed assets, and intangible assets accounted for only 17 percent, and the top five companies in the period were all heavily capitalized companies, such as IBM, ExxonMobil, Babyclean, General Electric, and 3M. The rapid development of the computer industry and the Internet in the nineties of the twentieth century led to an increasing proportion of intangible assets in the value of companies. Since 1995, there has been a dramatic change in the value composition of the company – intangible assets account for 67 percent of the value of the business, and fixed assets account for only 33 percent of the value of the business. By 2020, the company's intangible assets had jumped to 90% of the company's value, and its fixed assets had fallen to only 10% of the company's value. This is really a huge leap and change, which proves the intangible victory over the tangible in Lao Tzu's Tao Te Ching. The top five companies in 2020 have all turned into lightly capitalized technology companies such as Apple, Google, WeChat, Amazon, Facebook, etc., with 90% of the value of these companies made up of intangible assets (Figure 2). The same is true of Chinese enterprises, such as Meituan, Pinduoduo, Arri, and Tencom, which are not the most lightly capitalized enterprises, and these enterprises have gained unprecedented growth space through specialized technology or a new set of business models. These are all the growth that innovation and innovation bring to enterprises, and there is no need to rely on investment in huge fixed assets to obtain the growth of enterprises as in the industrial manufacturing era.

Figure 1 Changes in the intangible and tangible assets of S&P 500 companies in the new economy

At the beginning of November last year, the Hong Kong government announced the declaration of the digital economy, which is a huge encouragement to the entire IT industry and the intellectual property industry. But there is a difference between virtual assets and virtual currencies, because virtual currencies are hugely unpredictable, they had a total market capitalization of $2.5 trillion in April 2021, and a month later, they fell to only $1.4 trillion. In April 2021, the daily trading volume of digital currency reached a maximum of 600 billion US dollars, and on June 27, 2021, the daily trading volume fell to only 150 billion US dollars.

The S&P 500's intangible assets are $21 trillion, which gives us a clear direction for the future of the trading market. How to realize the intangible assets of a company? This raises several questions, one is digital assetization, and the other is the problem of asset digitization. In terms of digital assets, in June 2021, the total market value of digital currency was 1.4 trillion US dollars, and in terms of asset digitization, China's total asset scale was 1300 trillion (about 185 trillion US dollars).

Fig. 2 The scale of intangible assets of S&P500 enterprises under the new economic system

It is worth mentioning the contribution of intellectual property to the economies of China and the United States. In 2019, the U.S. Department of Commerce released a report that said: the contribution rate of intellectual property to the U.S. economy is 5 trillion U.S. dollars per year, involving 44% of the employment rate in the United States and the employment of 62.5 million people; China lacks complete data, but China's new value added of copyright in 2019 was 7.32 trillion RMB, accounting for 7.39% of GDP. According to the report of the National Bureau of Statistics, 550,000 technology contracts were signed in 2020, with a turnover of 2,825.2 billion yuan, from 730 million yuan in 1984 to 2.8 trillion yuan more than 30 years later, the turnover of technology contracts has increased by 4,000 times, proving that the growth space of intellectual property transaction volume is infinite. Hong Kong has reaped tremendous commercial benefits from traditional trade in goods with the mainland in the past, and if it seizes this opportunity in the field of intellectual property trade in the future, Hong Kong and the mainland will be able to reap huge commercial benefits from cooperating in the promotion of technology, brands and the export of copyright assets.

The figure below shows the economic impact of digital assets relative to intangible assets, digital assets mainly attract talents in the IT industry and financial industry (as shown in Figure 3), intangible assets attract a full range of talents, such as finance, culture, creativity, film and television, which have considerable benefits to the real economy, and intellectual property transactions or trade are indispensable bridges linking the virtual economy and the real economy.

Figure 3 The impact of virtual currencies vs. intangible assets on the economy

That's all for my remarks, thank you for your listening and for your questions. After the meeting, I had the opportunity to communicate with you further.