Hong Kong is quietly undergoing a strategic reinvention. Long regarded as a global financial center, the city is now emerging as a compliant and trusted gateway for cross-border capital, particularly from the Chinese mainland. This transformation is not driven by sweeping reforms or deregulation; it reflects a deliberate pivot toward governance excellence, regulatory clarity, and long-term resilience.

This shift is redefining Hong Kong’s role in global finance. The city is no longer just a conduit for foreign capital entering the mainland; it’s becoming a strategic outlet for mainland investors seeking regulated access to international markets. As the mainland maintains prudent capital controls, Hong Kong’s position as a controlled yet open channel is increasingly indispensable.

Capital flows from the mainland into Hong Kong are accelerating. Southbound trading via the Stock Connect now accounts for over half of daily turnover on the Hong Kong main board, and the Securities and Futures Commission (SFC) reported that the cumulative southbound net inflows under Stock Connect as of June amount to HK$4.4 trillion ($566 billion). This surge reflects a broader reallocation of domestic wealth, driven by declining bond yields, a cooling property market, and a growing appetite for high-dividend, high-quality equities.

Similarly, a resurgence in the initial public offering (IPO) market in Hong Kong since the beginning of 2025 has been largely driven by mainland companies choosing Hong Kong as their preferred listing venue. Funds raised in the Hong Kong IPO market over the first nine months of the year reached HK$182.9 billion — a 229 percent increase compared to the same period in 2024.

The strength of mainland flows raises the question of whether Hong Kong is enhancing its global competitiveness or simply benefiting from domestic constraints. To remain resilient, the city must continue to attract international capital on its own merits through innovation, transparency, and leadership in emerging financial sectors.

The Hong Kong Stock Exchanges and Clearing Ltd is meeting this challenge through a series of public consultations, including on IPO price discovery and ongoing public float requirements, to continue to modernize and offer issuers great flexibility while maintaining market quality. Consideration is being given to encouraging listing of companies with weighted voting rights structures, while rule changes now allow closed-ended funds to be listed and publicly traded in Hong Kong.

Hong Kong continues to be a premier Asian location for fund managers given its strong but efficient and timely regulatory regime, with the SFC remaining the gatekeeper of licensed asset management activities via its robust supervision and enforcement regimes. At the same time, the SFC has an important role in encouraging the growth of the city as an asset and wealth management hub via the Wealth Management Connect Scheme as well as its expanding intra-regulator arrangements to facilitate capital-raising for Hong Kong licensed fund managers, particularly over the past 12 months with the Middle East.

The SFC’s latest Asset and Wealth Management Activities Survey, published in July, reports a growth in total assets under management (AUM) of 13 percent year-on-year at the end of 2024, with a widely distributed investor base from which half of all AUM originates from nonmainland or local investors.

Mainland-related firms operating in Hong Kong saw their AUM grow a healthy 15 percent in 2024, outperforming the industry average for the fifth year, which underscores the importance of Hong Kong to mainland asset managers.

Family offices are also central to Hong Kong’s evolution. Attracted by its territorial tax regime, zero capital gains tax, secure pathway to permanent residency and proximity to the mainland, many ultrahigh-net-worth families are establishing operations in the city.

The future of cross-border capital is not just about access; it’s about accountability. Hong Kong is demonstrating that compliance is not a constraint. It is a catalyst for sustainable growth, investor confidence, and global leadership

In response, the Hong Kong Special Administrative Region government has introduced targeted incentives, including a dedicated tax exemption for family investment holding vehicles and the relaunch of the Capital Investment Entrant Scheme.

However, opportunity comes with complexity. Family offices face challenges in fund structuring, tax compliance, and understanding regulatory parameters in Hong Kong. While they’re not required to be licensed, they must engage licensed service providers and uphold governance standards that meet evolving expectations. Family offices must also ensure they do not inadvertently engage in regulated activities needing SFC licensing.

Hong Kong’s regulatory clarity is a strength, but rigidity can be a constraint in fast-moving markets. As asset classes like tokenized securities and digital currencies gain traction, agility becomes essential. Hong Kong must balance its commitment to compliance with the flexibility needed to remain competitive globally.

Hong Kong’s digital-asset ecosystem is underpinned by a robust and evolving regulatory framework. The government’s “Policy Statement 2.0” outlines a comprehensive vision anchored by the LEAP framework: legal and regulatory streamlining, expanding tokenized products, advancing use cases, and people and partnership development.

The SFC oversees licensing for digital-asset dealing and custodianship, while the Hong Kong Monetary Authority governs banking-related digital-asset activities. A new licensing regime for stablecoin issuers, effective from August, reinforces the city’s commitment to investor protection and financial stability.

Hong Kong is also pioneering tokenization. Government-issued tokenized bonds are now regularized, with expansion into exchange-traded funds (ETF), commodities, and renewable-energy assets. These initiatives are not merely technical; they’re strategic, positioning Hong Kong as a leader in integrating digital assets into mainstream finance.

With the government’s encouragement, the SFC has created a new regulatory regime for virtual-asset service providers, including virtual-asset fund managers. As of June, there were 11 licensed virtual-asset (VA) trading platforms with 10 more applications under review. The SFC now permits such firms to provide staking services, and Hong Kong is the first market in Asia to authorize VA spot ETFs, with nine now on offer.

In a fragmented financial world, trust is the new currency. Hong Kong’s regulatory clarity, infrastructure, and proximity to the mainland position it uniquely to offer that trust. But trust must be earned. Family offices and asset managers must invest in governance, transparency, and operational excellence.

The future of cross-border capital is not just about access; it’s about accountability. Hong Kong is demonstrating that compliance is not a constraint. It is a catalyst for sustainable growth, investor confidence, and global leadership.

The author is managing director, regulatory compliance, with Asia-Pacific, IQ-EQ, a regulatory compliance firm.

The views do not necessarily reflect those of China Daily.