Why Is The Equity Of Private Shares In Hong Kong So Low? In-Depth Interpretation

The Mystery of Low Private Share Capital in Hong Kong Why is it so Low? A Deep Dive!

In recent years, Hong Kong's status as an international financial center has become increasingly solidified, and its capital market enjoys a prestigious reputation globally. However, behind this thriving financial market lies a perplexing phenomenon the proportion of private share capital in Hong Kong is significantly lower than that of other developed economies. This situation has attracted widespread attention and discussion. This article will provide a deep analysis from multiple dimensions, including historical background, market mechanisms, and policy impacts, based on recent relevant reports.

I. What is Private Share Capital?

Private share capital refers to the proportion of shares held by non-institutional or public entities within a company. This indicator is commonly used to measure the degree of marketization of an economy and the enthusiasm of the private sector in participating in economic activities. Generally speaking, the higher the private share capital, the more advanced the marketization level of the region, and the more flexible and efficient the operation of enterprises; conversely, it may indicate excessive intervention or insufficient market vitality.

In Hong Kong, according to the latest statistical data, private share capital accounts for only about 40% of total capital, far lower than the over 70% or even close to 100% ratio in Western countries. This relatively low situation has drawn high attention from scholars and investors.

II. Historical Origins and Institutional Characteristics

To understand the reasons for the low private share capital in Hong Kong, one must first review its development process. Since the 1970s and 1980s, Hong Kong has gradually developed into one of the world's important financial hubs. During this period, Hong Kong formed a unique dual-track economic structure on one hand, Hong Kong has a large number of family-controlled enterprises and state-owned enterprises; on the other hand, with the acceleration of the reform and opening-up process, foreign capital began to pour in and became an important participant.

However, unlike Western countries, Hong Kong's corporate governance model tends to be family-style management. Many large listed companies are still controlled by their founding families, who indirectly hold most of the equity through holding companies. For example, Cheung Kong Holdings Group under Li Ka-shing is a typical example. Although these companies appear to be public companies on the surface, their core decision-making power is firmly in the hands of the family.

Hong Kong's legal framework also imposes certain restrictions on private share capital. Due to Hong Kong's common law system, while emphasizing the protection of shareholder rights, it also grants more rights to controlling shareholders. This dual standard makes it difficult for some small and medium-sized shareholders to effectively exercise their own rights, thus reducing their investment interest.

III. Impact of Market Environment

In addition to the above historical factors, the current market environment also constrains private share capital. In recent years, affected by factors such as increased global economic uncertainty and Sino-US trade frictions, the volatility of Hong Kong's stock market has increased. This not only weakens investor confidence but also leads to some high-quality assets choosing to list offshore, further diluting the local market's private share capital ratio.

At the same time, the rise of the SPAC Special Purpose Acquisition Company trend in recent years has brought new challenges to private share capital. Although SPAC, as a new financing tool, provides a fast track for start-ups to enter the capital market, it can easily lead to the phenomenon of dispersed equity. Some observers point out that this trend is weakening the traditional concept of private share capital.

IV. The Role of Policy Orientation

It is worth noting that in recent years, the Hong Kong Special Administrative Region has introduced a series of policies aimed at promoting economic transformation and supporting the development of small and medium-sized enterprises. For example, the re-industrialization strategy encourages manufacturing to return to the local area, while the Innovation and Technology Fund focuses on supporting the growth of high-tech industries. However, these measures have increased support for specific industries to a certain extent, inadvertently increasing the participation of state-owned capital.

Additionally, in response to the impact of the pandemic, Hong Kong has launched several relief plans, including providing loan guarantee services to eligible enterprises. While these measures have alleviated corporate funding pressures in the short term, they may unintentionally reinforce the role positioning from a long-term perspective, thereby affecting the level of private share capital.

V. Future Outlook and Improvement Suggestions

Faced with the problem of low private share capital, how to stimulate the vitality of the private sector has become an important issue for policymakers. Professional suggestions can be made from the following aspects

1. Optimize corporate governance structures Promote the establishment of more transparent and efficient board systems to ensure that all shareholders can equally access information and participate in decision-making processes;

2. Improve laws and regulations Revise existing regulations to balance the interests between controlling shareholders and small and medium-sized shareholders, enhancing the latter's voice;

3. Strengthen market supervision Establish sound disclosure systems, crack down on insider trading and other illegal activities, and create a fair and just investment environment;

4. Deepen international cooperation Attract more overseas capital inflows, enrich investor types, and form a diversified equity structure.

VI. Conclusion

In summary, the low private share capital in Hong Kong is a complex and multi-dimensional issue, involving both historical evolution and real conditions. Although there are currently many difficulties, as long as all parties work together, there is still great room for improvement in the future. After all, a healthy and stable capital market cannot do without a broad and balanced private share base. Let us wait and see how Hong Kong will walk its unique development path!