Hong Kong woos asset managers with potential tax cuts

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0:32Good morning from the Financial Times. Today is Friday, March 27th, and this is your FT News Briefing. European bonds took a beating yesterday, and Hong Kong is considering a tax break for its asset managers. Plus, London is finding a use for its trash. So you have to do something with this waste, and you may as well create energy out of it. I'm Mark Filippino, and here's the news you need to start your day.

1:10The United Arab Emirates wants an international task force to reopen the Strait of Hormuz. That's according to people familiar with the matter. Separately, one source said Abu Dhabi would deploy its own navy. The decision comes as the UAE bears the brunt of Tehran's retaliation to the U.S. and Israel's war. In markets, the idea that there is no permanent resolution in sight is wreaking havoc on government debt. And yesterday, Eurozone bonds had their worst one-day sell-off in a year. Late yesterday afternoon, U.S. President Donald Trump extended his deadline for Iran to reopen the strait from today to April 6th.

1:45He's warned that the U.S. will, quote, obliterate Iran's energy infrastructure if ships are unable to traverse the waterway.

1:57Hong Kong is hoping to reboot its role as a global financial center, and it wants to do that by carrying out sweeping cuts to its tax regime. The change to its rules on carried interest would allow many asset managers to earn their performance fees tax-free. This would help Hong Kong compete and maybe even outdo rival financial centers like Singapore and Dubai. DFT's Arjun Neil Allum is in Hong Kong, and he joins me to discuss this. Hi, Arjun. Hi there. So what exactly are the rule changes being planned and how soon could they take place? Essentially, carried interest is the share of profit in a fund that goes to the general partner that manages the fund.

2:40In Hong Kong, there is an existing tax exemption for some carried interest, but the conditions for it are extremely onerous. And so what this is doing is essentially making it easier for more types of funds, hedge funds, private equity funds, maybe even family offices, to earn their performance fees tax-free. This has been in the works now for more than two years, but it looks like it's going to be introduced to the LegCo this year in the next couple of months. The LegCo being the Legislative Council. So, Arjun, it sounds like Hong Kong is a bit of an outlier when it comes to this kind of tax.

3:18No, I mean, Hong Kong is already a low tax jurisdiction. Salaries are taxed up to 16.5%, corporations around the same. And it is already possible for some types of funds to earn their carried interest tax-free. But what this is doing is it's making it even easier and putting Hong Kong on a level footing or even at an advantage to places like Dubai, Abu Dhabi and Singapore. Tell me a little bit more about what they're hoping to achieve with these changes. Well, look, Hong Kong in the last one and a half, two years has had this pretty striking revival as an international financial hub. Part of this is driven by mainland Chinese companies coming to Hong Kong to sell shares in order to raise money to expand abroad.

4:02It's also driven by huge amounts of Chinese capital flowing into Hong Kong to invest, you know, to get exposure to non-Ramminbi assets, you know, via the Hong Kong dollar. So Hong Kong has really come back as a relevant financial center in the past year or so. And what they're trying to do with this is essentially double down on that success and attract more funds from places like Singapore, Dubai, Abu Dhabi, and further afield to come and operate in Hong Kong. Just out of curiosity, what kind of pressure was there on the legislature to do this? And what's been the response from traders that you've spoken to?

4:40Well, I've never met an asset manager who doesn't support lower taxes. So obviously, industry groups in Hong Kong are very excited by this shift. You know, we had one industry group send a letter to Hong Kong's Financial Services and Treasury Bureau last year that said, you know, Hong Kong is losing business to other jurisdictions and needs to stay competitive with a more competitive taxation regime. But we did also speak to an investor who has chosen Hong Kong over Singapore and Dubai, not only, by the way, because of tax, but also because of things like geopolitical risk and quality of life.

5:17So this is definitely a tweak that's going to make Hong Kong more attractive to some types of asset managers and family offices. But people are still coming through the whole package. Arjun Neil-Allem is the FT's Asia Financial Correspondent. Thanks, Arjun. Thanks for having me.

5:37London has become a trash-burning capital, and it's turning that trash into electricity. The largest single energy-from-waste site in Europe is set to open there this summer. It'll be able to create enough low-carbon, partially renewable electricity to power 400 ,000 homes. Now, as you might imagine, this practice is not without its environmental critics. The FT's Jill Plimmer has been looking into this growing industry, and she joins me now. Hi, Jill. Hi. Okay, so the company that's building this massive energy from waste site is called Cori Group, and they already have a facility, as I understand it, in southeast London.

6:14Can you explain what they do there and how this whole process works? Sure. So all that rubbish that goes into black bags, which is Londoners' non-recyclable waste, gets taken down to the river and sort of trucks and then unloaded onto barges, which then take the black bags of rubbish along to the Corrie Energy site.

6:43It then gets transported via truck.

6:53and dumped into the waste bunker.

7:02A giant crane grabs the waste, which looks like a giant claw machine, and drops it into a furnace, and the plant's heat separates the metals in the ash.

7:20and the metals get taken by boat up to a port where they're converted into asphalt to be used in roads. And then back at the energy from waste plant, the energy that's created gets fed into the grid. Okay, so after the trash gets burned, the metal gets reused, and the electricity that's created gets fed into this grid that powers homes and businesses. Got it. Jill, why is this type of electricity generation gaining popularity now? So energy from waste plants have been used in the UK for more than 30 years and elsewhere too. They're popular in the Netherlands, Germany, and other countries have been expanding in them too.

8:04The main driver is the want to get away from landfill waste. And these are seen as an alternative in cases where recycling doesn't work. So in the UK, there's already 65 energy from waste plants and they're building 10 more. Nearly all the energy from waste plants are run by the private sector and they're incredibly profitable. And, you know, local authorities have an obligation to get rid of waste. So they have a pretty much guaranteed revenue stream. But they've also got their critics. Yeah, I can imagine that not everybody's psyched about this. What do people who aren't on board say about it?

8:43Well, the critics say that they discourage recycling because it's easier to tip a whole lot of waste into, you know, a massive furnace and just burn it. They also say that it's polluting and that most of them are in poorer areas, so it's working-class communities that suffer. And they say that although EFWs emit fewer greenhouse gases than landfill, They still release a lot of methane gas, which is still polluting. And in fact, now that coal's been banished from the UK grid, energy from waste is the highest emitting form of generation. The industry argues that recycling is difficult, particularly plastic.

9:27And they say that most plastic rubbish is soiled and that actually recycling rates haven't changed much. So you have to do something with this waste and you may as well create energy out of it. So, Jill, what's the future of this industry? Do you think it'll stick around for the long term or is it, I don't know, maybe more of a fad? I think it's been going for a long time. And I think there's, you know, it's a profitable industry. There's no real sign that it is dying out. I mean, if the UK is building 10 over the next few years and they take a few years to build, all the signs are that this is increasing rather than decreasing.

10:07And I think the amount of waste going to incinerators has increased quite sharply. Jill Plimmer is the FT's infrastructure correspondent. Thanks, Jill. Thanks so much for taking the time.

10:25Before we go, I want to give you a little preview of what we've been working on for next week. If you can believe it, Thursday is the one-year anniversary of U.S. President Donald Trump's so-called Liberation Day. That was when he unveiled the sweeping global tariff package that would later be struck down by the U.S. Supreme Court. Now, a lot has happened in the past 365 days, so we're doing a week of deep dives into various parts of the global economy to see how they've been affected by America's shape-shifting tariff policy. My colleague Victoria Craig will begin that special coverage on Monday.

10:57She joins me now to chat about this. Hi, Victoria. Hey, Mark. All right, so what do you have on deck to start us off? We're going to be starting big picture, and we're going to look generally at how global trade has really changed as a result of U.S. tariff policy, but particularly how it's changed more recently as a result of all of that uncertainty you talked about over what exactly the policy is now or will be in the future. So I've called on Alan Beattie. He is the FT's senior trade writer, and he actually had a really interesting comparison that I thought was really helpful in trying to understand all this.

11:31I think it's a bit like Brexit in the UK, that the UK left the European Union and everyone wondered, would other countries follow it out? That's the same with Trump. He's pulling the US to some extent out of the trading system. Everyone else has looked at it and said, oh, my goodness, whatever we do, we're not going to do that. That's so interesting. Of all the comparisons, I never thought to link it to Brexit. Yeah, me neither. But I thought that one was really helpful. I think, Mark, you've also got some helpful examples. And you've been doing some old-fashioned shoe leather journalism this week, talking to businesses about how they've been affected with the tariffs, right?

12:05Yes, exactly. If you started with big picture, I went small picture. Like you said, I went out and spoke to some business owners who actually sued the U.S. government after Trump's tariff announcement. Rebecca Melsky and Eva St. Clair run a company called Princess Awesome in the state of Maryland. They make quirky clothes with things like cats and dinosaurs on them. and they paid tens of thousands of dollars in tariffs after Liberation Day last year. Eva told me that one of the worst things was not knowing if a tariff rate was going to stick or change overnight. It feels like playing battleship.

12:36You don't know if you're going to get hit and one bad hit could sink us. That's such a good example and I can't wait to hear that full story next week. All of our Liberation Day coverage kicks off on Monday morning. Be sure to catch it here in the podcast feed. Victoria, thanks so much for chatting about this. Always a pleasure. Thanks, Mark. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back next week for the latest business news. The FT News Briefing was produced this week by Julia Webster, Henry Larson, Sonia Hudson, Fiona Simon, Misha Frankel-Duval, and Victoria Craig.

13:10I'm your host and editor, Mark Filippino. Our show is mixed by Alex Higgins and Kelly Gary. We had help this week from Peter Barber, Michael Lello, David Da Silva, and Gavin Kallman. Our executive producer is Tovar Forges. The FT's global head of audio is Cheryl Brumley. and our theme song is by Metaphor Music.

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