'Risk oriented', 'moderately proactive', and 'One Country, Two Systems' are the guiding torches for Hong Kong to sing the song of Web 3 all the way.

Article author: Echo, MetaEra

Article source: MetaEra

Wu Jiezhuang, a member of the Hong Kong Legislative Council and a member of the National Committee of the Chinese People's Political Consultative Conference. Hong Kong, as a special administrative region of the country, is becoming an important promoter of new quality productivity. Wu Jiezhuang believes that the development of Web 3 in Hong Kong is like the red chip stocks of the past, which is a new financing method for high-quality assets of the country and Hong Kong on the international stage. In the past two years, the Hong Kong Special Administrative Region government has actively developed virtual assets and Web 3 policies, which are important measures to help the country promote new quality productivity under the "One Country, Two Systems" framework.

Essence viewpoint

·Hong Kong's regulation of the Web 3 virtual asset industry can be described as' moderately proactive '.

·In the digital economy, in addition to the "Internet+" model, two new concepts have also been proposed: "Artificial Intelligence+" and "Data Element Layer". Especially in the data element layer, I believe there are huge opportunities hidden within it.

·As a risk-based international financial center, Hong Kong's choice to regulate through managing exchanges and issuing licenses is undoubtedly the most comprehensive and reliable approach.

·The attitude of the Hong Kong government is clear, willing to innovate and take the lead.

Interview transcript

MetaEra: Since the release of the "Policy Declaration on the Development of Virtual Assets in Hong Kong" in 2022, the Hong Kong Special Administrative Region has taken the lead in developing the field of virtual trading and has issued virtual trading licenses. So why choose virtual trading as the first step in the development of Web 3? Some people may argue about the courage of the Hong Kong government in developing Web 3, while others say that taking too big a step carries risks. What do you think about this?

Wu Jiezhuang: Behind the policy declaration issued by the Hong Kong government in 2022, there is a specific historical background. The outbreak of the COVID-19 in 2020 led to Hong Kong's failure to open in time. By the end of 2021, we noticed that some virtual asset enterprises began to leave Hong Kong and move to other regions. We have had in-depth discussions with the government on this matter and believe that in order to firmly promote the development of the virtual asset industry, it is necessary to issue a declaration to demonstrate our determination to the world. Therefore, we chose to announce these policy contents at the important moment of Hong Kong Fintech Week that year.

The policy declaration two years ago was just a milestone in the development of virtual assets in Hong Kong. In fact, Hong Kong's development in the field of virtual assets was much earlier than 2022. Since 2016 and 2017, Hong Kong has become a vibrant Web 3 hub, attracting numerous international entrepreneurs to launch their virtual asset projects, exchanges, and public chains here. The sandbox mechanism for virtual asset exchanges in Hong Kong was established as early as 2018 and 2019. Several companies joined the sandbox program in 2019, including the three licensed companies we know today, two of which entered the sandbox during that period. Subsequently, after a period of development, Hong Kong's financial management and regulatory agencies developed a down-to-earth "risk-based" management approach through close integration with the industry. Finally, at the end of 2022, the Hong Kong Legislative Council passed relevant regulations and officially announced the "Policy Declaration on the Development of Virtual Assets in Hong Kong", which is the history of this declaration.

You just asked why virtual asset exchanges were chosen as the first step in development. As is well known, exchanges play a crucial role in the field of virtual assets, and all investors and institutions need to buy, sell, and invest through exchanges. Therefore, as an international financial center with a "risk-based" management approach, Hong Kong chooses to regulate through managing exchanges and issuing licenses, which is undoubtedly the most comprehensive and reliable method. Hong Kong has rich experience in managing various types of products, especially in securities trading and other financial product trading. Although virtual asset trading is similar to these, the challenge faced by Hong Kong in this field is how to adopt the same risks and regulatory approaches while balancing the risks of investors and the development of the market and industry. I believe that the step taken by Hong Kong is well thought out and the result of a long period of preparation.

MetaEra: Will the pandemic also have a certain impact on the development progress of Web 3 in Hong Kong.

Wu Jiezhuang: The epidemic has indeed had a certain impact on the development of Web 3 in Hong Kong. The travel restrictions during the pandemic have made many companies more cautious when choosing their workplace. But as Hong Kong gradually relaxes restrictions, we have observed that some companies that were originally relocated to other places are beginning to return. The policy declaration released by the Hong Kong government not only demonstrates Hong Kong's firm determination to develop Web 3 to the world, but also provides confidence for these enterprises. For example, on January 9, 2023, Hong Kong held a large-scale event that attracted around 500 participants on the first day of the event. The release of the declaration and the revival of the switch have once again boosted the vitality of Hong Kong.

MetaEra: You have sought development advice from the industry to promote Hong Kong as a global Web 3 hub. The main theme of Web 3 includes key parts such as asset trading, OTC, stablecoins, RWA, etc. When it comes to high volatility assets, regulatory policies must be in place to support them. In what aspects are Hong Kong's current regulatory policies relatively loose and strict?

Wu Jiezhuang: Hong Kong's regulation of the Web 3 virtual asset industry can be described as' moderately proactive '. This kind of regulation is neither too lenient nor extremely strict.

From a 'strict' perspective, we are very strict in protecting small investors. For example, the regulation of our virtual asset exchange is different from other countries and regions, requiring exchanges to separate their own assets from customer assets, and customer assets must be 100% insured. This approach has learned from the lessons of the past few years, when we heard a lot of news about exchanges going bankrupt or being hacked, ultimately harming investors and affecting market confidence. The current and future regulatory framework in Hong Kong aims to prevent such incidents from occurring and ensure the protection of investors' interests; At the same time, we are also very strict with the exchange. The Hong Kong government has gradually clarified a series of regulations targeting virtual assets, starting with virtual asset exchanges, followed by stablecoins and over-the-counter (OTC) trading. In the recent government work report, the Chief Executive also mentioned the importance of virtual asset custody, and personally, I am actively promoting DAO laws and regulations.

Hong Kong adheres to common law, and as long as it does not conflict with existing laws, any matter that is not explicitly prohibited by law can be attempted and innovated. Including the previously mentioned stablecoins and over-the-counter (OTC) trading. At present, there are no written laws in these areas, and it is expected that relevant legislation will be introduced next year. Under the current legal framework, OTC street vendors in Hong Kong can still conduct business without clear legal constraints. This regulatory gap provides them with opportunities to continue operating, while also facilitating innovation. Enterprise merchants are able to explore better business models and continue to develop on this basis.

So I think the most important reason why Hong Kong can become the center of Web 3 is that it relies on mainland China and follows the principle of 'one country, two systems'. The advantage of this system is that Hong Kong can utilize a large number of technical talents, especially in Shenzhen, which is adjacent to the Guangdong Hong Kong Macao Greater Bay Area. There are many young and capable engineers there, and their innovative spirit and practical ability are unique advantages of Hong Kong. In addition, Hong Kong is a traditional financial center with active stock market trading and a large number of Asia Pacific or global headquarters for global banks. Its asset management scale ranks among the top in the world, providing a solid foundation for financial properties such as virtual asset trading in Web 3. In addition, with Hong Kong's practical and innovative practices in the field of Web 3, I am confident that Hong Kong can become the center of global Web 3 in the future.

MetaEra: Regarding Trump's plan to include Bitcoin in the strategic budget reserve mentioned at the Bitcoin Conference, you have expressed the same opinion on social media. So, what do you think is the importance of including Bitcoin in the strategic budget reserve? What is the likelihood of this actually being implemented?

Wu Jiezhuang: Bitcoin, as a relatively successful application case of blockchain technology, has been around for fifteen or sixteen years since it was proposed by Satoshi Nakamoto about a decade ago. Although Bitcoin was initially attacked and vilified for its use in illegal transactions such as money laundering, buying drugs and weapons, its attention in the traditional financial sector has significantly increased to this day. Some traditional families and businesses are beginning to incorporate Bitcoin and other virtual assets they consider valuable into their asset allocation.

I am not advocating for the adoption or complete exclusion of this option, but rather suggesting conducting research. After all, this topic has received widespread attention, and research is a wise approach. Bitcoin, as an asset, has become a configuration choice for many people, but its price volatility is high, and its stability and currency properties are also questionable. Therefore, we can consider it as an electronic digital asset, similar to gold or other precious metals, with some comparability, but not a true currency. It is understandable for countries, businesses, families, and individuals to consider Bitcoin as part of their asset allocation. Therefore, it is reasonable for the country to consider this issue. That's also why I post on social media to share this concept.

In addition, the majority of participants in virtual assets are young people, especially those born in the 2000s and 1990s, who are already considered veterans in this field. As a person who has been engaged in technology and entrepreneurship for a long time, I am very concerned about the interests and hobbies of young people, as these are often the direction of future development. Especially the surge in virtual asset trading volume is largely driven by the participation of young people. According to data from the United States, approximately 50 million citizens hold digital assets, with the majority being young people.

As for the philosophy behind President Trump, although I have heard that he is not very fond of Bitcoin, it seems that he has now accepted it. This may be related to the election, but I don't want to speculate too much about the intentions behind it. However, having politicians express such opinions means that different regions and countries need to consider this issue, and that is exactly my philosophy.

MetaEra: We all know that the approval time of Hong Kong Ethereum spot ETF is earlier than that of the United States, but from the actual data performance, it is difficult to compare with traditional asset trading. So, what kind of driving effect will the approval of Hong Kong Ethereum spot ETF bring to the development of Hong Kong Web 3?

Traditionally, Hong Kong has been accustomed to following in the footsteps of the United States and other developed countries, observing their actions and confirming their success before moving forward. But in the Web 3 era, I hope Hong Kong can become a leader and lead innovation. This innovative leadership spirit is reflected in two aspects: one is Ethereum ETF, and the other is asset swap. In the United States, ETF shares must be traded in fiat currency, while Hong Kong allows the use of virtual currencies such as Ethereum and Bitcoin to exchange shares. These two innovative points are crucial. The most crucial thing is the attitude of experimentation. The Hong Kong government's attitude is clear, willing to innovate and take the lead.

Although nowadays, our transaction volume may not be comparable to that of the United States. For ordinary citizens in Hong Kong, it will take some time to accept this new type of asset. Hong Kong has experienced multiple financial storms and often maintains a cautious attitude towards innovation in financial products, rather than rushing forward. Citizens are more cautious because they have experienced multiple stock market crashes and investment product explosions. Therefore, the initial trading volume will not be too large, and the participation of institutions will be relatively small. We strive to increase transaction volume by optimizing laws and regulations, building a market ecosystem, and attracting more talents and funds to settle in Hong Kong.

In addition to ETFs, I have also noticed that some internet securities firms have started providing services for buying and selling four types of virtual assets directly with fiat currency, through licensed exchanges in the background. These trading volumes are also quite considerable, sometimes reaching billions in a day, which is not a small amount. Therefore, I believe that Hong Kong's attitude towards supporting industry development is clear. Our growth requires time to cultivate, including investor education and gradually relaxing policies to attract more diverse capital to participate in investment and trading in Hong Kong.

MetaEra: At the current stage, is the development of Web 3 in Hong Kong focused on financial attributes, or on technological innovation, talent cultivation, project incubation, and other directions? Is there a focus?

Wu Jiezhuang: From the government's perspective, as the supervisory department is the Financial Services Bureau (FSTB), the Hong Kong government's attitude actually focuses more on financial attributes.

For me, Web 3 is not just a financial platform, it encompasses multiple important areas. Virtual asset trading is the core part of it, in addition to many technological applications such as artificial intelligence, data processing, and data display through methods such as metaverse. These are actually important components of Web 3. I propose to establish a committee in the Legislative Council called the 'Web3 and Virtual Asset Development Task Force', which actually involves the participation of two policy bureaus, in addition to the Financial Services and Treasury Bureau, as well as the Innovation, Technology and Industry Bureau. The Innovation, Technology and Industry Bureau plays an important role in it, involving talent cultivation, enterprise project innovation, and other aspects. After public chains and exchanges, there are more application scenarios that need to be achieved through different technological and innovative projects. These innovative projects rely on the joint creation of young people, engineers, and creative builders. Without them, there would be no trading partners and no public chain to apply and operate. In the end, everything comes down to the projects, they are the flowing blood, interconnected through the exchange process, and each part is crucial. Overall, I believe that Hong Kong should develop Web 3 comprehensively.

MetaEra: As a member of the Hong Kong Legislative Council, I will pay attention to the development of various aspects in Hong Kong. Hong Kong is very developed in finance, real estate, import and export trade, etc. So, is it still suitable for the contemporary young group to achieve sufficient results in these areas? You have vigorously promoted the implementation of policies by the Hong Kong government in the Web 3 field. Do you think Web 3 can become a new opportunity for Hong Kong youth employment and even entrepreneurship?

Wu Jiezhuang: When I ran for the Legislative Council at the end of 2021, one of the core ideas in my political platform was to create industries and provide more opportunities for young people in Hong Kong to have upward mobility. The reason for such a proposition is that since the return of Hong Kong, local prices have remained high, and industry development has focused on finance and real estate. Although these fields are mature, they limit the choices of young people who have just entered society. It is very difficult to stand out in these traditional industries.

Therefore, during my campaign, I hope to use Web 3 to create more diverse opportunities for young people in Hong Kong. Because I am relatively familiar with this industry and believe it is very suitable for young people in Hong Kong. As mentioned earlier, this is not just an industry issue. I am also creating conditions in other industries that are suitable for young people, such as technology, culture, and sports, so that they can seize opportunities.

In the past decade or so, I have been dedicated to youth work and have served as the chairman of the Hong Kong Youth Association, promoting Hong Kong youth to engage in activities such as exchanges, internships, and entrepreneurship in mainland China. I have done a lot of work in this area, and I have observed that young people in Hong Kong have a broad international perspective and flexibility. The emergence of new industries such as Web 3 is undoubtedly a huge opportunity for them, and it is also crucial for the long-term development of Hong Kong. Therefore, I am also working hard to promote this agenda in the Legislative Council.

MetaEra: I would like to know the current size of the job market in Hong Kong regarding Web 3? What major do you think is more suitable for students in the Web 3 field? Furthermore, based on your observation, what is the level of acceptance of Web 3 among young people in Hong Kong?

Wu Jiezhuang: Since 2022, Hong Kong has relaxed its customs clearance policies, and with the clear policy support and strong promotion of the Hong Kong government, we have witnessed foreign enterprises, including overseas and mainland enterprises, coming to Hong Kong to start businesses and apply for licenses. Preliminary data shows that over 500 companies have already entered Hong Kong, and the actual number may far exceed this number, even reaching 1000. These enterprises vary in scale, with some employing around 200 people in Hong Kong, while others are smaller with around ten to twenty employees. Overall, these enterprises have provided nearly one to ten thousand job opportunities for the Hong Kong market. Of course, these positions are not limited to local youth, but also include talents attracted through our talent policies such as the "High Talent Connect" and "Excellent Talent" programs, who come to Hong Kong to start businesses and find employment. I estimate that the number of these new job opportunities is close to 10000, which is the answer to the question of market size.

As for the type of young people suitable for working in the Web 3 industry, I think it can be done in all aspects. Web 3 is not just a technical field, it covers multiple aspects such as programming, development, financial products, community activities, marketing, and more. For example, financial products require an understanding of financial logic, community and event organization require marketing skills, while metaverse and 3D design require skills in art and graphic design. The entire industry chain is very broad, and different positions require young people with different attributes. As long as you are interested in this industry and willing to join, regardless of your learning background, it is easy for you to find a suitable position for yourself.

MetaEra: In order to promote the development of blockchain technology in mainland China, concepts such as "coin free blockchain" and "blockchain reform" have also emerged. Can the development of virtual asset trading in Hong Kong at this stage become a template and paradigm for the future development of Web 3 in mainland China?

In this context, the mainland and Hong Kong may achieve complementary advantages in this field: the mainland has abundant application scenario resources, while Hong Kong performs well in terms of talent and market space. This complementarity provides the possibility of cooperation between the two regions in asset trading and financial operations. The 'One Country, Two Systems' framework in Hong Kong makes it an ideal place to experiment with new financial models, which may expand into broader fields in the future.

In history, the Hong Kong stock trading market has also gone through a process from disorder to regulation, ultimately developing into a key platform for corporate financing. Currently, numerous small exchanges in the Web 3 field may also undergo a similar integration process, ultimately forming a few or a single large exchange, which is a natural trend in industry development.

The development of the mainland securities trading market benefits from Hong Kong's mature experience. For example, Cha Shimei Lun from Hong Kong brought his rich experience accumulated in Hong Kong to the China Securities Regulatory Commission, promoting the maturity of the mainland interest rate market. This cross regional exchange demonstrates the advantages of 'One Country, Two Systems'.

We will continue to leverage the advantages of 'One Country, Two Systems' and steadily promote development. Considering China's scale advantage and unique modernization path, we must move forward steadily, ensuring that every step is solid and reliable, in order to achieve sustained and stable development.

MetaEra: From your personal perspective, can Web 3 help Hong Kong become the new generation of Asian financial capital? After all, cities such as Dubai, Singapore, and Tokyo are competing with each other to develop Web 3. What unique advantages do you think Hong Kong has?

Wu Jiezhuang: I firmly believe that Hong Kong has the potential to become the financial capital of Asia. Hong Kong, as a representative of Asia, has its unique advantages in the map of the financial center of Newcastle Port.

Hong Kong has a well-established legal system with low and straightforward tax rates. Funds come and go freely, and foreign investment can withdraw without obstacles after making profits. This is a firm commitment to international investors and an important factor that attracts them. In addition, Hong Kong's legal environment is also very excellent. So I firmly believe that with these objective conditions, Hong Kong is fully capable of developing into a financial center with greater depth and breadth.

MetaEra: Apart from being a member of the Hong Kong Legislative Council, you are also a member of the National Committee of the Chinese People's Political Consultative Conference. Because we are currently promoting the concept of 'digital economy', what do you think of China's development in this area? And what are your thoughts on the future?

Wu Jiezhuang: The digital economy is an extremely broad platform that occupies an important position in the national "14th Five Year Plan". As the final year of the plan approaches, the core technology of the digital economy is expected to account for 10% of China's GDP, which is a very large figure involving tens of trillions of yuan. In the field of digital economy, we not only see the "Internet+" model discussed ten years ago, but now we have also proposed two new concepts: "Artificial Intelligence+" and "Data Element Layer". Especially in the data element layer, I believe there are huge opportunities hidden within it. The authorization, trading, and utilization of data will greatly enhance the productivity and GDP of various industries in China's vast economic scale in the future, which in turn provides excellent opportunities for various industries to enhance digital development. The core lies in how to effectively utilize the data resources we have today, which have always existed around us but have not been well collected and utilized before. Nowadays, we have the technology and methods to apply data to various industries. I believe that with the establishment of the National Big Data Bureau, this will drive the entire country to take an important step forward in digital development.