Norman Chan, former chief executive of the Hong Kong Monetary Authority: Hong Kong can become the leader of China's digital economy

By Alma & Morii, Techub News

On June 19th, in the office in Causeway Bay, Hong Kong, Techub News met Norman Chan, the former president of the Hong Kong Monetary Authority who has invested in the field of web3.0.

When he was still the president of the HKMA in 2014, Norman Chan had already paid attention to Bitcoin and considered it a virtual commodity.

Norman Chan’s entire career has been tied to Hong Kong finance. In 1976, after graduating from the Chinese University of Hong Kong, Norman Chan joined the Hong Kong government. In 1991, he served as Deputy Director of the Exchange Fund Management Authority, and started to prepare for the establishment of the Hong Kong Monetary Authority. In 1996, he became the Deputy Chief Executive of the Hong Kong Monetary Authority. In 1997, during the financial crisis in Hong Kong, Norman Chan was the executor of the entire operation in the fight against financial predators represented by Soros, and was known as the “front-line commander” who directly fought against the “predator”. In 2009, when Norman Chan took over the post of the Chief Executive of the Financial Services Bureau, he also assumed the heavy responsibility of stabilizing Hong Kong’s financial confidence in the post-financial crisis era. During his term of office, he well balanced the relationship between investor protection and Hong Kong’s financial innovation.

Chen Delin takes “continuous innovation and continuous improvement” as his life creed. After retiring from the Hong Kong Monetary Authority in 2019, he actively embraced the digital economy and created products such as Yuanbi Wallet and Yixin Chain.

Last year, Hong Kong issued a policy declaration on the development of virtual assets in Hong Kong. On April 11 this year, the Hong Kong Web3.0 Association, where Norman Chan served as the chairman, was established. Hong Kong Chief Executive Lee Ka-chao and other high-level Hong Kong government officials attended and delivered speeches.

In an exclusive interview with Techub News, Chen Delin said that the digital economy is an inevitable trend in the evolution of the world. Only by taking a step earlier can it become the standard for latecomers and gain the right to speak internationally, and Hong Kong has the conditions to become a leader in the development of China’s digital economy.

The former financial regulator kept mentioning in interviews that in the era of technological change, Hong Kong needs to actively embrace the digital economy in order to maintain its leading position as an international financial center.

Regarding the case of Binance being sued by the SEC in the United States, Norman Chen believes that “the actions of the U.S. regulators reveal a message that there will be less and less room for free operation without registration and licenses.”

From the perspective of an entrepreneur, Norman Chan hopes that his business can solve real-world problems, such as corporate identity authentication and exchange rate risks faced by Asian SMEs.

1. Hong Kong has the conditions to become the leader of China’s digital economy development

**Techub News: **Now we are talking about the web3.0 era, what do you think of this concept?

Delin Chen: We have entered the digital world, which corresponds to the digital economy. The inevitable trend of the evolution of the digital world, whoever does well will enter the digital world first, and those who are slow will inevitably suffer.

I think many people have misunderstood the relationship between web3.0 and the digital world. It seems that when we talk about web3.0, it is cryptocurrency, and when we talk about metaverse, it is a game. I think this is only a small part.

From a macro point of view, the government has expressed its position. The country issued a digital China development plan, and the Hong Kong Special Administrative Region government issued a declaration on virtual assets, clearly stating that it will embrace the digital economy.

**Techub News:****How can Hong Kong stay ahead in the digital economy era? **

Delin Chan: In my opinion, Hong Kong needs to make efforts in three aspects if it wants to take the lead in the digital economy and digital finance:

**First, industrial digitization. **No matter what industry, it may be foreign trade or logistics industry, it must be digitized. Make use of new Internet technologies, especially big data and AI, to make products better. It may be the leader now, but if the industry does not upgrade and digitize well, it will fall behind.

**Second, digital industrialization. **Digital industrialization is reflected in two aspects. For example, I have some friends. They are doing an exhibition recently. What they did on the iPad is very beautiful and abstract, but they have the feeling to express it. I will spend 10,000 yuan to buy it back, and some people may like it very much and are willing to spend 100,000 yuan to buy it, or even 1 million to auction. How is this different from tradition? I don’t think so, this is digital art, something purely digital.

This is actually not a new thing, it has existed in the era of web 2.0, but web 3.0 will be even more different. The biggest difference between the two eras is the difference between the centralized platform and the decentralized platform. For example, if you publish a work on YouTube, the data belongs to the platform, and your economic return is determined by the platform, and the platform will track your data and push advertisements to you. But you have no share in the commercial benefits obtained by the platform.

web3.0 is distributed, its computing power and storage are distributed, and it does not need to go through a centralized platform, which changes the incentive system.

**Third, asset digitization. **I think its potential is even more unlimited, because there are too many traditional tangible assets, such as antiques and famous paintings, which are usually auctioned in auction houses, but the cost of auction houses is very high. Moreover, the item has to be shipped back after the auction, so its liquidity is not high. But if the tangible assets are digitized, can a mint token work? Some people say no, because experts need to verify. For example, whether a chair was used by Kangxi, the verification done five years ago may not be credible five years later, because there may be tampering in the middle. Therefore, how to compare tangible assets with digital assets requires a lot of work.

Some traditional financial assets can be split, such as stocks. But many cannot be split, it is a non-homogeneous asset, and the price of each one must be different. For example, the chairs that Emperor Wu of the Han Dynasty sat on and the chairs of Qianlong, can their prices be the same? The problem is how to transform from the current tangible assets to a highly liquid digital asset. There are great opportunities in this, and I attach great importance to this.

**Techub News: **How to convert?

Chen Delin: Still taking the chair as an example, first find an expert to verify whether it is a fake, and then confirm whether its distribution channels are legal, to ensure that it is not stolen or snatched back, and finally when it is auctioned on the auction platform , if the buyer is an investor, he bought the chair to sell it at a higher price, then he only needs to buy the token representing the property rights of the chair. The chair cannot be taken away, because once it is taken away, it is impossible to determine whether the chair is still the original chair when he changes hands, and there is a risk of counterfeiting or damage during this period.

Therefore, the tangible assets compared with NFT need to have a suitable custody arrangement, and be managed, stored or managed by a very credible institution.

Techub News**: What can Hong Kong do? **

Delin Chan: Hong Kong is an international financial center, and our airport is the best in the world. In the future, all art auctions and exhibitions can be held in Hong Kong. Why should the famous paintings I bought in Europe be placed in Hong Kong? Because Hong Kong can exhibit and sell after the exhibition, you only need to trade the NFT corresponding to this painting, like real estate, holding its NFT means owning property rights.

**Techub News: **How should such a hosting center be built in Hong Kong?

**Chen Delin:**First of all, it must be in a place with convenient transportation. For example, if you want to buy an NFT of a chair, but you don’t feel at ease just looking at the pictures and videos on the Internet, you can go to the hosting center or the exhibition place first. look.

Second, if a lot of buyers come to see it, and the trusteeship center is here, the chances of selling it are high, and more and more people will be willing to send their products to Hong Kong for exhibition.

The third is authentication. In the world of web3.0, there are only two types of identities to do any transactions and activities, one is an individual and the other is an enterprise. When I discussed this idea a year ago, many people didn’t understand. After I became interested in web3.0, the company I started had a business called Yixin Chain, which mainly did identity verification for enterprises. In the future, more and more activities will follow All transactions must be real-named. Personal identity verification is ID card and passport, which can be realized by technological means, but corporate identity verification is not so simple.

I hope that the Web3.0 Association can promote this matter, because the industry alone cannot promote it, and the government also needs to cooperate in policy. But once it is done, the first-mover advantage cannot be replaced.

2.Web3.0 can solve the problem of enterprise identity authentication

**Techub News: ****You mentioned that enterprise identity authentication is difficult. What are the specific manifestations? **

**Chen Delin:**According to the anti-money laundering regulations, banks and financial institutions need to do KYC for enterprises. When a company opens an account or takes a loan, the bank needs to know who the shareholders, directors, and management of the company are.

According to the requirements of Hong Kong law, if a company wants to open an account in Hong Kong, more than 25% of the shares need to be penetrated. Regardless of whether the actual controller is a fund, a family office or an individual, the bank must do KYC for them. Unless it is a listed company, because a listed company is transparent.

This is very troublesome for a company. For example, if a company wants to open an account, the bank may require five directors to meet at the meeting between 2:30 and 2:45 next Tuesday, and the cost will be very high.

After the bank account is authenticated, its authenticated identity will not be sent to you, nor will it be shared with other banks. Because banks are liable for losses caused by leaked information, they certainly have no incentive to share it with other banks.

But enterprises can come to our platform (EasyChain) for identity authentication, and after authentication, they can be handed over to different banks to open accounts.

**Techub News: ****Equivalent to a universal identity in the digital world? **

Delin Chen: Yes. But there is a problem that the corporate identity is constantly changing, such as your directors, equity changes, etc.

Then why is your identity change reliable? This is the problem that needs to be solved by web3.0 technology.

But there is currently no such infrastructure, so the cost of opening an account for a business is high. The Web3.0 world is a verifiable and trustworthy world on the chain. Without this identity verification, who would do transactions and activities with you? So I am particularly interested in the development of web3.0.

3. Members of the association will be diversified

Techub News:** So this is why you are willing to serve as the president of the Web3.0 Association? **

Chen Delin: The position of the president of the Hong Kong Web3.0 Association is a group of friends who asked me to help. It happened that I was also interested in this field, so I said okay, the whole process was very easy.

**Techub News:****After hearing so much from you, I think the work of the association should not be easy, because it has to bear a lot of responsibilities to connect different groups. **

Chen Delin: At the beginning, I wanted to take it step by step and slowly, because everyone didn’t know the existence of this association, so I needed to find some familiar people. And because it is cross-industry, we are not engaged in digital assets, so we have invited different people.

Techub News:** There is a point of view that there are too few members of the association in the field of cryptocurrency and too many in traditional industries. **

**Chen Delin: Since the establishment of the **Association, I think it is very good, and everyone has responded very well. Members are companies from mainland China and Hong Kong. We are now recruiting more members. Our principle is diversity and high inclusiveness. It’s not that people in the currency circle can’t come in, but it can’t just be people in the currency circle.

**Techub News: ****How many current members are there? **

Delin Chan: More than 100. We will also have KYC, but it will not be as cumbersome as a bank.

**Techub News: ****Our Techub News has recently been approved to join the association. **

Delin Chen: Yes, the membership of the association is still increasing.

**Techub News: What is the review process like? **

Chen Delin: You first write a letter to apply, and we will look at the company’s information, including shareholders, controllers, directors and business information. We are not a professional certification organization, our principles are inclusiveness and diversity.

Techub News: **** What is the current membership system like? Because I see that ordinary members are divided into three levels, what are the three levels?

**Chen Delin: **The membership fee is definitely different, because the association is non-profit, and the funds mainly come from the membership fee and the sponsorship of some activities. When there are no events or projects, membership fees are the main source of income.

The level of membership mainly depends on the degree of participation of the company. Some large companies are rich but have low participation willingness, so they are junior members; some small companies have high participation willingness, and they will also become senior members.

**Techub News:****Many people think that this association is endorsed by the government, and the threshold will be very high. **

Chen Norman: We are not a government agency, but an intergovernmental organization.

**Techub News: What is the next development plan of the **** association? **

**Chen Norman:**Our common goal is to contribute to the development of the digital economy in Hong Kong, the Greater Bay Area and the country. In the process of industrialization in the past two hundred years, China lagged behind others, and it took a lot of effort to catch up.

The development of the digital economy is a process of globalization, and China has already taken the lead in many aspects. This means that the world structure has a new scene, whoever takes the lead first will gain the right to speak internationally.

My friends and I all believe that Hong Kong should have the conditions to become a leader in the development of the country’s digital economy. The main task of our association is to promote the transformation of web3.0 technology, upgrade the industry, and create industry standards.

We take a few steps first, and the method we develop will become the standard for those who come later. This is not about who has the money, but whether you have an application scenario and how well you apply it. It takes time to practice, not just theory. If your practice is successful, then you can become the standard.

In addition, the Web3.0 Association will also do a good job in research and consultation, make suggestions for the SAR government, and promote social awareness of web3.0.

Techub News: What is the association structure like?

** Norman Chan: ** We now have three executive committees and a special team. One executive committee is responsible for technical research, the other is responsible for the research of industry application landing, and the other is mainly for promotion, popularizing science about web3.0 to the general public.

The task force is the Policy Advice Group. For example, after industry practitioners come to Hong Kong, they want to know some government policies. We will also collect their needs and form a recommendation report to submit to the government. The leader of the special team may invite Wu Jiezhuang, a member of the Hong Kong Legislative Council, to serve as the leader.

4. There is less and less space for encrypted companies to operate freely without supervision

**Techub News:**Have you paid attention to the US SEC’s prosecution against Binance recently? Will this bring opportunities to Hong Kong?

** Norman Chan: ** It is a gradual process for Hong Kong to transform from an environment without a regulatory framework to embrace the web3.0 industry. For example, before the new regulations, two virtual asset trading platforms obtained licenses, but after the introduction of the new regulations, they have to apply again. For example, if you want to make a stable currency now, the law does not say that you can’t do it, but after the new law comes out next year, companies need to apply for a license to continue doing it.

Similarly, Hong Kong’s principle for digital asset trading platforms is that there are regulatory welcomes, not that you can come here. According to my observation, some digital asset trading platforms run away as soon as they encounter supervision. Because supervision is to protect investors, it has requirements in many aspects, and some exchanges do not want to come. If Hong Kong started to have licenses two years ago, I don’t think many people would apply for them.

The actions of the U.S. regulators reveal a message that there will be less and less space for free operation without registration or license.

But the problem with U.S. regulation is that the China Securities Regulatory Commission believes that this thing is a security and should be under his control, while the Commodity Futures Trading Commission believes that it is a commodity and should be under his control.

Unlike the United States, Hong Kong’s regulation is relatively clear. If you want to be a trading platform, you must apply for a license from the Hong Kong Securities Regulatory Commission.

Techub News:** When you were still the president of the Monetary Authority in 2014, you thought Bitcoin was a virtual commodity? **

Chen Delin: In 2014, it was still very early, and there were already many cryptocurrencies, but Bitcoin was the most popular one. At first I couldn’t understand it at all, but after a lot of research, I understood it.

It does not compare to any real thing, it is purely virtual, but it does not mean that it has no value. There are people in the world who pay and rush to buy it. This is a reality, and buying and selling is a kind of market value. Commodities have spot and futures, but commodities have comparable things, such as oil futures and spot, but Bitcoin does not. It is virtual, so it is a virtual commodity.

At the same time, its price fluctuates too much, and it has no ability and conditions to pay, so it cannot be a currency.

Techub News**: Why do you want to make a round coin wallet and a package of stable coins?**

Chen Delin: The main scenario of the Yuanbi wallet is cross-border trade. Cross-border trade uses many currencies, but the Yuanbi wallet you want has it. The currency wallet currently supports Hong Kong dollar, Renminbi, U.S. dollar, euro, and Japanese yen, all of which are anchored in cash.

The package of stable coins you mentioned is not actually a stable coin, but a round coin is a unit of measurement.

Among the four economies with the highest trade volume in Asia, China ranks first, Japan ranks second, Hong Kong, China ranks third, South Korea ranks fourth, and Singapore ranks fifth. However, everyone in the region trades in U.S. dollars, because as long as one side of the trade is unwilling to use its own currency, it will naturally use U.S. dollars. But the problem with the US dollar is how to manage the exchange rate risk, which can fluctuate greatly for every currency now.

If you are a small and medium-sized enterprise, you can earn 10% profit from the selling price of the goods, but if the exchange rate loses 20%, the company will definitely lose money. What are the benefits of using round coins? It is itself a blend of currencies within the Asian region.

If you don’t want to trade in your home currency and don’t want to take the risk of USD, then Yuanbi is the way to go. Since the yuan currency is composed of three currencies, the renminbi, the Japanese yen and the Hong Kong dollar, with weights of 47%, 32% and 21%, the volatility of the yuan currency is lower than that of the US dollar, which helps small and medium-sized enterprises Manage foreign exchange risk.

**Techub News: Is there a similar case for products like Yuanbi stablecoin? What are the advantages of Yuanbi Technology Company? **

Chen Delin: There is no case. The advantage is that we already have an e-wallet license and have experience in meeting KYC/AML requirements. If the company wants to make stablecoins in the future, it will be a matter of course.