Before the dialogue, Deputy Director of the Innovation and Technology Bureau, Zhong Weiqiang: Hong Kong has a clear vision for Web 3.0

Written by: BlockBeats

On September 26, the AI & Web3.0 Investment Summit "EDGE Summit," led by Vertex Labs, officially opened in Hong Kong. The opening ceremony featured a speech by former Deputy Secretary for Innovation and Technology, Zhong Weiqiang, who delivered a talk on "Hong Kong's Investment and Cross-Border Data Policy Sharing." He mentioned, "In terms of investment in innovation, Hong Kong has been committed to innovation in areas such as technology investment, digital banking, virtual assets, and cross-border investment services. We aim to develop the digital economy and lead in the development of Web3.0 and artificial intelligence."

Former Deputy Secretary for Innovation and Technology, Zhong Weiqiang, delivers the opening speech

During the summit, BlockBeats had a conversation with former Deputy Secretary for Innovation and Technology, Zhong Weiqiang, to gain insights into his thoughts and views on Hong Kong's Web3.0.

In January 2016, Zhong Weiqiang was appointed by the government as the Deputy Secretary for Innovation and Technology and took office on March 1 of the same year. As a specialist in information technology, Zhong has been very active in the industry and has rich administrative experience, which led to his invitation by Secretary Yang Wei-hsiung. In his early years, Zhong was involved in information technology management and entrepreneurial development, having worked for several technology companies. He joined Hong Kong Cyberport Management Company Limited in March 2004, responsible for promoting IT infrastructure and nurturing entrepreneurs, and left in February 2016 as the Chief Technology Officer.

Before taking office as Deputy Secretary for Innovation and Technology, Zhong worked with Secretary Yang Wei-hsiung at Cyberport for many years. Zhong's technical background and industry image can play a positive role in the work of the Innovation and Technology Bureau. In August 2017, Zhong was reappointed by the new government and continued his term as Deputy Secretary on the 2nd of the same month.

BlockBeats: Please introduce yourself and what you have been doing recently?

Zhong Weiqiang: I am a native of Hong Kong and later worked in Beijing and at Microsoft in the United States. After leaving Microsoft, I started my own business. After a while, I found entrepreneurship not as enjoyable, so I worked in the government and public institutions for over ten years. In recent years, I have been thinking about not wanting to retire and still have the motivation to continue entrepreneurship, so I returned to the market.

Actually, there are many good companies in Hong Kong, but they are not very familiar with other cities in mainland China. I have worked more in Beijing and the mainland, so for over a decade, I have been going out. Before entering the government, I was involved in the innovation and technology field and financing. Now I am working as a consultant, helping different companies find market directions and sources.

BlockBeats: When did you first come into contact with concepts like blockchain and Web3.0?

Zhong Weiqiang: Quite early, I was still working at Cyberport and witnessed the very early Consensys conference. At that time, Bitcoin was less than $300. So I was relatively early; I am an IT person, and IT people inevitably encounter Bitcoin. However, to this day, I still feel it is unsafe and would not put too many assets into virtual currencies because there are many hackers, and it is easy to be stolen.

Hong Kong's Web3.0 is Not Comparable to Singapore

In mid-September, Vitalik Buterin spoke at Token 2049 in Singapore, stating that although Hong Kong has shifted to a crypto-friendly stance since the end of last year, cryptocurrency projects should consider the stability of local friendly policies when setting up offices in Hong Kong. Subsequently, Hong Kong Legislative Council member Wu Jiezhuang responded to the issue of "Vitalik's statement that projects seeking to develop in Hong Kong should consider the sustainability of local policies," stating that he respects Vitalik's right to speak but believes he does not understand the specific situation in Hong Kong. He argued that "Hong Kong's policies and laws will not change overnight; all relevant strategies and regulations are based on significant social consensus and complete procedures, so I can tell Mr. Vitalik that Hong Kong's policies are very stable."

BlockBeats: Recently, Ethereum founder Vitalik Buterin mentioned at a conference in Singapore that projects seeking to develop in Hong Kong should consider the sustainability of local policies. What are your thoughts on this?

Zhong Weiqiang: Vitalik has actually been to Hong Kong quite early. I think we in Hong Kong have already thought very clearly about what can be done and what cannot be done, just like the internet, as I mentioned in my speech. I experienced the Web 1.0 internet bubble, where there were certainly some bad actors messing up the market. However, if you are someone who is building and creating an overall structure, Hong Kong will not forget you.

Hong Kong's strengths are the free flow of talents, free flow of capital, and free flow of information; these are our best assets, allowing for constant movement. But looking at Singapore, can you take money out of Singapore freely? Can you do that in Japan? In South Korea? Which country or region in Southeast Asia can achieve the free flow of capital like Hong Kong? Only Hong Kong as a financial center can do that, so I think Hong Kong is a beautiful place.

BlockBeats: However, some people say that Hong Kong has released friendly policies for a long time and issued some regulations, but it seems to still fall short compared to Singapore, such as the number of attendees or the level of excitement at events. Some feel that Singapore is more vibrant than Hong Kong. What do you think?

Zhong Weiqiang: Really? I don't agree. My friends say they go for a day and leave immediately; they think it is lively and can discuss many things, but it turns out they cannot. Token 2049 is expensive; hotels are expensive, dining is expensive, everything is expensive—just one word: expensive. But Hong Kong is relatively better because we are pegged to the US dollar. Singapore is not pegged to the US dollar; it fluctuates, so it will be expensive. This is a capacity issue; we can still overflow to Shenzhen and other places. In fact, many people come from Shenzhen today; they may not necessarily stay in Hong Kong, but Singapore cannot do that. So this is a matter of scale, and there are many other issues, such as tax issues; Hong Kong's tax is relatively low and very transparent.

BlockBeats: For example, in the next five years, how do you see the comparison between Singapore and Hong Kong?

Zhong Weiqiang: I think it is impossible to compare. We are so close to the mainland, and Singapore is a four-hour flight away; it cannot be compared. Hong Kong is a financial center, and I believe this issue has been made very clear, especially in recent years, where our positioning has become very clear.

In the past, many said Shanghai would surpass Hong Kong, Shenzhen would surpass Hong Kong, Guangzhou would surpass Hong Kong. Now, who is saying that? The positioning of Hong Kong people is very important; we are an international window. So we have been working hard, including the government and many people flying in from all over the world. The forum is an international event, and we are very supportive of it. Look at the Asian Financial Forum in Hong Kong in January; where else in Singapore can you find such a large conference?

But I don’t want to compare with them because it is not a good comparison. Singapore is a country, while Hong Kong is a city of China; there is no comparability. We are an international financial center, and our recent issue is related to our peg to the US dollar. Interest rates are high, but this high has already been called the "main peak," so in the future, it will definitely decrease.

BlockBeats: Is there a possibility for Hong Kong to create its own stablecoin, a Hong Kong dollar stablecoin?

Zhong Weiqiang: We have a pegged currency called "e-HKD," similar to e-CNY, which is basically pegged to the Hong Kong dollar, but it is a fixed currency. Previously, it was only for banks, but now it has been made available for general citizens.

Recently, Hong Kong Polytechnic University and HSBC conducted a one-week e-HKD test. There hasn't been much discussion because it is still in the testing phase. However, there is indeed a demand, and the roadmap is very clear.

e-HKD is being tested in different scenarios; it is not a large-scale test, unlike the mainland. The mainland may be testing B2B and B2C, while we are using application scenarios to test, with campuses being a very good scenario, collaborating with HSBC for testing.

Hong Kong Regulation Under the JPEX Incident

On September 15, Bitrace's on-chain fund audit indicated that the virtual trading platform JPEX's related addresses suffered severe fund contamination, with over 190 million risk USDT flowing into one of its hot wallet recharge addresses in the past 20 months. According to Hong Kong media am730, the Hong Kong police confirmed to the media that they had received a notification from the Securities and Futures Commission, and the Commercial Crime Bureau is following up and investigating whether the JPEX case involves criminal elements. Previously, the Hong Kong Securities and Futures Commission had issued a warning stating that JPEX is an unregulated virtual trading platform.

Subsequently, JPEX announced that due to negative news, the platform's third-party market makers temporarily locked funds. By September 19, the Hong Kong police stated at a briefing on the JPEX case that they had received 1,641 reports claiming they were unable to withdraw assets from JPEX and suspected fraud, involving approximately HKD 1.2 billion.

BlockBeats: What are your thoughts on the JPEX incident in Hong Kong?

Zhong Weiqiang: There are always scams, like the millennium bug incident in 2000. Due to design issues in computer programs regarding date representation, computers misread some dates after the year 2000, leading to errors. At that time, computer programs commonly used six-digit numbers to store time, displaying only the last two digits after four digits, which caused confusion in computer systems, making it unable to distinguish between the year 2000 and 1900, resulting in misreading issues.

But at that time, there were indeed people on the street looking for sprays that could eliminate the millennium bug, being scammed into buying insecticide sprays, as they did not understand that the millennium bug was a computer issue.

BlockBeats: As a citizen or user, how can one judge whether something is a scam?

Zhong Weiqiang: As a former official, what I say is only for reference. How to judge whether something is a scam is actually very limited for citizens. It still depends on regulation, so I think regulation is a good thing; it can provide a relatively transparent transformation for the market. I use the casino as an example: if there is an underground casino and a legal casino, where would you gamble? If you gamble at the former, and they win, they won't give you your money, but the legal one will definitely pay you, just like the Hong Kong Jockey Club; we are legal, and if you bet on a winning horse, you can win money, very transparent. If you buy a horse from someone who claims it won't lose, that is also a scam.

Hong Kong, as an open and transparent market, whether it is virtual currency, future tokenization, or NFTs, there will definitely be losses in trading; if there are no losses, it will bring many troubles that everyone cannot bear. As an international financial center, we must have a relatively good approach to this matter.

However, there are still some people who exploit legal loopholes during these two to three months of policy window, and they come out and mess up the market, which has a significant impact on many legitimate businesses. For example, several who obtained licenses are legal, but it negatively affects genuine investors.

This period is like the previous chapter; Hong Kong banks had many previous chapters 70 or 80 years ago. For every technology and every business behavior, if the policies are well established, everyone can conduct business relatively legally. However, if regulations are too strict, that is not good either.

But we also know that being too strict is not good; a balance must be struck, and a good balance is very important.

BlockBeats: I know you are currently helping some projects. Is it difficult for them to obtain licenses in Hong Kong?

Zhong Weiqiang: The difficulty lies in the investment amount, which requires a large sum. However, I think if it is just about trading platforms and virtual currencies, the trading volume is still insufficient; you cannot rely solely on virtual currency. How much is the daily trading volume of virtual currencies? Only one or two currencies cannot bear that much trading volume. Other businesses must also be developed. Therefore, I think the focus should still be on overall healthy development, such as NFTs, GameFi, etc.

BlockBeats: But the current market for NFTs and GameFi is not particularly good. What are your thoughts on that?

Zhong Weiqiang: In the long run, it is like the Internet in the 1.0 era, but there was no so-called business behavior behind it; how to make money was not clearly explained, just spending a lot of money. But later, BAT emerged, so there is still a process. Now we are going through this process, but I estimate this cycle is relatively short because each technology cycle is getting shorter and shorter, and each cycle will be faster. Unlike AI, which is moving very quickly; last year, many concepts were still being discussed, but this year AI has emerged. So I think this field is still very good for me in technology because there are many opportunities to discover.

BlockBeats: If AI develops, it will also greatly help the development of Web3.0, right?

Zhong Weiqiang: It will be very helpful; they will definitely complement each other. But you can't just interview it every day, and it will answer a bunch of questions for you. If you can't find the answer, you have to program it again; it can't just do it by itself. You can program it again to answer and optimize it. So in the future, we really have the opportunity to pass on the data and knowledge in our minds to the next generation. Your son can not only talk to your database but also directly access your database. I think Web3.0 + AI is very powerful.

BlockBeats: What are your views on Worldcoin? Do you think there could be someone like Sam in Hong Kong who can combine AI with Crypto Web3.0?

Zhong Weiqiang: Worldcoin is basically a kind of DID. I think Hong Kong has strong application scenarios. If you say our innovation is application innovation, these infrastructure technologies require a lot of money, and other countries and regions can do better. However, in terms of landing and application scenarios, I believe Hong Kong is stronger. But this is just because everyone's roots are different; the soil is different. Our city is relatively complex, and finance is already very developed. I think application scenarios are more effective. However, we can attract different companies to do a good job in this field.

BlockBeats: I also want to know your views on FTX, as FTX also started in Hong Kong.

Zhong Weiqiang: This is again a regulatory issue, or it could be that FTX's risk management level was problematic; they used the money for collateral. The same principle applies to Lehman Brothers; a 200-year-old bank can also go bust. Is it that the bank has problems? I don't think so; it is still about not managing risks well. But at that time, there was not a very good conclusion or framework, so the problem arose.

However, today, if we have a good virtual asset framework in Hong Kong, then (FTX) might not have had problems; it is just that the issues should be relatively few. Just like banks, banks can also have problems. Many investment banks in the US have been operating for many years and still encounter certain detailed issues. So I think it is still a human issue, a management issue. It is not just in the field of virtual assets; whether in software or electric vehicles, if there is no good risk management, these problems will almost certainly arise.

Four Trading Platforms Applying for Licenses

On September 25, as the JPEX fraud scandal continued to unfold in Hong Kong, the Hong Kong Securities and Futures Commission (SFC) held a press conference stating that it would further strengthen the publication of virtual asset investment information and investor education to enhance public awareness of virtual trading platforms. The SFC announced that it would publish a "list of applicants for virtual asset trading platforms," with four institutions initially on the list.

According to the Hong Kong Economic Journal, these four institutions are HKVAX, HKBitEx, Hong Kong BGE Limited, and Victory Fintech Company Limited, all from Hong Kong.

Related article: 《What are the backgrounds of the four crypto trading platforms confirmed by the Hong Kong SFC?》

BlockBeats: Will Hong Kong intervene in risk management for trading platforms applying for licenses?

Zhong Weiqiang: Actually, the overall regulation has been made very clear. However, as for the risk management aspect mentioned earlier, we certainly do not do this every day, but they already have a so-called framework, and they know very well how to structure it. Although we came relatively late, we have thought it through. We have learned from many cases, including those from the UK, the US, Turkey, India, and Singapore. We were relatively late in pinpointing, but now many problems have arisen, and we are still optimizing. However, there have already been some who obtained licenses in these months.

BlockBeats: Why was there a sudden announcement of the trading platforms applying for licenses?

Zhong Weiqiang: Since I am no longer in the government, I am not very clear about the specific situation, but the ones currently applying have already been announced. If a platform has not applied, it can be effectively regulated.

I think it was because of the JPEX incident that this was announced. This incident involved a lot of money and affected many people, as many bought in through KOLs. Now these KOLs often take other people's money and promote it, which is also a problem in Web3.0; sometimes I don't even know if they are experts.

BlockBeats: So do you have a very optimistic view of the current crypto market?

Zhong Weiqiang: Overall, I am optimistic about two areas: one is the environmental technology sector, and the other is Web3.0. Environmental protection is definitely the future and very important for the next generation. The other is financial technology, which is the new payment system for the next generation.