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Following is the full text of an opening remarks (English only) delivered by the Acting Secretary for Financial Services, Mrs Rebecca Lai, at the Regional Conference on Finance "Asia's New Financial Landscape & Opportunities" organized by the Hong Kong Trade Development Council today (May 25):
Harnessing the Forces of Globalization
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Ladies and gentlemen,
I am most honoured to be invited by the Hong Kong Trade Development Council to speak at this year's Regional Conference on Finance. The Conference has become an important yearly gathering for the financial community to discuss issues of common interest in the region. The theme this year - "Asia's New Financial Landscape and Opportunities" - is particularly timely and relevant, as we enter the new millennium and the era of globalization.
Asia has spent the past two and a half years striving through a financial storm unparalleled in modern history. The lesson for Hong Kong is clear. Our traditional free and open market wisdom has anchored Hong Kong amidst the gusts and currents. Our staunch commitment to the basic principles of maximum support, minimum intervention and transparency is the driving force in support of the voyage to strong economic recovery.
Globalization risks a more severe storm?
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Now that the worst of the financial crisis is clearly behind us, we are faced with an even more challenging task: meeting the forces of globalization. But let us forget about the recent fluctuations in the prices of dot.com stocks and the effects of interest rate hikes for a while. Globalization and technological advancements have deeper meanings and more profound implications for the financial landscape of Asia. According to the Bank for International Settlement, the external assets of the banking sector increased by US$ 691 billion to US$9,864 billion from December 1997 to September 1999. International debt securities held by banks also rose from US$ 3,494 billion to US$ 5,112 billion, or by nearly 50%, during the same period.
Globalization transforms the way people think and the way they do business. It creates enormous business opportunities and room for creativity by slashing transaction and information costs substantially. On the other hand, it presents huge risks which, if not managed properly, will cost dearly to both market players and the stability of the financial system as a whole.
For Hong Kong, globalization creates a new dimension on how to maintain and enhance our position as a major international financial centre. Harnessing the forces of globalization has become one of the most important and urgent strategies as we stride towards the 21st century.
Opening up of market for competition
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Advancement in technology brings along international competition. Our policy response is to encourage market liberalization to enhance competitiveness, innovation and efficiency, while maintaining the safety and integrity of the system. In the banking sector, just three weeks ago, the Hong Kong Monetary Authority issued a guideline on the licensing of virtual bank, an increasingly popular modality in global banking. Barring any unforeseen circumstances, we will also see the deregulation of the remaining regulated time deposits with a maturity of below seven days in July this year, and of savings and current account deposits a year after. The newly established Hong Kong Exchanges and Clearing Ltd will also remove the minimum brokerage commission rule with effect from April 2002.
Strengthening the risk defense mechanism
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We have not overlooked that opportunities come with risks. Therefore, domestically, Hong Kong is putting in strenuous effort to strengthen the risk defense mechanism of our financial system. In April, the Government published the Securities and Futures Bill in the form of a White Bill for consultation. The legislative proposals aim to provide or streamline regulatory regime which matches up-to-date market developments, close existing regulatory gaps to promote market confidence, and reduce market misconduct and systemic risks. The Hong Kong Monetary Authority is also strengthening banking supervision through a new risk-based approach.
As our economies become more interlinked with one other, domestic measures alone will not be sufficient to reduce the risks posed by the global movement of massive and at times volatile capital flows. Hence, Hong Kong takes part actively in the reform of international financial architecture. For example, the Report of the Financial Stability Forum's Working Group on Highly Leveraged Institutions recognizes that highly leveraged institutions' establishment of large and concentrated positions has the potential to influence market dynamics in small and medium markets. A number of recommendations have been put forward to reduce the risks involved. We support further work in this area, and call for timely implementation of the recommendations of this and other Working Groups of the Forum.
Upgrading market infrastructure and human capital
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In parallel to enhancing risk management, Hong Kong is upgrading our hardware and software capabilities so that our market may perform the intermediary function on more competitive terms.
On the securities and futures markets, Hong Kong adopts a three-pronged approach to reform. First, we championed the reform of the market structure. The merger of the exchanges and clearing houses was completed on 6 March 2000. Second, we modernize the regulatory regime. The introduction of the Securities and Futures Bill which I referred to a moment ago is a case in point. Third, we upgrade the market infrastructure. We aim to establish an open and secure electronic network that will allow all securities and derivatives transactions to be processed straight-through in two years' time.
A physical infrastructure and regulatory framework, however robust it may be, cannot function effectively without input of the right human calibre. We therefore attach great importance to the development of human resources in the financial services field. We are in the process of setting up a high-powered Advisory Committee on Human Resources Development in the Financial Services Sector. The Committee will provide an ongoing mechanism to match the demand for and supply of human resource development, and to coordinate and motivate sector-wide support on this front.
Spearheading development of a regional debt market
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I have illustrated how Hong Kong is strengthening risk management and competitiveness to harness the forces of globalization. I would like to highlight two initiatives which will achieve the dual objectives, and which I see as particularly relevant for Asia.
The first is development of a regional debt market. This will minimize the risk of liquidity crunch brought by over-reliance on short-term bank lending and capital from the securities market. It will also sharpen Asia's competitive edge by providing an alternative to the mature debt markets in North America and Europe.
The initiative calls for regional cooperation. Hong Kong has been establishing links with the central clearing and depository systems in the region. We will introduce a US dollar clearing system in the third quarter of this year. The clearing system should act as a springboard for attracting global debts issues and trades in US dollar in Hong Kong. We also advocate studies on the desirability of a regional credit rating agency, which will have better understanding on the needs and circumstances of the region.
Domestically, the Mandatory Provident Fund (MPF) System will be launched in December 2000. The estimated annual MPF contributions will amount to US$1.3 billion in the initial years of operation and further expand to US$7.6 billion when the system matures after 30 years. This source of funds will provide an impetus to the development of the domestic and regional debt markets as well as the fund management business.
Corporate governance - the other end of the dynamics
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The second initiative relates to the enhancement of corporate governance. We have talked a lot about the market place - how to make it more efficient, competitive and safe. But the important thing is the subject of investment. Global capital will not come if shareholders' interests are not adequately and properly safeguarded. Transparency and accountability which are the core values of corporate governance have become the minimum requirements if we are to compete for foreign capital.
Hong Kong's standards of corporate governance are already among the highest in Asia. However, we are not complacent. Aspiring to be the benchmark for the region, we will embark on a corporate governance review this year to take stock of what we have achieved so far and how better we could fare.
Closing remarks
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I have spoken naturally from the perspective of Hong Kong. I am sure that in the remaining part of the Conference you would have a rich and lively discussion on a much wider range of issues arising from the new financial landscape of Asia. I wish the Conference a great success. Thank you.
End/Thursday, May 25, 2000
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