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Following is the full text of the welcoming remarks (English only) by the Financial Secretary, Mr Antony Leung, at the Forum on China's Government Securities Market in the New Century today (November 19):

Mr Li, Mr Conroy, Ladies and Gentlemen,

It is a great pleasure to join you this morning at this important forum. The timing and the location make this an especially significant event.

Before the end of this year, China is expected to have completed all the formalities for accession to the World Trade Organisation. China's entry into the WTO will mark the beginning of a new stage of development for China's financial sector. This involves both the gradual opening of its markets to foreign intermediaries, as well as extensive reform and development of the capital markets. Holding this forum in Hong Kong underlines the pre-eminent role as a partner and a participant of Hong Kong in the Mainland's strategy for financial development.

Hong Kong is the main external arranger for the Mainland's loan syndication, bond issues and stock listings. Over the past 11 years, the amount of total syndicated loans arranged in Hong Kong amounted to 21 billion US dollars, representing 45% of total syndicated loans arranged for Mainland enterprises. Hong Kong has been the favoured location for listing and regional distribution of the Mainland's global sovereign and non-sovereign bond issues. Mainland enterprises have also raised 15.3 billion US dollars through listing of 54 H shares here since 1993.

In fact, Hong Kong is playing a key role in intermediating capital into and out of the Mainland. We are the Mainland's largest investor accounting for about half, or 171 billion US dollars, of all realised direct investment in the Mainland. The Mainland also accounted for 104 billion US dollars or roughly 26% of total inward investment into Hong Kong as of end 1999.

We expect all these activities to grow - and many more functions to be added - as China liberalises its market following its accession to WTO, and as China further develops its Government Securities Market.

The theme of this forum is developing the Chinese Government Securities Market. Let's first briefly review why such a market is important for the Mainland's financial system, and for its wider economy. There are at least three strong reasons. First, the development of a deep and well functioning bond market in China will help channel savings efficiently into investment, for both the government and enterprises. A prominent example is the issue of treasury bonds to finance long-term government infrastructural projects. Secondly, government bonds provide a tool in monetary policy and management. An efficient domestic bond market with a considerable presence of government securities offers a platform for macroeconomic policy operations. Thirdly, the development of an efficient government bond market will help lay the foundations for the development of a corporate bond market in the Mainland. This also provides a service and stimuli to other parts of the financial services industry.

Indeed, by providing more efficient financial intermediation, bond market development will strengthen the financial stability in the Mainland. No longer will banks be the primary channel for disintermediation of the risk between savers and users of funds. As we all know a sound banking system is critical to the financial health and stability of any economy. This will not only be good for Hong Kong, but also good for the region and the world as a whole.

China has already been tapping into the international debt market from time to time. One of the most recent examples was the issue of two US dollar Eurobonds in May 2001, which was well received by the markets. A regular issuance programme would help establish a continuous and reliable US dollar benchmark yield curve for China. It would help other potential bond issuers, especially the corporates, to raise funds at a lower cost. It would also expand the investor base and attract further foreign capital to the Mainland.

With the opening up of the Mainland's financial markets following the entry into the WTO, a wider range of opportunities will be opened to foreign firms. For example, within three years of the accession, foreign securities institutions will be permitted to establish joint ventures, with foreign ownership making up to one third of the shareholding, to engage in underwriting government debts.

If you look at the figures, China is not only a potential issuer of debt instruments, but also a huge pool of potential funds. It has a sizable economy at over one trillion US dollars, which continues to expand at a stable and strong growth rate of 7%. Also considering China's exceptionally high savings rate of over 40%, it is obvious that there are lots of business opportunities. These have special implications for Hong Kong, given our unique role in the region.

Hong Kong has an advanced and robust financial infrastructure to handle US dollar issuances of securities. This is the only such facility in this time zone. Our market fits nicely between the closure of the New York market and the opening of London. Since its inception in August 2000, our US dollar clearing system has handled an average daily turnover of 2.9 billion US dollars, which was increased to 4.1 billion US dollars by October 2001.

We have an efficient debt market clearing and custodian system, the Central Moneymarkets Unit. It is linked to Euroclear and Clearstream and provides real time delivery versus payment services. Hong Kong's banking centre is the second largest in Asia after Japan, and the ninth largest in the world, with 78 of the world's 100 largest banks having a presence here. We also have a critical mass of financial professionals who can assist in the stable and sustained development of US dollar issuances of China government bonds.

This financial infrastructure is supported by a host of institutional strengths. We are the freest economy in the world, offering a level playing field and free flow of information. We have a sound legal and supervisory framework with full range of auxiliary services. All these have helped make Hong Kong an important base for raising funds related to Mainland activities. For years, Hong Kong has established strong international links and extensive network with the Mainland, as it evolves as an important international financial centre in the region.

Ladies and Gentlemen, this forum takes place at a time of political and economic uncertainty for the world. While we attend to the immediate problems we have, it is important that we do not lose our perspective of what can be achieved in the medium and longer term. The China market is obviously an extremely important market in the years to come. This forum has the future opportunities clearly in its sights, and I am sure that with the diverse attendance and the distinguished list of speakers, the activities in the coming two days will be productive and useful.

I congratulate the Ministry of Finance of the People's Republic of China, the World Bank and the Hong Kong Monetary Authority on having put together such a comprehensive programme. And I wish you all a successful forum and an enjoyable time in Hong Kong.

Thank you.

End/Monday, November 19, 2001

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