Following is the speech by the Chief Secretary for Administration, Mr Donald Tsang, at the CSFB Asian Investment Conference this afternoon (March 25):
Distinguished guests, ladies and gentlemen,
Thank you for the opportunity to join you today. I would like to welcome all of our overseas guests who have flown into town for this particular conference and a couple of other major events going on this week here in Hong Kong reflecting our characters, Asia's world city.
One of course, is the Hong Kong Rugby Sevens, which has been so greatly supported by Credit Suisse First Boston. The Hong Kong Sevens is, without doubt, the world's best Sevens tournament. So we are very happy that CSFB, as one of the world's leading investment banks, has sponsored the event over these past six tournaments. And we are also extremely proud of the Hong Kong Rugby Football Union, and all the hard work they have put in over the years to make this event the huge success it is today.
The other major event this week is the visit of the Rolling Stones, who will be bringing the house down at the Convention and Exhibition Centre on Friday and Saturday nights. What an amazing double act - Jumpin' Jack Flash meets the All Blacks. I am sure there are a few hardy souls here today who will tackle both events with gusto. All I can say is that I admire your stamina and your spirit.
Five years ago, when I was then Financial Secretary, I had the pleasure of addressing the first CSFB Asian Investment Conference. At that time, I spoke on the topic: 'The Future of Hong Kong'. Today, I would like to pick up where I left off.
Those who may have been here in 1998, or have subsequently visited us, will have noticed quite significant changes in Hong Kong over these past five years. For a start you can no longer enjoy the sometimes hair-raising landing at the old Kai Tak airport. Hong Kong International Airport and all the magnificent infrastructure servicing it are the most noticeable additions to our cityscape. The substantial investment in the airport was well worth it - we are seeing record numbers of passengers and flights, and world record throughput of international air cargo.
We also survived the Asian financial crisis - and picked up a sizeable equity portfolio in the process. Those who doubted our intentions at the time will see that we did what we promised - disposed of the shares in an orderly manner that did not disrupt the smooth functioning of the stock market.
We have strengthened our currency board system, and made it more transparent. We have reformed our financial markets - in fact, just last week, we announced major plans to improve stock market listing regulations. We have deregulated the banking and telecoms sectors, and encouraged the development of innovation and technology as new economic drivers. The introduction of the Mandatory Provident Fund has provided workers with retirement protection and boosted the fund management industry.
We have made significant strides to improve the living environment too. And we launched Brand Hong Kong, a long-term programme to promote the strengths and advantages that underpin Hong Kong's positioning as Asia's world city.
The point I want to stress here is that we are acutely aware that we can never afford to stand still. We want our market to be innovative and progressive, because that has a direct bearing on our attractiveness as an investment destination. We must keep our markets free and open - no capital controls, a low and simple taxation system, the absolute free flow of information. We must have stability, and by that I mean a market that operates within a tried and trusted legal framework, with a government committed to ensuring a level playing field for business; and also a stable currency regime to provide investors with a greater deal of certainty. And before you ask, we have no plans to change our linked exchange rate under the currency board system. We will always strive to provide a quality market environment in terms of products, services and regulatory system. And we must be a place of opportunity, that magic ingredient that has made Hong Kong what it is today - and will continue to attract investors to Hong Kong in the years ahead.
So, our core values as an economy and a community - progressive, free, stable, quality and opportunity - these are the benchmarks we will always aim to hit as we face the varied challenges that will come our way. Let me talk about some of those challenges, and what we are doing to address them.
These past five years have been rather tough for Hong Kong. We have been grappling with painful economic restructuring precipitated by a number of factors, including: the bursting of an asset price bubble, the advent of the knowledge-based economy, and the rapid opening up and development of the Mainland market. This has led to a large drop in the personal wealth of many people in Hong Kong, a prolonged period of over 50 months of deflation, high unemployment, low levels of consumer confidence and an uncomfortably high fiscal deficit.
On the flip side, the drop in asset values and deflation has made us a much more competitive economy. But the difficulties have forced us to critically examine our place in the world, and in particular our role in the ongoing development of our country.
There is no doubt that reviving our economy will help to largely address three of our biggest domestic concerns: deficit, deflation and unemployment. The 64 million dollar question, of course, is how to do that. We do not believe that counter cyclical spending measures are the answer - in an economy as externally-oriented as ours we only retain about 50 cents for every dollar we spend.
But what we do believe is that, given the right environment and encouragement, we can stimulate the market to lead the way. In saying this, I do not mean that we will be picking winners in various sectors of the economy. We simply want to make it as easy as possible for the private sector to do well, and to make the most of the significant opportunities we offer as an economy in our own right, as a strategic two-way platform for the Pearl River Delta, and as an international financial centre for China and the Asia-Pacific Region.
Let me give you a few examples. I will kick off with financial services because I know this area interests many of you.
Our 2003-04 Budget released earlier this month contained a number of initiatives that should make Hong Kong a more attractive financial market. We will exempt offshore funds from profits tax, bringing our market in line with London and New York. We will exempt the fixed stamp duty on subscriptions to, and redemptions of, Hong Kong domiciled unit trust funds. To promote bond market development, we will grant a 100% concession on profits tax for qualified debt instruments with a maturity period of seven years or more. Those with a maturity of three years or more will be eligible for a 50% profits tax concession.
Outside of the Budget realm, we have been encouraging public-sector bodies such as the Hong Kong Mortgage Corporation, the Airport Authority, the KCRC and the MTRC to come to the bond market. This will deliver new and continuous liquidity, and provide private-sector issuers with a receptive environment to launch their own issues.
We hope to finalise the main parts of a Closer Economic Partnership Arrangement with Mainland authorities in June. This is expected to give Hong Kong businesses access to the Mainland market additional to China's WTO commitments. In any case, there will be significant opportunities in China over the next four to five years in sectors where Hong Kong has a strong edge, including financial services, transport, logistics and distribution, professional services, marketing and management. And as long as China maintains a closed capital account, much of the Foreign Direct Investment going into the Mainland - and last year that was about US$53 billion - will be serviced through Hong Kong.
We are actively encouraging Mainland enterprises, big and not so big, to use Hong Kong as a fund-raising centre. Last year, about US$9 billion was raised in new listings of H-shares and red chips in Hong Kong. We welcome the Mainland's moves on the QDII - Qualified Domestic Institutional Investor scheme. This exciting development will allow approved Mainland investors to participate in our markets in a regulated manner. We also have reached agreement with the China Government Securities Depository Trust and Clearing to establish a link that will enable authorised Mainland financial institutions to hold and settle debt securities in Hong Kong.
We are pushing ahead with other initiatives to facilitate new products and services. One is a 'Trust Fund Passport System' that will allow selected trust funds registered in one country to be marketed in another without having to re-register. Others are Real Estate Investment Trusts, and index-tracking Exchange Traded Funds. In recent months we saw the marketing and sale of retail hedge funds for the first time in Hong Kong.
There is much happening in other sectors that will increase our attraction as a place to live and work, attract new business and create jobs. The Cyberport and the Science Park have come on stream and will provide a new focus to the development of innovation, technology and the creative industries. Within the next three to five years we'll have Hong Kong Disneyland and a new cable car attraction on Lantau Island.
New entertainment and tourist areas will be developed at the old Central Police station, the Marine Police Headquarters and along the harbourfront. A new lighting scheme will make the night view of our harbour even more breathtaking. We'll build a new convention centre at the airport. Work will have started on our very own West End with a Broadway skyline - the new arts and cultural district in West Kowloon. The living environment will improve further as more new railways come on line between now and 2007, further reducing reliance on motor vehicle transport and reducing the level of air pollution in Hong Kong. We will continue to invest heavily in education and retraining to provide the intellectual capital needed in a knowledge-based economy, as well as new skills for those who find themselves out of work.
Looking beyond our boundaries, we will see much greater economic co-operation between Hong Kong and the rest of the Pearl River Delta, or the PRD as we call it. Taken as whole, the Pearl River Delta - which includes Hong Kong and Macau - is one of the most dynamic economic regions in the world. It is China's most important export basin, and the destination of about 30 per cent of all FDI into China. It is a burgeoning consumer market of almost 50 million people, who have the highest per capita GDP in the country. And it is home to about 7,500 large foreign manufacturing enterprises and tens of thousands of smaller and medium-sized establishments employing millions of people.
The Hong Kong SAR Government is working very closely with our counterparts in adjoining Guangdong province to leverage our relative strengths - the international business and management expertise and support services we have in Hong Kong, coupled with a huge concentration of world-class manufacturing and sourcing operations in the PRD. With our PRD partners, we will undertake joint promotions overseas to attract international companies to set up offices in Hong Kong, and manufacturing or sourcing operations in the PRD. New road and rail links, greater use of new technology, co-located Customs facilities, and improved visa procedures will greatly smooth the flows of people and cargo between Hong Kong and the PRD. But, in all that we do, we will maintain our political autonomy and way of life under 'One Country, Two Systems'. Our difference is our advantage.
Looking at an even broader picture, Hong Kong will continue to play a vital role in the development of our country. Our international outlook, legal system, convertible currency, financial services expertise, and intellectual property protection are drawcards not only for overseas corporations, but also for Mainland enterprises. Hong Kong remains the largest external investor in the Mainland - with cumulated investments of over US$205 billion, or about 46% of all realized direct investment in the Mainland. Hong Kong enterprises invested about US$19 billion in the Mainland last year alone. Many of the shimmering new office blocks or residential towers you see in Shanghai or Beijing, or closer to home in Shenzhen or Guangzhou, have been built or financed by Hong Kong entrepreneurs or companies. As our country continues to open up, the investment footprint of Hong Kong enterprises will become bigger and more diverse, with significant new opportunities in the services sectors.
In terms of our regional role, as I mentioned earlier, we have set ourselves a benchmark to be Asia's world city. We are already the location of choice for more than 3,100 international companies with regional operations here. We will step up efforts this year to attract even more MNCs and SMEs to Hong Kong. Our international banking sector leads the region. Our investment environment is continually under review and being improved. Our airport and port have significant capacity to grow in tandem with expected increases in trade to and from the Mainland. Our tourism sector will benefit greatly from new attractions over the next few years. We are developing and promoting our creative industries, to make Hong Kong a capital of culture, as well as a capital of capital.
All of this is happening to make Hong Kong the best place in Asia to live and work; to reinforce our position as a hub, a facilitator and integrator for the PRD; and, to generate the economic activity needed to help us beat our Budget deficit and to create more jobs for our people.
Ladies and gentlemen, I have enormous faith in our future. That confidence is not based on wishful thinking. It's based on what I have just outlined - a clear understanding of our positioning, and a whole range of initiatives coming on stream over the next few years. I urge you all to keep an eye on Hong Kong, because, the best is yet to come.
Thank you very much.
End/Tuesday, March 25, 2003