Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Venture Capital/Private Equity Partnership Conference "Hong Kong: Survival and Resilience" jointly organised by Hong Kong Venture Capital Association and the Hong Kong General Chamber of Commerce today (September 22):
Mr Yip, Mr Wu, distinguished guests, ladies and gentlemen,
Good morning. I am honoured to be invited to speak at this conference, which has grown in size and scope over the past 4 years.
I understand the objective of this conference is to bring private and venture capitalists together to form successful partnerships in channeling the large pool of private equity and venture capital funds to businesses with favourable development potentials. I would like to take this opportunity to share with you my thoughts on the development of the private equity industry in Hong Kong and the Government's role in promoting this growth.
The private equity industry produces what I call a 'win-win-win' business model. The first winners in this model are the business entrepreneurs who get funds from the venture capitalists in accelerating the growth of their businesses. In addition to capital, they very often get business advice, including advice on corporate governance as well as global perspective and connections. The second winners are the venture capitalists who generally get a higher return than traditional investments, provided of course they are good investors. The third winner is the economy, which benefits from the successful business partnership. In short, the private equity industry plays a very important role in the development of an economy.
Hong Kong occupies a very special position in Asia's private equity industry. Many venture capital deals in the region are conducted by firms and professionals based in Hong Kong. This is because Hong Kong has a sound legal system; a large pool of talent; an excellent communication system and most important of all, is an international financial centre. China's strong economic growth, coupled with other Asian economies' recovery from the Asian financial crisis; improved equity market performance and an increase in investor confidence, all point to a brighter prospect for the private equity industry in the region in the years to come. Hong Kong will undoubtedly benefit from such growth. I would like to add that CEPA also adds momentum to this situation.
Now let me turn to the role of the Government in facilitating the development of the private equity industry. Other than the non-financial factors such as the legal system, talent, communication I mentioned earlier, we are here to provide you with a world-class financial infrastructure. This includes a world class banking industry; a fair, transparent and effective stock market; corporate governance which enhances investors' confidence and in turn, the capital market.
I want to spend a few minutes on corporate governance because I know all of you share the government's view that this is crucial in further enhancing our financial market's development, which is critical to your industry.
We have been taking a series of initiatives to upgrade the corporate governance of listed companies and the quality of our equity market. We did all this, not because our systems were seriously lacking - indeed, Hong Kong consistently wins praise from both the IMF and the OECD as a regional leader in corporate governance - but because we know that there is no room for complacency.
We recognize that good corporate governance is vital to attracting high-quality companies which hopefully include some of your private equity investments to list in Hong Kong and prudent investors to participate in our market. So, together with the SFC and HKEx, we have drawn up a Corporate Governance Action Plan early this year. Consultations have just been completed or are being conducted on a number of proposals, notably the tightening of the regulation of IPO intermediaries and a series of recommendations put forward in the Corporate Governance Review Phase II Report of the Standing Committee on Company Law Reform. We will also consult the public shortly on how to enhance the listing regime and to provide statutory backing to listing rules.
Experience elsewhere has demonstrated that no regulatory regime can work without the participation of practitioners with the required qualifications and integrity. In the world of financial services, professional accountants play a key role in ensuring that a true and fair view is provided to the public, in particular the investors, on the state of the companies. With this in mind, I initiated discussions with the accounting profession on improvements to their regulatory regime. The Hong Kong Society of Accountants responded positively by putting forward proposals to add lay members to its Council and committees and to set up an Independent Investigation Board. The Government published a consultation paper last week to invite the public's views on the HKSA's proposals as well as some other suggestions for further enhancing the transparency and independence of the system for regulating the accounting profession and for setting up the Financial Reporting Review Panel. I am sure this is of great relevance to everyone here and would like to encourage all of you to contribute your views on the proposals in the consultation paper.
A road map to improve the corporate governance regulatory regime, no matter how comprehensive it is, can only provide an infrastructure. It is the integrity and quality of the people that is most important. I look to all of you for making concerted efforts to promote the corporate governance standards in Hong Kong, which is to the benefits of both the businesses and the investors and is also crucial to maintaining Hong Kong's position as an international financial centre.
End/Monday, September 22, 2003