Following is a speech (English only) by the Financial Secretary, Mr Henry Tang, at the World Pension Forum this (May 10) morning:
Distinguished Guests, Ladies and Gentlemen,
It is a great pleasure to join you today and to welcome you all to Hong Kong. I understand many of you have travelled half-way around the world to be here, attracted by the double-billing of Hong Kong and Shanghai, China's two great commercial cities. My congratulations to the World Pension Forum for such a visionary approach.
Hong Kong - Asia's world city
You have chosen as your theme 'Recreating the Hong Kong Miracle'. This is very flattering but, at the risk of sounding immodest, perhaps I should counter by asking: "Which one?" Here in Hong Kong, Asia's world city, you will find an unmistakably Asian city with a distinctly Western flavour - free and open; cosmopolitan and safe; local savvy combined with global know-how and connections. But, getting to where we are today has not been easy. It has involved several successive re-inventions: from a simple trading entrepot, to a competitive manufacturing base to a premier service hub, serving regional and worldwide commercial activities, including freight and logistics, trade and tourism, and, of course, international finance.
Our success as a society and an economy rests on a unique combination of economic fundamentals and institutional strengths. Some of you might have been familiar with our rule of law; a free and open market; complete free flow of capital and information; a level playing field; and a clean and efficient administration. Adding to this is our strategic location as the pre-eminent two-way platform to and from the Mainland, and our state-of-the-art infrastructure providing physical and virtual connections to the rest of the world. And you have the key ingredients of the Hong Kong success story, or the 'Hong Kong Miracle' as you have so kindly put it.
Hong Kong's free and open economy has enabled us to adjust quickly to new opportunities. One of these opportunities is of course the phenomenal economic growth of China over the past two decades. The Mainland's GDP reached US$1.4 trillion in 2003. It is expected to grow at an average rate of 7 to 8%, and double within the next decade. While concern has been expressed in various quarters recently about the China market over-heating, no one has questioned that the overall direction will continue to be up.
China has become the 'workshop of the world' and here in Hong Kong we are heavily involved in servicing the flows of raw materials, semi-manufactures, as well as finished goods. China is also developing its own huge domestic market. It is sucking in vast quantities of both raw materials and finished products to meet the demands of massive infrastructure projects on the one hand, and newly-affluent consumers on the other. Nothing quite like this, nothing on this scale, has been seen anywhere else in the world before. For international business, there are enormous opportunities. And of course that has meant enormous opportunity for Hong Kong.
Importance of Financial Services
What I would like to do this morning is to narrow the focus and talk about our financial services industry, and the role this industry is playing in relation to the Mainland's economic transformation.
Hong Kong is a leading international financial centre. We are the world's 7th largest foreign exchange market; the 8th largest stock market; and the 12th largest banking centre. We also have the highest concentration of insurers in Asia. Over the past decade, our financial services sector has shown impressive growth of more than 6% per annum. The sector employs 180 000 people, contributing well over 12% of our GDP.
The opportunities that China's growth present for our financial markets are simple to understand. It is a classic win-win of need and know-how. Starting with the listing of Tsingtao Brewery some 10 years ago, Mainland and Mainland-related enterprises have become a key component of our stock exchange. Originally, Mainland companies were looking to Hong Kong to raise capital and lift their international profile. Today that remains true, but they also look to list here because listing on the Hong Kong Stock Exchange brings with it an international Q-mark. Any company successfully listed in Hong Kong has been subject to scrutiny by professionals of international standing.
The attractions for Mainland companies are obvious from the results. Over the past 10 years, Mainland-related enterprises have raised more than US$100 billion in Hong Kong. Over the past five years, three-quarters of the funds raised in the Hong Kong Stock Exchange have been for Mainland enterprises. Last year, the three largest IPOs in Hong Kong involved Mainland issuers - including the world's largest share offering for China Life that was worth US$3 billion.
The cumulative effect of this activity has had a significant impact on the landscape of our equities market. From almost a zero-base 11 years ago, Mainland enterprises now account for 26% of listed companies by number, for 29% by market capitalisation and for 53% by average daily turnover. Hong Kong has become the premier capital formation centre for the Mainland. This is a role not without risk, but it is a role we are most qualified to play because of our international expertise, as well as our knowledge of, and experience in, operating in the Mainland's market.
Maintaining the Quality of the Market
Against this background, you will understand why we put such a premium on maintaining a quality market. We cannot afford to lag behind other major financial centres. In April last year, our new Securities and Futures Ordinance came into effect. This was a major milestone, and ensures our regulatory regime is on par with those of other major international financial centres such as London and New York. It is designed not only to help secure the appropriate investor protection and minimise market misconduct, but also to facilitate market innovation and competition.
Events elsewhere in the world have once again underlined the importance of good corporate governance. In this regard, Hong Kong has received favourable reports from both the IMF and the OECD. Nevertheless, we cannot afford to be complacent. Our Securities and Futures Commission and the Hong Kong Stock Exchange have worked with the government to develop and implement a Corporate Governance Action Plan and on reforming the regulation of listing. Over the next 18 months we will introduce statutory backing for the more important listing requirements. We will also establish an Independent Investigation Board, which will oversee the auditing profession and promote the quality of financial reporting.
As a Government, our guiding principle for economic development is that the market should lead while the government facilitates. A key area where we have been very active is of course in forging even closer economic relations with the Mainland. Some of you may already have heard about the signing of what we call CEPA, the Closer Economic Partnership Arrangement between Hong Kong and the Mainland. This landmark free-trade pact came into effect on January 1 this year and provides for liberalisation in market access in 18 service sectors, including banking, securities and insurance. CEPA provides Hong Kong-based companies in these fields with a jump-start on the competition, well ahead of and beyond China's WTO commitments. The Arrangement is racially blind. Any overseas company, regardless of its nationality, size and ownership structure, can take advantage of CEPA simply by incorporating in Hong Kong or forming a joint venture with a Hong Kong company.
Separately, on the banking front, we have successfully implemented a scheme for banks in Hong Kong to provide personal RMB business, which greatly facilitates the growing economic links between Hong Kong and the Mainland. The current scope of business includes RMB deposits, remittances, money exchange and RMB bankcard business for individuals in Hong Kong. By end-April, the total amount of RMB deposits in Hong Kong had already reached RMB 6 billion. The scheme provides a new channel for the flow of RMB between Hong Kong and the Mainland through the banking system. It also provides a much more convenient access to RMB for the increasing number of two-way tourists. This is an important milestone, but also just a starting point. I can foresee that the scope of our RMB services will be gradually expanded, in line with the development needs of the Mainland's economy.
Another key initiative in financial services is in the promotion of our debt markets. Over the past few years we have encouraged both private sector and non-government entities to consider issuing bonds. This year, we have taken the process one step further. Just last month, we successfully launched the securitisation of toll revenues from the Government's tunnels and bridges with an offering of HK$6 billion worth of bonds. The offering was very well received by both institutional and retail investors. This morning, the securitisation bonds will be listed on Hong Kong Stock Exchange for trading. Later this year, we plan to issue our own government bonds of up to HK$20 billion. I trust that our high-quality bonds could potentially be a valuable addition to your investment portfolios.
Ladies and gentlemen, Hong Kong has, on the one hand, all of the advantages that go with close economic, social and geographical ties to the world's fastest growing economy; on the other hand, we have the added and unique advantage under "One Country, Two Systems" of our separate economic and social systems that have allowed us to develop as the world's freest economy and as Asia's world city. If you are looking for exciting investment opportunities which give you a share of China's phenomenal growth, there is no better place than Hong Kong.
I wish you all a very rewarding conference, and a most pleasant stay in Hong Kong. Thank you.
Ends/Monday, May 10, 2004