Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Opening Luncheon of the 17th Annual Asian Venture Forum today (November 11) (English only):
Global Perspective, Local Opportunities
Distinguished guests, ladies and gentlemen,
It is my pleasure to speak at this luncheon meeting. May I first take this opportunity to welcome delegates from the world's leading financial markets, in particular those who cross time zones to join this meaningful event which focuses on "global perspective, local opportunities". I hope participants in this forum from around the world would be able to discover further the numerous opportunities available in Hong Kong - Asia's world city.
The organiser, the Asian Venture Capital Journal, has been hosting the Annual Asian Venture Forum in Hong Kong for 17 years in a row. This is indeed our honour. Our long-standing relationship with the forum best demonstrates Hong Kong's importance in the area of venture capital and private equity investment in the Asia-Pacific region.
HONG KONG AS A REGIONAL HUB FOR VENTURE CAPITAL AND PRIVATE EQUITY
Hong Kong is the largest venture capital centre in Asia, managing approximately 30% of the total capital pool in the region. As of June 2003, some US$26 billion of funds is under the management by Hong Kong venture capital firms and over 600 venture capital professionals are employed. Hong Kong is largely the centre serving the region, with the majority of the funds in Hong Kong coming from outside Asia, and the majority of funds are disbursed to Asian companies in various parts of the region, including the Mainland China, Korea, Japan, Taiwan and other South East Asian countries.
Vast Potential of Asia
Asia has a vibrant entrepreneurial culture and attractive investment fundamentals, including large pools of low-cost labour, growing pools of scientists and engineers, and increasing investment in technology infrastructure. According to the latest twice-yearly East Asia and Pacific Regional Update released by the World Bank this week, East Asia's economies are growing at their fastest pace since the financial crisis; and economic growth is expected to reach 7% for East Asia and Pacific (excluding Japan), while developing economies in the region are expected to expand by more than 8%.
Fast-growing Mainland China
Within Asia, fast-growing China is certainly a magnet to investment in the region. China's accession to the WTO, huge domestic market, strong growth potential of its economy as well as rapid technological advancement have rendered the Mainland an extremely attractive emerging market to investors worldwide. According to the latest Asia Private Equity Review, in the first half of this year, China is the third most-favoured investment destination, just after Japan and South Korea.
With the rapid development of science and technology in Mainland China, there are lots of prospective technology projects in the Mainland cities, such as Beijing, Shenzhen and Shanghai, waiting to be explored and developed. Moreover, China is opening its doors to private equity funding through taking forward various reforms to allow foreign investors to set up joint ventures, wholly owned private equity ventures, or partnerships with Chinese companies. There will no doubts be increasing opportunities with China's accession to the World Trade Organization.
Hong Kong's Strengths
Hong Kong, with its fundamental strengths as well as proximity to and close relationship with the Mainland China, provides a favourable base for venture capitalists and private equity investors to manage their investments in China and the region. Many of you are of course familiar with our strong economic fundamentals and institutional strengths - our rule of law; a complete free flow of capital and information; a level playing field for all businesses; a state-of-the art infrastructure providing physical and virtual connections to the rest of the world; and the world's freest economy as confirmed by studies conducted by internationally acclaimed institutions such as the Heritage Foundation.
On top of the above, we have a robust, efficient and liquid financial market of international standards providing the necessary infrastructure for processing large demand for capital from entrepreneurs locally, in the Mainland of China and elsewhere in the region and sourcing abundant supply of capital from all over the world to meet these demands. Hong Kong is no doubt on many counts an international financial centre. Being the world's 12th and Asia's third largest international banking centre, our banking asset to GDP ratio stood at 532% in 2003. The banking system alone has US$457 billion in deposits, of which 46% is foreign currency deposits. Our stock market is one of the world's top 10 stock markets, with a market capitalization of about US$764 billion as at the end of September this year. This provides exit routes for venture capital and private equity investments. In terms of divestment, Hong Kong accounted for 40% of the exit activities in the region, followed by India and Japan which took up 20% and 17% respectively in the first half of 2004.
In fact, our stock exchange overtook London, Europe and Japan to become the second largest fund-raiser worldwide in the first nine months of this year. Thanks to Mainland companies interests in our stock market, our equity market has evolved from one highly concentrated in properties and finance businesses into a market with a great diversity of constituent stocks and a wide range of products - energy, agriculture, pharmacy, electronics, etc.
Mainland enterprises today account for roughly 30% of market capitalization, 50% of turnover and 25% of total number of listed companies. Since 1993 when H shares were first listed in Hong Kong, more than US$110 billion has been raised directly or indirectly through the Hong Kong stock market. Our stock exchange has no doubt become a premier choice for capital formation for Mainland companies. Originally, Mainland companies were looking to Hong Kong to raise capital. Today that remains true, but they also look to list here because listing on our stock exchange brings with it the recognition of their status as a player in the international market and good corporate governance.
Apart from our institutional strengths, our greatest asset lies in our people. We have a broad and deep pool of professional talent, servicing international clients in Hong Kong as well as Mainland companies looking to meet international standards of corporate governance, financial reporting, marketing, etc. Professional experts like lawyers, accountants, bankers, financial advisers, brokers, fund managers, marketing managers, actuaries are all readily available. Hong Kong people possess both international exposure and unparalleled knowledge about the Mainland. These qualities enable them to capture the vast opportunities offered by Mainland China, and the rest of Asia.
Enhancing our Strengths
Building on our strengths, we are making continuous efforts to enhance the quality of our financial markets so as to maintain investor confidence. This will help to advance our position in serving as an ideal base for venture capitalists and private equity investors to manage their investments in the region, in particular Mainland China.
Good corporate governance and high quality of financial reporting are important aspects which many venture capitalists and private equity investors attach a lot of importance to. We place a great deal of emphasis on these areas and are now embarking on a number of policy initiatives to further enhance our standards. These include the establishment of a Financial Reporting Review Panel and an Independent Investigation Board, which will promote the quality of financial reporting and strengthen the regulation of the auditing profession. We are now working on legislative amendments for the establishment of these statutory bodies.
Besides, our Standing Committee on Company Law Reform has come up with a series of recommendations which will help to promote the quality of company directors. The HKEx, the SFC and the Hong Kong Institute of Directors have also been making concerted efforts to strengthen the training and requirement for directors. With the implementation of these measures, the quality and hence the brand of our equity market will be enhanced.
We have also been putting in a lot of efforts to promote the development of the bond market, an area which is relatively under-developed in Hong Kong but has huge potential for development. Apart from substantially simplifying the prospectus regime and providing tax incentives, we have also strongly encouraged public corporations to issue bonds of different maturities to enhance the depth and breadth of the bond market. In fact, the Government itself has taken the lead to issue bonds and has just recently made two very successful launches, comprising HK$6 billion of securitisation bonds and HK$20 billion of global offering. These mark a new chapter in the development of Hong Kong's bond market and demonstrate that Hong Kong possesses the necessary infrastructure and expertise for launching sizable bond offerings. Our bond market certainly has a lot of potential for further development and it provides a favourable alternative channel for institutions to raise capital. We will continue to do whatever we can to provide a conducive environment for the growth of our bond market, and we encourage fund raisers to make use of our sophisticated infrastructure and professionals here to issue bonds.
Ladies and Gentlemen, the future of Hong Kong's market is remarkably bright and exciting. With our world-class financial infrastructure, deep pool of professional expertise and long-established ties with the Mainland, the capability of Hong Kong in tapping the growth opportunities offered by the emerging market is unsurpassed. Your support is extremely essential in maintaining Hong Kong's position as a hub for venture capital and private equity fund businesses in Asia. We will strive to improve our financial infrastructure and regulatory environment to ensure that we will provide you with a quality market that is responsive to market needs. To this end, I look forward to your continued and expanded presence in this Asia's world city.
Last but not least, I wish the forum every success and all of you an enjoyable stay in Hong Kong. Thank you.
Ends/Thursday, November 11, 2004