Following is the speech by the Acting Financial Secretary, Mr Stephen Ip, at the 2nd LSE Asia Forum today (September 9) (English Only):
Sir Howard, Rosanna, Charles, distinguished guests, ladies and gentlemen,
Good morning. I am honoured to be invited to open the LSE Asia Forum today. I would like to extend a warm welcome to all our overseas guests. Hong Kong is known as Asia's world city not only for our world-class infrastructure and our status as an international financial centre, but also for our cosmopolitan lifestyle. I hope you get a chance to enjoy it while you are here.
With a history of more than a century, LSE has an outstanding reputation for academic excellence. From its foundation, LSE has been a laboratory of the social sciences, a place where ideas are developed, analysed, evaluated and disseminated worldwide.
LSE's impact in the international arena is significant. Well over half of LSE's students are from 150 countries worldwide, and 40% of its staff come from outside the UK. More importantly, around 30 past and current heads of state have studied at LSE. Indeed, many LSE alumni have become prominent figures in all walks of life around the globe. Today we are honoured to have Mr Charles Lee and Dr Rosanna Wong here with us ¡V exemplary LSE alumni who have made tremendous contributions to Hong Kong.
I am confident that LSE will continue to play an important role in teaching and research under the leadership of Sir Howard Davies, who has also led the UK Financial Services Authority to the status of internationally acclaimed financial regulator.
In partnership with this world-famous university is our world-class exchange, Hong Kong Exchanges and Clearing Limited. Hong Kong Exchanges is one of Hong Kong's key strategic economic assets, faithfully serving the important public function of establishing and maintaining a fair, orderly and efficient equity market. Hong Kong Exchanges has helped put Hong Kong on the map as both a leading international financial centre and the premier capital formation centre for the Mainland. HKEx's success would not have been possible without the dedication, visionary leadership and commitment of its Board of Directors. The Chairman of Hong Kong Exchanges, Mr Charles Lee, has played an important role in making Hong Kong Exchanges a success.
The partnership of a leading university and a world-class exchange has created a fitting theme for this conference ¡V "Managing the Dynamics of Growth". The economic growth experienced by Asia, and China in particular, has been impressive by any standard. In recent years, Asian economies have provided a strong impetus to the world economy. And, as pointed out by the OECD recently, the growth prospects of Asia continue to be bright.
When we talk about the growth of Asia, we have to focus on China. With its broad-based economic expansion, China now ranks as the sixth largest economy in the world. Over the past two decades, its per capita income has risen almost three-fold, to about US$1,000. According to the National Bureau of Statistics, real GDP in China grew by 9.5% in the first half of 2005. Despite some recent softening, the macroeconomic outlook for China remains favourable.
While many developed countries underwent a similar development phase in previous eras, Asia's growth is occurring in the era of rapid globalisation. In an increasingly interdependent world, the growth of Asia has inevitably become an international issue, rather than a regional one. It is therefore important for us to put our brains together to examine how best to manage the dynamics of growth experienced by Asia and to capture the growth opportunities.
As a part of China, Hong Kong has the privilege of both witnessing the Mainland's rapid growth first-hand, and fully participating in it. The continued reform and opening up of the Mainland economy, along with co-operation initiatives like the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Mainland, have further strengthened our economic ties. China's growth has created immense new opportunities for Hong Kong ¡V and for international investors ¡V in many different areas. Let me cite a few examples.
The first is trade. The Mainland is our largest trading partner, accounting for 44% of Hong Kong's total trade last year. Our bilateral trade has grown at an average annual rate of 11% in value terms over the past five years.
As for manufacturing, Hong Kong entrepreneurs have long taken advantage of low land and labour costs in the Mainland to expand or relocate their operations. At the end of 2003, the stock of Hong Kong's outward direct investment in the Mainland amounted to US$120 billion. Almost half of Hong Kong's direct investment in the Mainland goes to Guangdong Province, which is adjacent to Hong Kong. About 10 million Mainland workers are employed in Guangdong by industrial ventures with Hong Kong investment. That is 59 times the size of Hong Kong¡¦s own manufacturing workforce.
For many of us in Hong Kong, the greatest impact is from tourism. The Mainland is Hong Kong's largest source of visitors and tourist earnings. Under the Individual Visit Scheme introduced in 2003, some 170 million Mainland residents in 34 cities are now eligible to visit Hong Kong in their personal capacity and are no longer required to join group tours. More than 8 million Mainlanders have visited Hong Kong under this scheme, about one-third of the total number of our Mainland visitors. The scheme has brought considerable economic benefits to various tourism-related industries in Hong Kong.
Increasing economic prosperity in the Mainland has also spurred greater demand for high quality services, and Hong Kong is well placed to tap this opportunity. Our professionals in the service industries now have more opportunities to establish businesses or work in the Mainland under CEPA. At present, CEPA covers 26 service sectors including banking, securities, accounting, management consulting, logistics, legal and information technology. At the company level, Hong Kong service providers covered by CEPA can enjoy better access to the lucrative Mainland market. At the individual level, agreements on mutual recognition of certain professional qualifications and professional examinations give Hong Kong professionals better employment and business opportunities in the Mainland.
The provision of financial services is unquestionably one of Hong Kong's greatest strengths. In the Mainland, continued restructuring of the state-owned sector and the flourishing of private enterprises have generated substantial financing needs for their business activities. Given our world-class, well-regulated and highly liquid financial markets, as well as our proximity to the Mainland, Hong Kong has naturally become the venue of choice for Mainland enterprises tapping the international capital market. The majority of Mainland enterprises that have listed outside the Mainland have chosen the Hong Kong stock market. For those that have listed in Hong Kong and overseas concurrently, about 70% of the trading is done in Hong Kong. Mainland enterprises are attracted to our equity market not only for efficient access to capital, but also for the badge of quality from our internationally recognised regulatory standards.
Since the listing of the first H-share in Hong Kong in 1993, a total of 316 Mainland enterprises have raised more than US$120 billion through listing on our exchange. This accounts for 40% of the total funds raised by our stock market. Mainland enterprises currently account for about 30% of the listed companies and the market capitalisation in Hong Kong. Investor interest in those enterprises is even more impressive: trading of shares of Mainland enterprises accounts for 45 per cent of total market turnover. The 10 largest IPOs in Hong Kong's history all involved Mainland enterprises. The presence of Mainland enterprises has significantly increased the depth and breadth of Hong Kong's equity market.
We expect that the Mainland will continue to be the principal growth driver of our capital markets as more state-owned enterprises undergo restructuring. And our financial services industries will continue to capitalise on the growth opportunities in the Mainland.
The dynamic of growth works both ways. While Hong Kong has been able to capture the vast opportunities arising from the opening up of the Mainland, the Mainland also benefits from the capital and expertise brought in by Hong Kong, and the more favourable environment it creates for the Mainland economy to flourish.
The direct economic impact of Hong Kong's capital is obvious. Hong Kong is the Mainland's largest source of external direct investment. According to Mainland statistics, the cumulative value of Hong Kong's realised direct investment in the Mainland reached US$250 billion at the end of June 2005, accounting for 42% of the total external direct investment there.
As I mentioned earlier, CEPA facilitates the exchange of professionals in Hong Kong and the Mainland. This gives our Mainland counterparts wider exposure to the practices of Hong Kong's professionals, thereby speeding up the transfer of professional knowledge, skills and expertise to the Mainland in areas such as financial and legal services.
Another area in which Hong Kong is contributing to the Mainland's development is the upgrading of corporate governance of Mainland enterprises. The listing requirements of our stock exchange, be they admission criteria or ongoing obligations, are on a par with international standards. Listing in Hong Kong makes Mainland enterprises subject to scrutiny by international auditors, law firms and so on. Driven by the need to comply with the listing criteria, as well as to compete successfully in an international market, Mainland enterprises are inevitably keen to upgrade their level of corporate governance.
We are acutely aware of the need to enhance market quality to continue attracting high-quality companies to list in Hong Kong. To this end, the Government has been working closely with our financial regulators on various measures to improve corporate governance. Notable achievements include promulgation of the Code on Corporate Governance Practices by Hong Kong Exchanges, and the submission to the legislature of a bill seeking to establish a Financial Reporting Council to investigate auditors' irregularities concerning listed corporations.
As you can see, the tremendous economic growth of Asia, and of the Mainland in particular, has brought about abundant opportunities and an exciting future for us all. But these opportunities also bring challenges. We must be well equipped to take full advantage of these new opportunities, and to create a stable and favourable environment with a view to achieving sustainable growth in the long run. To this end, the Second LSE Asia Forum has brought together distinguished academics and experts from around the world to examine the challenges of economic growth in Asia. I am most grateful to LSE and HKEx for providing this valuable platform for the exchange of ideas and professional knowledge. I note that some of my colleagues are in the audience and no doubt looking forward to some thought-provoking discussions.
In closing, I would also like to express my gratitude to LSE for hosting the Forum here in Hong Kong, Asia's world city. For those visiting from other parts of the world, please find time to enjoy Hong Kong's unique dining and shopping experience. I can assure you that you will get value for money in Hong Kong.
Ladies and gentlemen, I wish the Forum every success, and all our visitors a pleasant and enjoyable stay in Hong Kong. Thank you very much.
Ends/Friday, September 9, 2005
Issued at HKT 11:22