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Speech by SFST at the CNBC Strategic Forum (English only)

    Following is a speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the CNBC Strategic Forum today (November 3):

Hong Kong as a Gateway into China

Distinguished guests, ladies and gentlemen,

     Good morning.  It is my pleasure to speak to you at the CNBC Strategic Forum, the first ever held in Hong Kong, bringing together renowned academics and entrepreneurs to explore investment opportunities in Hong Kong and the Mainland.  

     With 20 million viewers worldwide every week, CNBC is no doubt a world leader in business news and information, providing viewers over the world with insight, analysis and real-time access to market data and business information.  By the way, I am also one of your viewers. The CNBC Strategic Forum, first held last year in Indonesia, has successfully brought together heads of state, senior officials, business leaders and economic experts to investigate and appraise the opportunities for growth and investment.  I would like to express my gratitude to CNBC for hosting the Forum this time in Hong Kong, Asia's world city and the gateway into China.

Growth of China

     China experienced tremendous and broad-based economic growth in the past two decades.  With its rapid 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.  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 very favourable.

Hong Kong's Evolvement into a Gateway to China

     Hong Kong has the privilege to witness and contribute to the rapid growth of Mainland China.  Since the opening up of the Mainland in late 1970s, Hong Kong entrepreneurs have taken advantage of low land and labour costs in the Mainland to expand or to relocate their operations.  Most plants set up by Hong Kong in 1970s and 1980s were located in Guangdong Province adjacent to Hong Kong.  

     Hong Kong is the Mainland's largest source of foreign direct investment.  According to the Mainland's statistics, the cumulative value of Hong Kong's realised direct investment on the Mainland reached US$250 billion at the end of June, 2005, accounting for 42% of the total external direct investment there.  While half of Hong Kong's direct investment in the Mainland still goes to the Guangdong Province, we see more and more of the investment spreading to other provinces.  And such investment has become more diversified: from industrial processing to the service industry including hotels and tourist-related services, real estate and retail trade, etc..

     Hong Kong is an international city, and hence our role is certainly not confined to grooming local investors.  We also serve as a gateway for overseas investors into the Mainland.  Many overseas corporations are partnering with Hong Kong firms to expand into the Mainland.  Others may choose to establish their presence in Hong Kong, using Hong Kong as their platform for entering the Mainland market.

Hong Kong's Strengths

     Hong Kong does not "happen" to be the gateway into the Mainland, and our success is not built on mere "fate".  On this point, I still remember what the late Pierre Trudeau, Prime Minister of Canada said.  He said: ˇ§Luck is where opportunity meets preparation".  Hong Kong is well prepared.  Let me tell you a few important  qualities that distinguish Hong Kong from other cities in the region.

Institutional strengths

     First, the institutional strengths: rule of law; clean government; a simple, low tax regime; a level-playing field for all businesses free from government interference.  Consistently ranked as the world's freest economy by the Heritage Foundation and others, Hong Kong has no exchange control policies and no restrictions on capital and information flows.  Our financial markets are efficient, robust and liquid, and governed by rules and regulations which are on a par with international standards.  

State-of-the-art infrastructure

     Our state-of-the-art infrastructure provides physical and virtual connections to the rest of the world.  The telecommunications system is fully digitised.  Broadband internet connection is available to more than 98% of households and more than 95% of business buildings.  

Cosmopolitan style

     Hong Kong prides itself on its international, cosmopolitan character.  Overseas investors can make themselves home in Hong Kong.  The fascinating cultural and art events feature top performers from around the world.  We are also a food capital: you can find a wide range of choice for international cuisines as well as Chinese regional cuisines here in Hong Kong.  It is no exaggeration to say that Hong Kong diners are spoilt for choice.  

Proximity to the Mainland

     Our proximity to the Mainland gives us the unique advantage over our competitors in the region.  Thanks to our efficient transportation link, the booming manufacturing region of Guangdong Province is a short journey from Hong Kong by land or sea transport.  Scores of flights depart daily from our award-winning international airport to Guangzhou, Shanghai, Beijing and other major Mainland cities - and a return journey to these cities can be covered in just one day.

Deep pool of professional talent

     Our greatest asset, though, lies in our people.  We have a broad and deep pool of professional talent.  Professional experts like lawyers, accountants, bankers, financial advisers, marketing managers are all readily available.  Hong Kong people possess both international exposure and unparalleled knowledge about the Mainland.  These qualities enable them to provide expert advice to companies setting their eyes on the Mainland market.

     We attach great importance to expanding and upgrading our pool of human resources.  To this end, the Government set up in 2000 the Advisory Committee on Human Resources Development for the Financial Services, drawing together the Government, industry, and the academics on financial services and manpower development to co-ordinate efforts to train up professionals.  

Hong Kong as an international financial centre

     As an international financial centre, Hong Kong possesses a superb and modern financial infrastructure, a market offering diversified products of high quality and liquidity, as well as a regulatory regime which is in line with international standards.  Hong Kong is an international financial centre by all standards.  63% of assets in our fund management business originated from overseas investors.  And we have a high concentration of international financial institutions, including banks, insurance companies and fund houses, etc..

     The renminbi business has provided another impetus for growth.  In February last year, Hong Kong became the first place outside the Mainland to conduct personal renminbi business.  Recently, the Central Authorities have in principle agreed to the continuous expansion of renminbi business in Hong Kong.  This will broaden tremendously the business opportunities for Hong Kong's financial services sector.  The Peopleˇ¦s Bank of China has announced details of the expanded renminbi business the day before yesterday.  The prospect of Hong Kong to facilitate investment on the Mainland is tremendous and I want to tell you some of the facilities.

How Hong Kong Facilitates Investment in the Mainland


     The prospect of Hong Kong has become even more promising with the Closer Economic Partnership Agreement (CEPA) implemented in January last year.  This landmark free trade deal between the Mainland and Hong Kong opens up huge markets for Hong Kong goods and services, ahead of and beyond the commitment of China in the WTO.  CEPA does not only give Hong Kong's exports to the Mainland zero tariffs, but also allows Hong Kong based companies greater access to the Mainland in 27 service sectors such as banking, logistics, telecommunications and insurance.  Take banking as an example.  Under CEPA, the total asset requirement for Hong Kong banks to set up a Mainland branch has been lowered substantially from US$20 billion to US$6 billion.  Taking advantage of this arrangement, five Hong Kong banks have established branches on the Mainland.  And Mainland branches of Hong Kong banks may also conduct insurance agents business.  As of now, seven Hong Kong banks with a total of 34 Mainland branches have obtained such approval to conduct insurance agent business.  CEPA has also relaxed the requirements for Hong Kong-based banks to conduct renminbi business.

     CEPA is not confined to market entry.  It also gives Hong Kong professionals better employment and business opportunities on the Mainland by facilitating mutual recognition of certain professional qualifications.  This would also give our Mainland counterparts a wider exposure to the practices of Hong Kong's professionals, thereby speeding up the transfer of professional knowledge and skills to the Mainland in areas such as financial and legal services.  For the accounting sector, an agreement on the Mutual Examination Paper Exemptions for Mainland and Hong Kong Accountants was signed last year to facilitate exchange of talent.  On the securities side, the procedures for Hong Kong professionals to obtain the relevant qualifications in the Mainland have been simplified, bringing additional cross-border business opportunities.  

     Thus, CEPA would speed up the process of economic integration between the Mainland and Hong Kong at both the corporate and individual levels, thereby strengthening Hong Kong's role in channelling investment into the Mainland.  Moreover, under CEPA, any foreign services provider that has been established in Hong Kong for over three years is treated as a Hong Kong company.  I strongly encourage overseas companies to set up businesses in Hong Kong to benefit from the "first mover" advantages to access the Mainland market.

Capital Market

     We in Hong Kong are very much aware of international investors' appetite for the ever-expanding Mainland market.  Over the years, we have successfully developed Hong Kong into the hub for channeling capital to the Mainland for the expansion of Mainland enterprises as well as better return for international investors.   The presence of Mainland enterprises on our stock exchange has become increasingly significant.  Since the listing of the first H-share in Hong Kong in 1993, being the Tsingdao Brewery, about 320 Mainland enterprises have raised more than US$130 billion through listing on our exchange.  All top 10 IPOs in Hong Kong concerned Mainland enterprises.  The top three, China Construction Bank which was listed last week, China Mobile and China Life Insurance, together raised over US$17 billion.  The Mainland enterprises currently account for about 30% of total number of listed companies and 34% of the total market capitalisation in Hong Kong.  Investor interest in these enterprises is even more impressive: trading of shares of Mainland enterprises accounts for 45% of total market turnover.  As an international financial centre, international investor participation has all along been one of the key features of our market.  In the past few years, overseas investors constantly constituted 35% - 40% of the total trading volume.  The marriage of Mainland listed companies and international investors on our stock exchange have given Hong Kong a unique and unsurpassed advantage in the global market. We expect more Mainland enterprises will come to Hong Kong to raise funds.

     Looking ahead, we would capitalise on our strategic advantage to develop our bond market.  We have, in the past few years, enhanced the market infrastructure and introduced tax incentives to promote the bond market development.  As a result of these initiatives, more than 20 Mainland enterprises have listed their bonds on our exchange, raising about US$8,500 million, about US$5,000 million of which were raised in the past 18 months.  I hope more and more Mainland enterprises will make use of our bond market to raise capital in the years to come.

Hong Kong as a Springboard for Mainland Enterprises

Capital Formation

     Let me tell you the advantages of Hong Kong as a springboard for Mainland enterprises.  Capital flow should not be a one-way traffic.  A healthy two-way traffic flow would be more conducive to the creation of wealth.  We have not lost sight of our role in serving as a springboard for Mainland enterprises wishing to expand to overseas markets.  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.  Blessed with the world class, well-regulated and highly liquid financial markets, as well as our proximity to the Mainland, Hong Kong has naturally become the 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.  To many Mainland enterprises, Hong Kong is an important platform to access the international market.

     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 benchmark themselves against international corporate governance standards.  

Investment Platform

     The Mainland's strategy for "going out" is not confined to capital formation, but also portfolio investment.  With some US$700 billion in foreign reserves, China is potentially one of the largest investors in the region.  The liberalisation of Mainland's capital markets, its growing need for sophisticated investment management for its massive savings pool and rapidly expanding retirement funds, as well as the new need for international asset diversification offer unprecedented opportunities for Hong Kong.  For example, the State Council in February last year gave approval to the National Social Security Fund to invest their foreign currency funds in overseas markets, and the relevant detailed arrangements are being formulated.  Endowed with a reservoir of experience in operation and risk management skills, a highly liquid market and a wide range of financial products, Hong Kong is well placed to be the premier investment platform for the funds seeking investment opportunities outside the Mainland.

Enhancing Our Regulatory Regime

     The opportunities that lie ahead promise great rewards, but Hong Kong must also be alive to challenges.  As Mr Zhou Xiaochuan, the Governor of the People's Bank of China, has rightly pointed out recently at the Annual Dinner of the Hong Kong Association of Banks, we need to keep up with new developments.  While we have been blessed with the Central People's Government support for upholding Hong Kong's position as an international financial centre, we have spared no efforts in sharpening our competitive edge in the international arena.  To enhance market quality, we have proposed a new piece of legislation to set up a Financial Reporting Council as a statutory independent body to carry out investigations into suspected irregularities concerning auditors of listed corporations, and to inquire into suspected non-compliance with financial reporting standards.  We are also working on legislative amendments to give statutory backing to major listing requirements to provide the necessary enforcement teeth with a view to promoting compliance by corporations listed on our stock exchange.

     On the market development front, I am pleased to tell you that the Legislative Council approved the abolition of estate duty in Hong Kong, which will take place in February next year but with retrospective effect from July 15 of this year.  We are also working on a bill to exempt offshore funds from profits tax.  This is at the bills committee stage and we expect passage before the end of this legislative year.  I am sure these initiatives will make Hong Kong an even more attractive asset management centre for investors around the world.

Way Forward: Strengthening Pan-PRD Regional Co-operation

     Looking ahead, an even more exciting development is taking shape - a visionary concept that aims to develop a Southern China "common market".  What I am referring to is a Pan-Pearl River Delta Regional Co-operation initiative (i.e. the Pan-PRD Co-operation).  This initiative brings together nine provinces of southern China, along with the two Special Administrative Regions of Hong Kong and Macau.  It will broaden Hong Kong's market access to more ventures in project financing, capital-raising through listing and investment consultation, thereby enhancing the development of our financial market.

     In pursuit of this Pan-PRD Cooperation initiative, in end-September 2005, I led the first financial services delegation to visit Fujian.  It was a delegation of more than 70 representatives from Hong Kong's financial services sector, many of whom were leading figures of the banking sector, venture capital investment funds, chambers of commerce, securities industry, and accounting and legal profession.  The visit has enabled Hong Kong's financial services sector and entrepreneurs to showcase Hong Kong's strengths as an international financial centre.

     The next initiative in the pipeline is a Pan-PRD Financial Services Forum in March next year.  The Forum will serve to enhance the understanding of leaders from the Pan-PRD provincial/regional governments, as well as representatives from enterprises in the region on various financial services, in particular fund-raising and investment services, provided by Hong Kong.


     Ladies and gentlemen, with all these promising prospects, Hong Kong will certainly play an increasingly important role in contributing to the continued growth of the Mainland, both as a source of investment and as a partner to overseas firms looking to establish or enhance their presence in the Mainland.  It is my pleasure to share with you these exciting developments this morning.

     Lastly, let me conclude by wishing the Forum every success.  We look forward to more cooperation opportunities with CNBC here in Hong Kong.  My last parting word is I hope CNBC will move to Hong Kong.  Thank you.

Ends/Thursday, November 3, 2005
Issued at HKT 12:56


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