********************************************
Financial Services
30. Hong Kong is one of the most vibrant international financial centres in the world. We enjoy a number of advantages, including a sound regulatory regime on a par with international standards, an efficient and transparent market, and many financial professionals from around the world experienced in providing services to Mainland enterprises. Our capital market has attracted huge amounts of overseas funds and won recognition from international investors. We have overtaken Tokyo since 2004 as the leading equity fundraising market in Asia. As Hong Kong investors are generally more familiar with the Mainland market and enterprises than foreign investors, the turnover of shares of Mainland enterprises in Hong Kong is far higher than in any other international financial centre. Hong Kong's competitive edge in financial services complements the Mainland's economic development and financial reform: we are best positioned to become the launchpad for Mainland enterprises to develop a global presence. We are forging ahead to create a win-win situation for the Mainland and Hong Kong.
31. The financial services industry is a key pillar of Hong Kong's economy and also the main area for development. I believe that we must continue to look for improvement in the following directions:
* expanding the scope of Renminbi (RMB) business;
* facilitating market development;
* upgrading the quality of our financial markets; and
* promoting the strengths of Hong Kong as an international financial centre.
Expanding Renminbi Business
32. Expanding RMB business is one of my major development objectives. Hong Kong is the first place outside the Mainland that can offer RMB business services. As at the end of 2005, 38 banks in Hong Kong were providing RMB deposit-taking, exchange and remittance services. Total RMB deposits in Hong Kong had reached RMB22.6 billion, and the cumulative value of spending and cash withdrawals using RMB debit and credit cards in Hong Kong amounted to $9.4 billion.
33. In my last Budget, I proposed three strategic directions for the further development of RMB business in Hong Kong. In 2005, we made progress in the diversification of RMB assets and liabilities. Hong Kong residents will soon be allowed to open RMB current accounts in a Hong Kong bank. RMB deposit-taking services have been extended to non-individuals. Moreover, to facilitate the further development of our RMB business and ensure the safe and efficient settlement of transactions, the Clearing Bank for RMB business will shortly launch a new settlement system being developed by Hong Kong Interbank Clearing Limited.
34. Obviously, I hope that RMB business can develop more rapidly, and I fully appreciate the calls of the industry for further expansion. We need, however, to synchronise in tandem with the pace of financial reform on the Mainland and move forward gradually. As to the next stage of development, we are in discussion with the Central Government regarding the other two strategic directions, namely the proposals to allow cross-boundary trade to settle in RMB and to establish an RMB debt issuance mechanism in Hong Kong. These two types of business, if introduced, will greatly promote trade between the two places and the development of our bond market. They are vitally important in reinforcing our position as an international financial centre, and will at the same time provide a testing ground for the move towards full RMB convertibility.
Facilitating Market Development
35. Last December, the Securities and Futures Commission (SFC) suspended the investor compensation levy in order to reduce transaction costs. In addition, I propose to reduce the levy on trading in securities, futures and options contracts by 20 per cent within this year. These two measures will save nearly $300 million a year in market transaction costs.
Upgrading Market Quality
36. Our corporate governance system and capital markets are on a par with international standards. This is where the greatest attraction lies for Mainland enterprises to use Hong Kong to tap the international market. We need therefore to keep upgrading the quality of our financial markets. We will introduce a Securities and Futures (Amendment) Bill into this Council later in the year. The Bill aims to strengthen the regulation of listed corporations and further increase local and overseas investors' confidence in our securities market. We also hope that this Council can complete its scrutiny of the Financial Reporting Council (FRC) Bill as soon as possible, so that we can establish the FRC to strengthen the supervision of auditors of listed corporations.
Promoting our Brand Name
37. We will continue to promote Hong Kong's brand name in financial services. Because of our strengths in the stock and bond markets and asset management business, Hong Kong is an ideal platform for Mainland enterprises and funds to reach out to the international market:
* we are the premier capital formation centre for the Mainland. From 1993, when the first Mainland enterprise listed in Hong Kong, up to the end of last year, 335 Mainland enterprises had raised a total of nearly $1,100 billion through listing here. Mainland enterprises account for some 30 per cent of the total number of our listed companies, with a combined market capitalisation accounting for nearly 40 per cent of the total market. Last year, turnover of their shares represented 46 per cent of the total. In terms of funds raised through initial public offerings in Hong Kong, the top ten enterprises are all from the Mainland. Because Hong Kong's stock market is deep and liquid, the trading in shares of Mainland enterprises listed in both Hong Kong and overseas markets, such as London and New York, often shifts from the latter to Hong Kong soon after the initial public offering. Around 80 per cent of share trading in Mainland enterprises listed in both Hong Kong and the United States, for example, is conducted in Hong Kong;
* Hong Kong is a major asset management centre in Asia. Our asset management business exceeds $3,600 billion. To attract further inflow of new funds, we have abolished estate duty. We have also introduced into this Council a bill to give effect to the proposed exemption of offshore funds from profits tax. The House Committee of this Council has agreed to resume the second reading of the bill next week. These measures will further underpin our position as an asset management centre. With a high savings rate, the Mainland has a huge amount of funds that can be channelled into investment. We are, in addition, exploring with the Central Government the possibility of using Hong Kong to implement a qualified domestic institutional investors scheme; and
* Hong Kong is well-positioned to become Asia's bond centre. The issuance of bonds in Hong Kong by Mainland enterprises is on the rise. As at the beginning of this year, more than 20 Mainland enterprises had issued and listed their bonds in Hong Kong, raising in excess of $65 billion in the process. Over 60 per cent of these proceeds were raised in the last 18 months. We will further improve the basic infrastructure of our bond market. The SFC has now completed its consultation on possible reforms to the prospectus regime, and is studying the views of the public and the industry and the way forward to enhance the existing system.
Developing Tourism
38. Last year the tourism industry put in an impressive performance. Total visitor arrivals reached a new high of over 23 million, and tourism receipts exceeded $100 billion. We have made very good progress in achieving a balanced market portfolio. Over the past two years, visitor arrivals from our traditional long-haul markets, such as North America, Europe, Australia and New Zealand, all recorded double-digit growth. The Mainland remains our biggest source market. The Individual Visit Scheme now covers 38 Mainland cities, compared with 32 a year ago, and nearly 200 million people. We are making a bid to extend the scheme to six other provincial cities in the Pan-PRD region. As our tourism industry expands, it will stimulate growth in related sectors, create a strong demand for manpower and provide many in our workforce with jobs which are much-needed due to economic restructuring.
39. Last year, we targeted two particular groups with tremendous potential: family and business travellers. The Hong Kong Tourism Board has designated 2006 as "Discover Hong Kong Year" in an effort to attract these two groups to stay longer and spend more in Hong Kong. Last September saw the opening of Hong Kong Disneyland, and we continue to implement our strategy by developing diversified tourist facilities. We are preparing for the opening of Ngong Ping 360 (comprising Ngong Ping Skyrail and Village) as well as the Hong Kong Wetland Park. We are giving full support to the redevelopment of Ocean Park, and will seek to ensure a start to the project can be made as scheduled this year. This $5.5 billion project, while retaining the educational mission of the Park, will give this much-loved facility a completely new face. AsiaWorld-Expo, which opened for business last month, is our biggest exhibition centre and will attract more business travellers to Hong Kong. We also plan to carry out a number of improvement projects to ensure that selected places of interest remain attractive. The Dr Sun Yat-sen Museum, which will be completed in early 2007, will be a good place for visitors to appreciate our heritage.
40. At the end of last year, the Government invited expressions of interest for the construction of a new cruise terminal and has received six proposals. We shall come to a view on these very soon. Future plans include the Concept Plan for Lantau, which proposes to develop green and cultural tourism in South Lantau. This will be a further area of focus alongside conservation and economic infrastructure.
41. The Government will continue to invest in our tourism infrastructure and promote our hospitality culture. These will be instrumental in facilitating the growth of our tourism industry and creating more employment opportunities.
(To be continued)
Ends/Wednesday, February 22, 2006
Issued at HKT 11:30
NNNN
