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Following is a speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the International Chamber of Commerce/Hong Kong International Arbitration Centre Symposium today (March 27):
Philip, Robert, distinguished guests, ladies and gentlemen,
Good morning. It is my great pleasure to be here today to speak to you on the latest developments of Hong Kong's financial markets, and to exchange views on how to ensure Hong Kong will stay ahead.
Market Overview
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First of all, I am glad to tell you that Hong Kong has now fully emerged from the Asian financial crisis. In 2005, our economy continued to expand rapidly. Following an increase of 8.6% in 2004, our GDP recorded another 7.3% increase last year and our nominal GDP has reached a new high of HK$1,382 billion. As a key pillar of Hong Kong's economy, the financial services industry also enjoyed a memorable year of success. The Hong Kong stock market has displayed strong vigor, hitting new records on three fronts, namely market turnover, IPO equity funds raised and total market capitalisation. These three records testify to Hong Kong's position as one of the most vibrant international financial centres (IFCs) in the world.
In 2005, the total market turnover of Hong Kong stock market surged to HK$4,520 billion. Overseas investors, including those from the US, the UK and the rest of Europe, constantly contribute to around 35% - 40% of our market turnover. Our current market capitalisation exceeds HK$9,000 billion. We're ranked number eight in the world, and second in Asia. Our stock market is also highly efficient, and has raised more than HK$300 billion in equities securities in 2005. Hong Kong is now ranked 4th worldwide and has overtaken Tokyo as the number one equity fund raising market in Asia. I understand that the listing of the China Construction Bank, one of the Mainland's four major banks, in Hong Kong last year was the world's largest fund-raising activity since June, 2001. In addition, the largest IPO of real estate investment trust (REIT) in the world, the Link REIT, has also been successfully completed.
Equally impressive are the developments in other areas of our financial markets, including banking, insurance as well as fund management. On the banking side, there are a total of 199 authorised institutions and 87 local representative offices. Seventy one of the world's top 100 banks have an operation in Hong Kong. On the insurance side, Hong Kong has the highest concentration of insurers in Asia. An annual double-digit growth has been achieved by the insurance industry in the past decade, with a gross premium income reaching some HK$140.9 billion in 2005.
Fund management is another rising star in our financial markets. According to the Fund Management Activities Survey conducted recently by the Securities and Futures Commission (SFC), the fund management business in Hong Kong amounted to some HK$3,600 billion, of which 63% originated from overseas investors. More than 80 international fund houses from the US, UK, Japan, Singapore, Switzerland, France and other parts of the world have business presence in Hong Kong.
All these figures speak for the fact that Hong Kong is a well-recognised IFC. Indeed, international organisations like the International Monetary Fund and, reputable credit rating agencies have consistently rated Hong Kong highly on the financial services front.
We are satisfied with our recent financial services developments. We are confident that all the good news mentioned is a prelude to further successes underpinned by our strong fundamentals and great development potentials in the field.
Market Analysis
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Hong Kong's status as an IFC is premised much more than a fate or coincidence, but on a number of fundamental strengths. They should not be taken for granted, particularly when you look around in the region. These include -
* proximity to the Mainland, no doubt the fastest growing major economy in the world;
* a free economy, indeed one repeatedly rated by the Heritage Foundation as the world's freest economy;
* a stable currency with no foreign exchange control;
* a well-established financial infrastructure and highly efficient financial industry;
* a low and simple tax regime; and
* rule of law, underpinned by an independent judiciary.
Added to the above advantages is a broad and deep pool of professional talent like financial analysts, lawyers and accountants, who possess both international perspective and extensive knowledge about the Mainland to provide quality advice to companies looking to establish or enhance their presence in the region, in particular the Mainland market --- to help them not to get off on the wrong foot. Of course, our professional mediators and arbitrators, like some of you here, also play a very important role in maintaining Hong Kong's attractiveness as an IFC. One of the prerequisites for financial services developments is a fair and orderly market. In this regard, Hong Kong's efficient and renowned arbitration services are no doubt factored by international investors, when they search for business opportunities around the region.
Thanks to the international and cosmopolitan living style in Hong Kong such as fascinating cultural events, overseas investors/employees often make themselves home in Hong Kong. The successful hosting of the recent Ministerial Conference of the World Trade Organization last December is one of the many examples Hong Kong has vividly demonstrated to the international community its status as Asia's World City. All these working together will reinforce Hong Kong's position as an IFC.
Looking Ahead
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Looking ahead, there remains a substantial growing potential for Hong Kong's financial markets in terms of both fund-raising and capital investments.
Fund-raising
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International investors continue to show a strong appetite for the Mainland market. At the same time, Mainland enterprises are also very keen to get listed on our equity market, not only for efficient access to capital, but also for the recognition of quality in terms of internationally recognised regulatory standards. Hong Kong is an important springboard for many Mainland enterprises to enter the world market.
Over the years, Hong Kong has successfully positioned itself as a match-maker for Mainland enterprises and international investors, channelling capital for these enterprises' growth as well as providing opportunities for international investors. Since the listing of the first H-share in Hong Kong in 1993, 340 Mainland enterprises have so far been listed on our stock market, raising more than HK$1,100 billion. All top 10 IPOs in Hong Kong over the years came from Mainland enterprises. More than 40% of total market capitalisation and 56% of the total market turnover are attributable to Mainland enterprises. As more and more state-owned sector enterprises are now undergoing restructuring, and private enterprises continue to grow, it would not be unreasonable to say that more Mainland enterprises will join Hong Kong's stock market this year.
Capital Investments
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In parallel, following the rise in personal wealth and increasing awareness of the need for retirement planning, there has been an ever growing demand for a greater variety of investment products for achieving various investment objectives. In addition, more funds and institutions from the Mainland such as insurance companies and the National Social Security Fund are now allowed to invest overseas progressively.
Seizing the Opportunities
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We will maximise the market opportunities by making the best use of Hong Kong's fundamental strengths, along the four strategic directions.
(a) Upgrading Market Quality
Firstly, upgrade our market quality. Later in the year we will introduce into the Legislative Council a bill to provide statutory backing to major listing requirements. This will be another milestone of the reform to the listing regulatory regime. We are also actively assisting our Legislative Council in scrutinising the Financial Reporting Council Bill. We hope that the early establishment of the Financial Reporting Council will enhance the supervision of auditors of listed corporations and ensure the quality of financial reporting of such corporations. On the banking side, Hong Kong will be one of the first in the implementation of Basel II, currently targeted for January, 2007. The objective is to further enhance the stability of the banking sector by, among other things, improving its ability to take on and manage risks.
(b) Promoting our Brand Name
Secondly, promote our brand name. We have stepped up our promotional efforts. Earlier this year, I went to Malaysia and Dubai to promote Hong Kong's strengths as an IFC and major asset management centre to the investing community there. Last week, in pursuit of the Pan-Pearl River Delta Co-operation initiative, we successfully organised the Pan-PRD Financial Services Forum to enhance the understanding of leaders from the Pan-PRD provincial/regional governments, as well as representatives from enterprises in the region, on the excellent financial services available in Hong Kong. As a key member of the Hong Kong sales team, I will continue my work to promote Hong Kong brand to other places of the world.
(c) Expanding Renminbi (RMB) Business
Thirdly, expand RMB business. Not an insignificant progress has been achieved in the RMB business in recent years. For example, Hong Kong is the first place outside the Mainland that can offer RMB business services. Thirty eight banks in Hong Kong are now providing RMB deposit-taking, exchange and remittance services. With the RMB cheque-clearing mechanism launched earlier this month, Hong Kong residents can open RMB current accounts and make payments by cheque for consumer spending in Guangdong Province. Discussion with the Central Government on other proposals to expand the RMB business will continue.
(d) Facilitating Market Developments
Fourthly, facilitate market developments. Apart from the suspension of the investor compensation levy by the SFC in December, 2005, the Financial Secretary announced in his 2006-07 Budget the proposal to reduce the levy on trading in securities, futures and options contracts by 20% within this year. On the other hand, the bill for exempting offshore funds from profits tax has just been passed by the legislature, which would apply with retrospective effect from the year of assessment 1996/97. This exemption, together with the earlier abolition of the estate duty, will help attract further inflow of funds to Hong Kong, thereby amplifying our position as Asia's asset management centre.
With the rapid globalisation in recent years, economies all over the world are competing for the same pool of talent. While we will continue to spare no effort to enhance the quality of our local education, we will also introduce by June this year the "Quality Migrant Scheme" (QMS) to attract overseas and Mainland talents who have both an established track record and potential to develop in their chosen professions.
Conclusion
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With the benefit of its fundamental strengths, Hong Kong Government's various strategic initiatives as mentioned a few minutes ago, and the strenuous efforts made by its people, Hong Kong is well-placed to capitalise on the market opportunities arising from Mainland's robust and sustained economic growth. It will continue to play a unique and significant role as the bridge between global investors and quality Mainland enterprises. I am confident that Hong Kong will continue to be a leading IFC by any measures in the years to come. I wish you a successful symposium. Thank you.
Ends/Monday, March 27, 2006
Issued at HKT 12:45
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