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Speech by SFST at the Pre-Conference Dinner of the "China and Global Capital Markets" Conference (English only)

    Following is a speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Pre-Conference Dinner of the "China and Global Capital Markets" Conference organised by The Hong Kong Institute of Certified Public Accountants (HKICPA) and the Institute of Chartered Accountants in England & Wales (ICAEW) today (May 11):

Distinguished guests, ladies and gentlemen,

     Good evening.  It is a pleasure for me to address this timely regional gathering, and to speak on this very important subject about the Mainland getting access to the global capital markets.  

     I just said that this was a "timely" gathering.  Indeed it is, because at Easter, the People's Bank of China (PBoC) announced measures, commonly known as QDII, to relax foreign exchange controls to facilitate overseas investment by qualified banks, fund management companies and insurance institutions. The PBoC, the China Banking Regulatory Commission and the State Administration of Foreign Exchange have posted the provisional rules permitting qualified banks to apply for quotas to convert Renminbi into other currencies for investments in overseas securities markets.

     Here in Hong Kong we all welcome the Central Government's announcement.  In addition, Hong Kong stands to benefit as the capital markets gateway to the Mainland when the measures allowing the National Council for Social Security Fund to invest outside the Mainland came into effect on 1 May. The move to allow outflows of the Mainland's portfolio capital (i.e. the so-called policy of "reaching out" "Xh") will be highly significant to Hong Kong, for we hope, for most, Hong Kong will be the first stop behind the exit door.  This brings me nicely to my key message today: what are the roles of Hong Kong's financial markets, in particular our accountancy profession, in embracing the new capital flows and bridging Mainland to reach global financial markets?    

     First and foremost, Hong Kong's financial markets will provide a first-class investment platform for Mainland funds.  As we understand it, Mainland individuals and institutions have piled up over 3,100 billion Renminbi in bank deposits.  Of course, it is expected that, initially when the rules are implemented, possibly only a small portion of these huge savings may be permitted to make the first lot.  However, this unprecedented lifting of the previous capital restriction will significantly and gradually broaden the investment channels for these institutions aiming to enhance their yields and diversify financial risks.  Now that the plane is about to land, here in Hong Kong we ought to ask ourselves whether the runway is ready, whether the landing lights are on, and whether the radar is working.  Hong Kong's answer must be an affirmative "yes".  

     Hong Kong has a large and highly liquid market capable of absorbing funds all over Asia and the rest of the world.  The market capitalization of our stock exchange now ranks eighth globally and second in Asia, and has hit the historic mark of HK$10 trillion.  The trading volume has been tremendous, as our daily turnover averaged at HK$38 billion in April 2006, representing a surge of some 150% over the same time last year. Our importance as a regional asset management centre is well-proven.  More and more international fund houses are now managing their Asian portfolios through Hong Kong, rather than the US or elsewhere.  Hong Kong's combined fund management business amounted to over HK$3,600 billion at the end of 2004, according to the Securities and Futures Commission.  We expect this will rise in future, now that we have just passed the laws to abolish the estate duty and exempt offshore funds from profits tax.  All in all, having a critical mass of funds necessary to build an active market, and not to mention our geographic proximity with the Mainland in the same time zone, Hong Kong is the natural and obvious choice of Mainland funds seeking a platform for opportunities over a wide range of local and international investment products.

     Second, being the premier capital formation centre for Mainland enterprises, Hong Kong offers access to the stocks of some of the Mainland's established enterprises, many of which are not presently listed on the Mainland's A-share market.  In this regard, Mainland enterprises currently account for some 30% of the total number of listed companies in Hong Kong.  About 40% of our market capitalization is attributed to these Mainland enterprises which have chosen Hong Kong for fundraising.  Moreover, over 20 Mainland enterprises have issued and listed debentures in Hong Kong, raising a sum of over HK$65 billion so far. With all these, we have heard a lot of market expectations that much of the anticipated capital outflows may land in those red-chips, H-shares and other Mainland-related instruments.  This will, on the one hand, help achieve the Central Government's policy of gradually permitting flow of the Mainland's capital across jurisdictions and, on the other hand, support the development of Mainland enterprises listed in Hong Kong.  

     Third, any sort of financial integration requires co-operation and co-ordination undertaken by financial intermediaries.  Many accounting and audit firms, investment banks, law firms, and other professionals have based their Asian operations in Hong Kong for a long time.  They have accumulated rich experience in dealing with Mainland enterprises and serving as the Mainland's gateway to the international business.  They are among those who have made Hong Kong tick.  Now the Mainland's policy of financial liberalization will give rise to new exciting opportunities for Hong Kong's financial intermediaries to capitalize on their well-established competitive edge to deepen their business presence in the Mainland.

     Let me speak more today about the roles of the accountancy profession in Hong Kong in this regard.  Paul (Chan) told me that Hong Kong is blessed with a strong accountancy profession, comprising more than 25 000 CPAs and more than 1 300 firms or corporate practices.  At present over 40 such firms or practices have already become the first-movers to set up branch offices or other forms of business ventures in the Mainland and work hand in hand with their counterpart professionals in the Mainland.  Experience of working in the Mainland has been the key to success of many outstanding accountants here.  With the implementation of the Closer Economic Partnership Arrangement (CEPA) between the Mainland and Hong Kong, the HKICPA has established mutual recognition of professional qualifications with the Chinese Institute of CPAs, thereby speeding up the exchange of professional knowledge in the two places.  I am very confident that, as capital controls are liberalized now in the Mainland, demand for accounting and tax services, auditing engagements, financing, investment and corporate finance services for Mainland enterprises will only spring up further.  In fact, since the first H-share enterprise listed in Hong Kong in 1993, Hong Kong accountants have devoted much effort to advising Mainland enterprises on the listing in Hong Kong and acting as their reporting accountants in the listing applications.  These enterprises remain the clients of many Hong Kong-based accounting firms which are hired in the periodic audit assignments in accordance with our listing requirements.  These clients will only book more hours from you later on. Together with other intermediaries such as bankers, brokers and fund managers, the accountancy profession in Hong Kong will be the trustworthy partners of Mainland enterprises to use Hong Kong as a launching pad for their extended journey to integrate with the global capital markets.  

     Fourth, the Mainland looks to Hong Kong as its capital formation and global investment platform not only because of the active turnover of Hong Kong's financial markets, but also our world-class regulatory standards which enhance the confidence of investors worldwide.  For those CPAs or bankers or lawyers who have practised in Hong Kong, you are our witnesses to the world that the regulators here are as vigorous as any gatekeeper one will find in a mature capital market.  Moreover, through raising capital for Mainland enterprises, our professionals help raise the corporate governance standards of Mainland enterprises and earn them credibility and quality mark recognized by global investors.  

     Ladies and gentlemen, in a changing time we need changing strategies.  We take pride in the integrity, professionalism, experience and trilingual ability of the financial services community including our CPAs.  We need more CPAs who are committed to pursuing excellence, withstanding challenges, and achieving progress through teamwork.  You are capable of gathering real momentum to leverage financial cooperation between the Mainland and Hong Kong.  You are our good pilots to assist Mainland enterprises to make concrete and promising steps to reach out to the global capital markets.  And there will be incredible returns in your hands.  With these remarks, I wish this Conference, jointly hosted by the HKICPA and the ICAEW, a resounding success.

     Thank you very much.

Ends/Thursday, May 11, 2006
Issued at HKT 20:19