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Following is the speech by the Financial Secretary, Mr Henry Tang, at the Gala Dinner in Auckland today (May 22, New Zealand time) (English only):
Hong Kong's Unique Role in the Mainland's Rapid Economic Development
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Deputy Prime Minister, Ministers, distinguished guests, ladies and gentlemen,
Good evening, and thank you for coming tonight. I am very happy to be here in Auckland, a city that's celebrated for having one of the best lifestyles in the world. Besides absorbing the beauty of the place, as a wine lover, I'm also delighted to be in a country that has earned world-renown for its local vineyards.
Tonight, I would like to bring you up to date on the latest happenings in Hong Kong, especially on how we are leveraging our proximity and unique circumstances to benefit from China's outstanding economic growth and contribute to it. I'll also be talking about how we are expanding the horizon of business opportunities for foreign investors, including those of New Zealand, as a result.
Update on Hong Kong's economy
Hong Kong has survived an extremely rough patch that included the Asian financial crisis in the late 1990s and the SARS outbreak in 2003. Now leaner and healthier, we are in the midst of a sustained and broad-based economic recovery that has been powered by strong growth in the export of goods and services, rising investment, buoyant consumer confidence and record tourist arrivals. Our real GDP grew by 8.6% in 2004 and 7.3% last year - remarkable results for a rather mature economy. The unemployment rate has dropped to a four and a half year low, and all economic indicators are pointing up. The future looks promising, too. Thanks to the sustained momentum in the external sector, on the back of strong global and regional demand, and a fast growing China economy.
In addition, foreign investment has been particularly strong. We were recently named the "Asian City of the Future" and the city with the best foreign direct investment (FDI) potential by fDi magazine. Hong Kong is Asia's most popular tourist destination, and the preferred location for international companies to set up their regional headquarters. Inflows of FDI to Hong Kong in 2005 amounted to US$35.9 billion, second only to Mainland China in Asia, and 7th in the world.
Strong ties with New Zealand
New Zealand and Hong Kong have a history of excellent relations. We have many things in common as well. Being small and open to the world, we have each employed our strengths to embrace the challenges and opportunities brought about by globalisation. In 2005, we received nearly 90,000 visitors from New Zealand, which represent a strong growth of 25% year-on-year. Many Hong Kong people have studied and invested in this country, and of course, thousands have immigrated here. At the same time, there is a substantial New Zealand community in Hong Kong, which is particularly vocal every March at the Rugby Sevens tournament. Prominent companies like New Zealand Milk Products, Air New Zealand and Eurocell Paper Sales have a presence in Hong Kong, as do New Zealand Trade & Enterprise, Tourism New Zealand and the New Zealand Chamber of Commerce.
In addition to our growing bilateral trade, Hong Kong continues to serve the expanding New Zealand-China trade relationship. Last year, some 19% of the trade between New Zealand and the Mainland was routed through our port and airport.
Our competitive advantages
Why is Hong Kong doing so well in attracting foreign companies? We have the world's freest economy, according to the Heritage Foundation and other public policy institutes, and take pride in offering a business friendly environment. We also have the unique "one country, two systems" formula guaranteed for 50 years since 1997. So all those factors that made Hong Kong such an attractive place for foreign investors down the years - rule of law; clean governance; a simple and low tax regime, which Forbes rated as the 2nd best for low taxes in the world; an unfettered flow of information and capital; level playing field; minimum government interference - remain intact.
Hong Kong is blessed because of where we are. We are in the heart of Asia, which makes us the natural hub for doing business in Asia as a whole - and at the heart of the Pearl River Delta (PRD), the most economically dynamic region in China. Hong Kong is leading the economic evolution of Asia from manufacturing to high-value added services. Indeed, we have always been quick to adapt to changes in the global economy. When China began opening up in the late 1970s, our manufacturers were the first to charge north across the boundary into the PRD and to invest heavily there. Today, in Guangdong Province there are over 50,000 Hong Kong-linked companies employing over some 12 million workers. The interaction of Hong Kong and Guangdong Province, particularly in the PRD, has contributed greatly to the prosperity on both sides of the boundary. This combination has resulted in the PRD developing into the "factory of the world".
Another important outcome of the manufacturing migration is that services now make up nearly 90% of Hong Kong's GDP. Hong Kong is now focusing on providing financial, business and value-added logistics services to help international companies do business in Asia and China - as well as helping Mainland companies take their goods and services to the world market. We provide the capital, management, technology, market knowledge and access to international markets while Guangdong's cities offer world-class competitive manufacturing, and access to a new, fast-growing consumer base.
Currently, there are some 3,800 companies that ran their regional operations from Hong Kong. Both the number of regional headquarters and regional offices in Hong Kong reached all-time high in 2005, demonstrating that Hong Kong remains the preferred base in Asia for foreign and Mainland companies to oversee their regional operations. In addition to being a leading international financial and logistics centre, Hong Kong is within a five-hour flight to half of the world's population. I am confident that Hong Kong will continue to be the most popular place in the region for regional headquarters as it is today.
Integration with the Mainland's economy
Hong Kong's pivotal role as the gateway to China is now more pronounced than ever. One of the most important co-operation initiatives with the Mainland is our Closer Economic Partnership Arrangement (CEPA), essentially a free trade pact between two autonomous trading partners within the same nation, that came into effect on 1 January 2004. With the implementation of the third phase of CEPA in January this year, all Hong Kong goods enjoy zero tariffs when exported to the Mainland and trade in services is further liberalised ahead of China's WTO commitments. CEPA covers "Hong Kong manufacturers and services suppliers", a nationality-blind category that includes New Zealand companies too. Under CEPA rules, any foreign services provider that has been established in Hong Kong for over three years is treated as a Hong Kong company. In fact, almost half of the companies that have successfully applied for the Hong Kong Service Suppliers Certificate are of foreign interest.
Another important development is that Hong Kong banks have been allowed to conduct Renminbi business, the scope of which was just expanded in December last year. These measures have not only further facilitated cross-border spending by Mainland and Hong Kong residents, but have also strengthened Hong Kong's role as an international financial centre. Indeed, we received another piece of good news not long ago. In mid April, the People's Bank of China announced measures to relax foreign exchange controls to facilitate overseas investment by Mainland companies and individuals through qualified banks, fund management companies and insurance institutions. Hong Kong stands to benefit as the capital market gateway to the Mainland when the measures allowing the National Council for Social Security Fund to invest outside the Mainland came into effect on the first of May. The move to allow outflows of the Mainland's portfolio capital will be highly significant to Hong Kong, for we believe, we will be the first stop behind the exit door.
Our vibrant and robust 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. Hong Kong has a large and highly liquid market capable of absorbing funds from all over Asia and the rest of the world. The market capitalisation of our stock exchange now ranks eighth globally and second in Asia, and hit the historic mark of HK$10 trillion early this month. The trading volume has been tremendous - our daily turnover averaged at HK$38 billion in April 2006, representing a surge of some 150% over the same time last year. 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. Indeed, Hong Kong raised over US$140 billion for Mainland enterprises in the last dozen years. At present, Mainland enterprises account for about 40% of our market capitalisation is attributed to these enterprises.
Looking to the future
In tandem with these moves drawing us closer to our motherland, an even more exciting development is taking shape - a visionary concept that aims to develop a South China "common market", with a population of 460 million, equivalent to that of the European Union. It is the Pan Pearl River Delta Regional Co-operation initiative, which we have called as "Pan-PRD" or simply "9+2". The initiative brings together nine provinces* of southern China along with the two Special Administrative Regions of Hong Kong and Macao. Pan-PRD is designed to break down provincial and municipal trade barriers, thereby opening up incredible new business opportunities for international investors in a vast region of our country. In the past 20 years or so, our manufacturing industries migrated to the north, successfully transforming our economy. And now the Pan-PRD regional co-operation has further enlarged our economic catchment area.
Increasing economic prosperity in the Mainland has spurred greater demand for high quality services, and Hong Kong is well placed to take advantage of this development. Our professionals in the services industries now have more opportunities to establish businesses or work in the Mainland under CEPA. As I have pointed out earlier, financial services are unquestionably one of our greatest strengths. We expect that the Mainland will continue to be the principal growth driver of our capital market. In fact, the dynamic 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.
A defining characteristic of Hong Kong is our international outlook and engagement with the world. At the same time, we enjoy strong links with our hinterland, supported by the free flow of goods, services, capital, people and information, and provide an interface with the rest of the world for its hinterland. Hong Kong is the optimal choice for those foreign investors who want to gain a fast track into the burgeoning Mainland market by anchoring their Asian operations in Hong Kong, tapping the rich experience of Hong Kong businesses and sharing our free trade status with the Mainland.
Today, the world is beating many different paths to the Mainland. We are enhancing our attractiveness on a strong foundation as a place where you can take part and have a share of China's growth. Initiatives like CEPA and the Pan-PRD co-operation produce a win-win-win situation, benefiting both the Mainland's and Hong Kong's economies, along with the foreign companies that invest there.
Our challenge
The task we face is to build on our competitive advantages and to establish a framework of arrangements that facilitates seamless interaction within "One Country", while not in any way compromising the high degree of autonomy we enjoy under "Two Systems". We look forward to playing a more active role in contributing to the sustained growth of the Mainland, both as a source of investment and as a partner to overseas firms looking to enhance their presence in a country that is set to become a key engine of global economic growth.
Ladies and gentlemen, maintaining and enhancing our closer relationship with the Mainland, and at the same time, keeping our global outlook is a cornerstone of Hong Kong's economic policy. With our institutional advantages, Hong Kong has much to offer New Zealand investors - notably a high degree of certainty for doing business, not only in the Mainland but in the entire Asia-Pacific region. There is no other city in China, or the rest of Asia, that offers all the advantages Hong Kong does for businesses wanting to get in on the China adventure. That's why we pride ourselves on being Asia's world city. Hong Kong has been through some extraordinary and challenging times, but the best is yet to come.
Lastly, I would like to thank you for your enduring support and friendship for Hong Kong. I hope you will continue to work closely with us as we enter a new era of opportunities presented by the economic miracle taking place in China, with Hong Kong right at its heart.
Thank you very much.
* These nine provinces include Guangdong, Fujian, Jiangxi, Hunan, Guangxi, Guixhou, Yunan, Sichuan and Hainan.
Ends/Monday, May 22, 2006
Issued at HKT 16:50
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