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Following is a speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at Daiwa Asia Seminar today (November 30): (English only)
Ladies and gentlemen,
Opening
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It is indeed my great pleasure to join you today at the inaugural Daiwa Asia Seminar. I would like to extend a warm welcome to all participants, in particular those from overseas.
I would also like to thank Daiwa Securities for hosting the inaugural Daiwa Asia seminar here in Hong Kong. Hong Kong as an international financial centre has solid and substantial experience in providing financial intermediation for investors and fund raisers. I am sure participants would benefit from the abundant business opportunities here in Hong Kong.
Japanese participation in Hong Kong securities market
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Hong Kong and Japan are the most significant players in the Asian financial market. We have the largest stock markets in Asia, and are close to each other geographically. Japanese investors have been long-standing participants in the Hong Kong stock market: there are seven Japanese controlled stock exchange participants in Hong Kong, including large houses such as Daiwa which has been present in Hong Kong for more than 35 years and has a strong commitment to Asia. And there are some 50 licensed corporations or registered institutions in Hong Kong which have Japanese controlling shareholders. Our securities market will no doubt become increasingly attractive to Japanese investors with our expanding list of lucrative investment opportunities, in particular our Mainland stocks, the potential of which is linked to the rapidly growing economy of Mainland China.
Asian economic growth
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The focus of international financial markets has been shifting to Asia. This trend is inevitable in view of the sustained and solid economic growth experienced by Asian countries. Growth in Asia has been robust in the past few years. As noted in the latest survey report published by the International Monetary Fund (IMF), China is becoming an increasingly prominent driver of growth in the region, and Japan's continued expansion is also contributing to buoyant economic activity. Real GDP in Mainland China grew by 11% in the first half of 2006, led by strong investment and net exports. During the same period, Japan's expansion continued with private domestic demand remaining strong on the back of robust corporate investment and a firming labour market. The growth prospects for Asia remain to be bright.
Hong Kong's advantage as an IFC
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Hong Kong as Asia's world city is in the best position to serve as a major international financial centre for Asia. We have a number of fundamental strengths, including a sound legal system, a free economy with no foreign exchange control, low and simple tax regime, efficient financial infrastructure, the most resilient banking system in Asia and a regulatory framework that is of international standards, not to mention that we have a lot of financial talents. Most, if not all, of the top international financial institutions such as Daiwa have established their presence in Hong Kong.
Building on these institutional strengths, Hong Kong's financial markets have achieved impressive performance. Our stock market is deep and liquid with market capitalisation ranking 8th worldwide and second in Asia. Hong Kong is the world's 15th and Asia's third largest banking centre. About 70 of the world's top 100 banks are operating in Hong Kong. Hong Kong is also a major asset management centre in Asia. In 2005, Hong Kong's combined asset management business amounted to some US$580 billion, which represented an increase of 25% over 2004. Our fund management industry has a strong international component, with over 60% of the non-REIT assets sourced from overseas.
In addition to our institutional strengths, our close ties with Mainland China have also enabled our financial markets to flourish in tandem with Mainland China's economic growth. Being the gateway to Mainland China, Hong Kong has firmly established its position as the international capital formation and investment platform for Mainland China. This has been affirmed by the Central Government's 11th Five-year plan announced in March, 2006, which expressed support for upholding Hong Kong's position as an international financial centre.
Hong Kong as the capital formation centre for the Mainland
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In the first 10 months of 2006, we rank 2nd worldwide in terms of IPO funds raised. The huge fund-raising capability of our stock market has given us unparallel advantages in serving as the premier capital formation centre for Mainland enterprises. Today, a total of 355 Mainland enterprises are listed in Hong Kong covering a wide spectrum of businesses, ranging from financial institutions, telecommunications, coal and gold mining, oil and gas, automobile manufacturing, garments to supermarkets. In Hong Kong, Mainland enterprises represent about one third of the total number of listed companies, 46% of the total market capitalization and 58% of market turnover. These enterprises have in total raised some US$178 billion from our stock market in the past years. The top 10 IPOs in Hong Kong all come from Mainland China. We saw last month the listing of the Industrial and Commercial Bank of China which is the world's largest IPO. It raised HK$124.9 billion in Hong Kong. The public offering of H-shares recorded an impressive oversubscription by 75 times, with the international institutional tranche of the IPO also over-subscribed very significantly. All these developments have clearly demonstrated to the international community our capability in attracting and handling mega IPOs conducted by Mainland enterprises.
Apart from continuing our efforts to encourage quality Mainland enterprises to list in Hong Kong, we are now reviewing the listing rules with a view to facilitating listings of quality overseas companies. This will enable Hong Kong to perform the important fund-raising functions for enterprises from other parts of Asia or around the world, and further consolidate our status as an international financial centre.
Global investment platform for the Mainland
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Hong Kong has been an important base for institutional investors in Asia. According to the World Bank report, Hong Kong accounts for about one third of the institutional assets in East Asia in 2004, which was estimated to be US$1.5 trillion in total. We expect that the abolition of estate duty and the provision of profits tax exemption for offshore funds will further enhance our attractiveness to foreign funds.
The rapid economic growth and accumulation of personal wealth in Asia, the Mainland in particular, will give further impetus to the development of Hong Kong's asset management industry. The Central Authorities announced in April this year measures to allow investments in overseas financial markets through qualified institutional investors, commonly known as QDII. Under the new measures, the huge savings in the Mainland will become a growth driver for Hong Kong's asset management industry.
Hong Kong stands ready to capitalise on these immense opportunities. Our broad range of investment products ranging from low risk bonds or money market funds to more sophisticated and specialized products such as hedge funds and REITs, including those with portfolio in Mainland properties, would help attract Mainland funds to invest in Hong Kong.
Continuous improvements
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The growth experienced by Hong Kong's financial markets has been most encouraging, but we will not loose sight of the need to strengthen our resilience to volatility. We recognise that in building a quality market that can withstand challenges, investor confidence is the key. In this context, I am glad to note that many of the major initiatives under our Corporate Governance Action Plan have started to bear fruit. As reported by the media, a recent research report published by the University of Chicago acknowledged Hong Kong as one of the places with strong corporate governance. The IMF also mentioned in its report recently that Hong Kongˇ¦s corporate governance had been strengthened. The statutory Financial Reporting Council (FRC) to be established next year will strengthen the regulation of auditors of listed corporations and improve the quality of financial reporting. We will be announcing the membership of the FRC this afternoon. We are also preparing legislative amendments to give statutory backing to major listing requirements to further enhance the regulation of listing.
But we do not just focus on improving our regulatory regime. We also attach great importance to market development in order to maintain our competitive edge. Following the Economic Summit on "China's 11th Five-Year Plan and the Development of Hong Kong" convened by the Chief Executive in September this year, market practitioners, professionals and academics are studying ways to further consolidate and strengthen Hong Kong's position as an international financial centre. These include the proposal for attracting more overseas enterprises to list in Hong Kong which I mentioned earlier. Another subject under consideration is the further development of Hong Kong's foreign exchange, futures and commodities trading to meet Mainland's demand for risk management in respect of both commodity prices and exchange rates. The experts are also exploring ways to attract more pension funds, university endowment and private foundation funds to Hong Kong with a view to further strengthening our status as an international asset management centre.
Concluding remarks
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Ladies and gentlemen, the international community has witnessed Hong Kong's success in developing into an international financial centre, and our capability in contributing to the economic growth in the region. But we are not complacent. We will continue to strive for improvement to enhance our status as a global financial centre. We welcome more of you to make use of our capital formation and investment platform to access the excellent business opportunities in Hong Kong, the Mainland China and other parts of Asia.
Finally, may I wish the Seminar every success. Thank you.
Ends/Thursday, November 30, 2006
Issued at HKT 16:22
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