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Speech by SFST at the All China Economics International Conference (English only)

    Following is a speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the All China Economics International Conference today (December 19): (English only)

The Development of Hong Kong as China's International Financial Centre

Dr Li, Ambassador Kwon, distinguished guests, ladies and gentlemen,

     Good evening. Let me first of all extend a warm welcome to overseas and Mainland guests to Hong Kong, Asia's World city.  It gives me great pleasure to join you today for the inaugural All China Economics International Conference (ACE International Conference).  I hope that you will find it a fruitful and productive conference, and that you will get a chance to see our wonderful city. Hong Kong is beautiful all year round but Christmas is special - our entire city is lighted up to celebrate this festive season.

     I would also like to take this opportunity to thank the APEC Study Centre for organising the ACE International Conference.  It provides an invaluable opportunity for scholars and professionals from around the world, those from Mainland China and APEC member communities in particular, to share their views on various contemporary economic issues and to strengthen cooperation in world affairs.  The ACE International Conference will no doubt further APEC Study Centre's core objective of advancing economic cooperation, a subject that has become increasingly important as a result of rapid globalisation in the world economy.

Mainland's Economic Development

     The economic growth experienced by Mainland China has indeed become an important subject for all APEC economies.  I understand that many of you have examined issues relating to China's economic growth in some of the seminars held in the past two days.  This evening I would like to take this opportunity to share with you my thoughts about the role of Hong Kong as the Mainland China's international financial centre.

     With its broad-based and rapid economic expansion, Mainland China became the 4th largest economy in the world in 2005.  This is a big step forward as compared to ten years ago when China ranked 7th in the world's economies.  While many developed countries underwent a similar development phase in previous eras, Mainland China's growth is occurring in the era of rapid globalisation. In an increasingly interconnected and interdependent world, the growth of the Mainland China has inevitably become an international issue, rather than a regional one.  It is therefore important for us to put our brains together to examine how best to capture and manage the growth opportunities.

Economic Relations with Mainland China

     As a part of China, Hong Kong has the privilege of both witnessing Mainland China's rapid growth first-hand, and fully participating in it.  For Hong Kong, the opportunities are magnified because of the close and long-standing economic relationship between the two economies.  Ever since the Mainland China adopted its open door policy in 1978, Hong Kong has been the prime gateway connecting the Mainland China and the rest of the world.  The continued reform and opening up of the Mainland economy, along with co-operation initiatives such as the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and Mainland China, have further strengthened our economic ties.

     Currently, Mainland China is Hong Kong's largest trading partner, while we are China's third largest after the US and Japan.  Total merchandise trade between Hong Kong and the Mainland reached US$265 billion last year.  Hong Kong is also the largest external investor in the Mainland, accounting for almost 41% of the cumulative foreign direct investment there, or about US$260 billion - the equivalent of about US$37,000 for every person in Hong Kong.  Many overseas corporations are working hand in hand with Hong Kong firms to expand into the Mainland. Others may choose to establish presence in Hong Kong, using our well-developed infrastructure as their platform for entering the Mainland market.

Hong Kong as a unique city in China

     Hong Kong is not only a part of China, but also a unique city in China under the principle of "one country, two systems", with our own political, legal, economic and financial systems, distinct institutional strengths and state-of-the-art infrastructure.  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 deep pool of financial talents with international exposure and good knowledge about Mainland China.

     With these strengths, Hong Kong has achieved remarkable performance in different areas of financial services.  With a market capitalisation of over US$1,563 billion (or HK$12.19 trillion) at the end of November 2006, Hong Kong's stock market has overtaken Deutsche Borse to become the 7th largest in the world and remain the 2nd largest in Asia.  Hong Kong is the world's 15th and Asia's 3rd largest banking centre.  More than 200 authorised institutions now operate in the city, of which around 70 are the world's 100 top banks. Our asset management business has been expanding rapidly with total assets under management exceeding US$580 billion at the end of 2005, registering a 25% year-on-year increase.  The insurance sector is also developing fast, consistently registering a double-digit growth over the past decade.  With 181 authorised insurers operating in Hong Kong, we have the highest concentration of insurers in Asia.

     With these achievements, the provision of financial services serving Mainland China is unquestionably one of Hong Kong's greatest strengths.

Premier capital formation centre for the Mainland

     In the first 11 months of 2006, we rank 2nd worldwide in terms of IPO funds raised, overtaking New York.  The huge fund-raising capability of our stock market has given us unparalleled advantages in serving as the premier capital formation centre for Mainland enterprises.

     In the Mainland, continued restructuring of the state-owned sector and the flourishing of private enterprises have generated substantial financing needs for their business activities.  Given our world-class, well-regulated and highly liquid financial markets, as well as our proximity to the Mainland, Hong Kong has naturally become the venue of choice for Mainland enterprises tapping the international capital market.  The majority of Mainland enterprises that have listed outside the Mainland have chosen the Hong Kong stock market.  

     Mainland enterprises now represent about one third of the total number of listed companies, 48% of the total market capitalisation and 59% of market turnover.  These enterprises have in total raised some US$181 billion from our stock market in the past years.  The top ten IPOs in Hong Kong all come from Mainland China.  Most notably, we saw in October this year the world's largest IPO, i.e. the listing of the Industrial and Commercial Bank of China on the A market in Shanghai and the H market in Hong Kong, which raised US$16 billion in Hong Kong.  All these developments have clearly demonstrated to the international community our capability in serving as the international capital formation centre for Mainland China.

Global investment platform for the Mainland

     Hong Kong has long established itself as a leading asset management centre in Asia, with total assets under management exceeding US$580 billion in 2005 which represents 25% year-on-year increase.  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 our recent initiatives, including 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.  While attending a forum in Hong Kong a few months ago, the Chairman of the China Banking Regulatory Commission, Mr Liu Mingkang mentioned that the number of high-net-worth individuals in the Mainland had been increasing over the past few years. The number of Mainland residents with current assets of over US$1 million grew by about 7% last year to 320,000 people. This demonstrates the tremendous development potential of the Mainland's investment market and the strong demand for investment products.

     The Central Authorities announced in April this year measures to allow investments in overseas financial markets through qualified institutional investors, commonly known as QDII.  With 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 specialised products such as hedge funds and REITs, including those with portfolio in Mainland properties, would help attract Mainland funds to invest in Hong Kong.

Renminbi business

     Hong Kong is the first place outside the Mainland that can operate renminbi business. This greatly broadens the business opportunities for Hong Kong's financial services sector, and facilitates cross-boundary spending and economic integration between Hong Kong and the Mainland.  As at October this year, 39 banks in Hong Kong are providing renminbi deposit-taking, exchange, remittance and card services. The total renminbi deposits in Hong Kong have reached RMB22.6 billion, which is close to US$2.9 billion.   The cumulative total of credit card spending and ATM withdrawals by Mainland visitors in Hong Kong was over HK$18 billion, with credit card spending on average about HK$2,700 per transaction.  With the launch of the renminbi cheque-clearing mechanism earlier this year, Hong Kong residents can open renminbi current accounts and make payments by cheque for consumer spending in our neighbouring province, Guangdong. We have been in discussion with the Central Government on other proposals to further expand the renminbi business, namely to allow cross-boundary trade to settle in Renminbi and to establish a renminbi debt issuance mechanism in Hong Kong.

Further Integration with the Mainland

     In the Eleventh Five-year Plan announced in March 2006, the Central Government expressed support for upholding Hong Kong's position as an international financial centre.  The Central Government also stated in the same Five-year Plan their policy direction of expediting financial reform in Mainland China.

     In order to maintain the status of Hong Kong as an international financial centre, there is of course a need to preserve Hong Kong's sound financial system, and to further increase the depth and breadth of our financial markets.  In response to the challenges and opportunities brought about by the liberalisation and reform under the 11th Five-Year Plan, Hong Kong should play an active role in performing financial intermediation and serving Mainland's needs for financial services.  I am glad to note that the IMF commends the Government's efforts in further strengthening market infrastructure and promoting financial integration with the Mainland.

     But we should not be complacent.  We will continue to strive for improvement in order to capture the opportunities arising from the growth experienced by Mainland China, and the Central Government's Five Year Plan.  Specifically, at the Economic Summit on "China's 11th Five-Year Plan and the Development of Hong Kong" convened by the Chief Executive on September 11, market practitioners, professionals and academics of the Focus Group on Financial Services offered many useful and innovative suggestions on ways to further consolidate and strengthen Hong Kong's position as an international financial centre.  

Concluding Remark

     Ladies and gentlemen, the tremendous economic growth of Mainland China has brought about abundant opportunities and an exciting future for Hong Kong's financial services industry.  But these opportunities also bring challenges.  To stay ahead in the game, we will continue to benchmark ourselves against the world's leading financial centres in enhancing financial infrastructure, promoting market development and upgrading market quality.  I am confident that Hong Kong's financial services industry, with its inherent strengths, solid experience and international dimension, will continue to serve as Mainland China's global capital formation and investment platform, thereby contributing to the Mainland's financial reforms and development, and enhancing Hong Kong's position as an international financial centre.

     Finally, may I wish the Conference every success, and our overseas guests an enjoyable stay in Hong Kong.

Ends/Tuesday, December 19, 2006
Issued at HKT 19:56