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Following is the luncheon speech by the Secretary for Financial Services and the Treasury, Mr. Frederick Ma, at the 16th Annual Conference of the Committee of 100 in New York today (April 20, New York time) (English only):
General Fugh, Secretary Paulson, Ambassador Zhou, Ambassador Liu, ladies and gentlemen,
I would like to thank the Committee of 100 for inviting me to address this distinguished audience. And I would also like to thank Savio, whom I have known for 30 years, for the kind introduction.
As always, it¡¦s great to be back in New York. I feel very much at home here ¡V like Hong Kong, the city has a certain buzz and energy that defines it as a city on the move, and a city of the future.
Back in 1976, I was transferred by The Chase Manhattan Bank from Hong Kong to New York to work in its Commodities Financing Division. I was here for two years and enjoyed every moment. Back then, New York was already the iconic, global financial centre. Much has transpired since then but despite some trying and heart-wrenching times, New York as a financial centre still sets the pace, and remains in top form.
Hong Kong¡¦s Development in the past 30 years
In contrast, Hong Kong did not feature at all in the international financial arena 30 years ago. Our market cap was about US$11 billion and annual turnover only US$1.3 billion. Since then our market cap has increased to more than US$1.7 trillion as at end of March this year, with turnover last year of US$1 trillion - that¡¦s more than 800 times the turnover in 1977. Our total market cap ranks us as one of the largest stock markets in the world and 2nd in Asia after Tokyo. Last year, Hong Kong topped the table in Asia for IPOs and was second globally, ahead of New York. Additionally, the number of licensed banks has increased from 74 to 137 in this period. The competitiveness of our financial sector has also been recognised internationally. The Global Financial Centres Index, published by the City of London last month, placed Hong Kong third worldwide in terms of financial centre competitiveness, and saw Hong Kong as a genuine global financial heavyweight in the years ahead.
Hong Kong¡¦s development as an international financial center (¡§IFC¡¨) is the result of a number of factors. The stock market crash in 1987 forced us to look more closely at our regulatory structure, which resulted in the establishment of the Hong Kong Securities and Futures Commission, the ¡§SFC¡¨. We now have a three-tier structure: the first tier is the Government, which sets the policy to facilitate market development; the second tier is the SFC, as the statutory regulator; the third tier is Hong Kong Exchanges and Clearing Limited, which is the market operator and also the frontline regulator. Our regulatory regime which is on par with other leading IFCs is one of the keys, if not the key, of our success today.
The spectacular growth of our financial markets has also been underpinned by our fundamental strengths ¡V the rule of law upheld by an independent judiciary; the free flow of goods, services, information, capital and people; a simple and low tax regime; a clean and efficient government; a freely convertible Hong Kong currency pegged to US Dollar; a level playing field for business and tough anti-corruption laws; and superb transportation and communications infrastructure. All these have been protected under the ¡¥One Country, Two Systems¡¦ principle that has guided Hong Kong¡¦s development since Reunification in 1997.
Emerging Economic Importance of China
Another crucial factor in our development has been the emerging economic importance of China. Since the start of the opening up process in the late 1970s, China¡¦s GDP has soared over 46 times. In 2006, China¡¦s GDP reached US$2.6 trillion, securing her position as the world¡¦s fourth largest economy, and remaining as Asia¡¦s major destination for foreign direct investment. Notably, consumption is clearly on the rise, driving demand-led growth. A survey estimated that as at 2005, there were over 320,000 US dollar-millionaires# in the Mainland of China, and the number is only expected to increase.
As Secretary Paulson pointed out recently in Shanghai, China¡¦s growth and integration into the world economy ¡§benefits the Chinese people and the people of the world¡¨. I cannot agree with him more. Since the opening up of the Chinese Mainland economy, Hong Kong has served as a platform for capital raising, and contributed to the growth and development of the Mainland¡¦s banking and financial systems. Our position as China¡¦s international financial centre is unique and irreplaceable. As China¡¦s economy continues to grow, the scale and scope of her international financial activities will rapidly increase. Hong Kong¡¦s role in serving as the Mainland¡¦s channel for financial intermediation with international fund-raisers and investors is also becoming more significant.
Hong Kong as China¡¦s Prime International Capital Formation Centre
Hong Kong stands out as the preferred platform for the listing of Chinese Mainland enterprises outside of the Mainland. Since 1993, the year of our first H-share listing, Hong Kong has raised over US$190 billion of capital for a wide range of Chinese Mainland enterprises, such as China Mobile, China Life Insurance, PetroChina, China Construction Bank. The list goes on ¡V in fact, there are now about 370 such companies out of about 1,000 companies listed on our stock exchange.
Last year, in particular, we had some mega deals. As you know the Industrial and Commercial Bank of China (¡§ICBC¡¨) launched the world¡¦s largest IPO when it was simultaneously listed in Hong Kong and Shanghai in October.
While we are undoubtedly happy about this, we are also mindful of suggestions in some quarters that Hong Kong has a lax regulatory regime which enables some Chinese Mainland enterprises to list. This is absolutely not true.
We have not lowered the bar, and we will not lower the bar. Any international investment banker, lawyer or accountant who has practised in Hong Kong will tell you that our regulatory regime is fully in line with international standards, and that our regulators are just as tough as their counterparts in other mature markets.
We will not compromise quality for quantity. We maintain a level-playing field for all issuers and protect investor interests. What we offer to Chinese Mainland enterprises is not just a channel for raising capital. We also offer a quality stamp that is recognized worldwide. By meeting our initial listing requirements and post-listing obligations, these companies enhance their corporate governance and bolster their standing in the international market.
Chinese Mainland enterprises have many reasons for choosing Hong Kong as their international listing platform:
* Firstly, we have a large, deep stock market, attracting funds from all over the world. We can provide the liquidity necessary to support very big listings.
* Secondly, we have a comprehensive understanding of the Mainland market, and share the same language and culture.
* Thirdly, we have an excellent geographical location and are the main international gateway to China, as well as in the same time zone.
* Fourthly, we have a deep, broad pool of international professionals with extensive experience in dealing with Chinese Mainland companies and international investors.
* And, finally, we adopt internationally defined market rules, regulations and accounting standards. Our regulatory regime maximises market development while also safeguarding the investor. We are always mindful not to allow the pendulum to swing too far in any one direction.
Hong Kong: Bridge to Opportunities
Hong Kong is not only attractive to Chinese Mainland enterprises. We also have much to offer to international investors and enterprises in their quest for investment and business opportunities. We can act as a platform for accessing opportunities in Asia, in particular China, in a number of ways.
First, for investors who are interested in capitalizing on the growth of the Chinese Mainland economy, the most effective route is through buying Chinese enterprises shares listed on the Hong Kong stock exchange. Our free and open market is supported by a world-class financial infrastructure, with complementary policy and legislative initiatives, such the enactment of legislative amendments in March 2006 to exempt offshore funds from profits tax.
Second, fund managers can leverage on Hong Kong¡¦s unique strengths to tap into the huge domestic savings of China, which is estimated to be about US$2 trillion. Hong Kong is already Asia¡¦s leading wealth management centre with over 80 fund management houses currently operating in Hong Kong, including firms from the US, UK, Switzerland and others. China¡¦s Central authorities announced measures in April last year to allow investments in overseas financial markets through qualified domestic institutional investors, commonly known as QDII. Fund management houses, including private equity as well as private banks, should make use of this opportunity and further expand their operations in Hong Kong.
Third, I know that many investors are very bullish on the future of Renminbi. For you, I bring good news. Before long, Hong Kong will be the only place outside the Mainland of China where Renminbi denominated financial bonds can be issued by Chinese Mainland financial institutions. You will be able to have exposure to reminbi through this channel.
Fourth, due to our infrastructure and strengths mentioned earlier, Hong Kong is the ideal launch pad for foreign enterprises to set up offices for doing business in the Mainland of China. In 2006, over 6,350 overseas companies had regional headquarters, regional offices or local offices in Hong Kong. Among them, 1,280 are from the USA. Being part of China, plus our close ties with Chinese Mainland businesses, gives us unique advantages in partnering with foreign enterprises that want to do business there. After all, Hong Kong is the largest source of external direct investment into the Mainland, with stock of inward investment of more than US$270 billion. Many overseas corporations work hand in hand with Hong Kong firms to take advantage of those long-established and extensive investments to expand into that huge marketplace.
Complacency is Never an Option
Ladies and gentlemen, over the past 30 years, Hong Kong has survived a number of setbacks, such as the run on the Hong Kong dollar in 1983, the market crash in 1987, the Asian Financial Crisis in 1997 and the SARS outbreak in 2003. Each time, we¡¦ve emerged from these crises stronger and more resilient. I know that New Yorkers understand our ¡§can-do¡¨ spirit, because New Yorkers have it too!
Because we are such a small place with no natural resources, save for our hard-working and talented people, we need to put in extra effort to stay ahead of the pack. Complacency has never been an option in Hong Kong.
On the financial services front, we are constantly striving to upgrade our market quality and sharpen our skills. To enhance the regulation of auditors and financial reporting of listed companies, we have just set up an independent Financial Reporting Council. We are also working on legislative amendments to give statutory backing to major listing requirements. Additionally, we are rewriting and modernising our Companies Ordinance to ensure that it continues to serve Hong Kong¡¦s development needs as a major international business and financial centre.
We know that Mayor Bloomberg and Senator Schumer recently commissioned a report entitled ¡§Sustaining New York¡¦s and the US¡¦s Global Financial Services Leadership¡¨. This drive for improvement sets an excellent example to the rest of the world. But for an IFC such as Hong Kong, it reinforces our own belief that to stay ahead, we¡¦ve always got to be working harder, and smarter.
Closing remarks
Ladies and gentlemen, financial globalisation has changed the international scene dramatically and raised competition among IFCs. Success tomorrow hinges very much on whether we adopt the right strategies and do the right things today.
Competition can bring improvement. Collaboration can breed success. IFCs around the world have their own strengths and advantages. And there is always room for us to collaborate and complement each other.
Finally, I know that, for many of you here, your ties with Hong Kong and China go much deeper than purely economic interests. Just as I feel at home in New York, I know you feel at home in Hong Kong. But, if you haven¡¦t been back to Hong Kong recently, I encourage you to do so as soon as you can. You can join us in celebrating the 10th anniversary of our Reunification with China. And then we can look forward, together, to what the next decade may hold.
Thank you very much.
# Capgemini Merrill Lynch Report on High Net Worth Individuals (i.e. with net financial assets of at least US$1m, excluding primary residence and consumables)
Ends/Saturday, April 21, 2007
Issued at HKT 11:38
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