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Following is a speech by the Financial Secretary, Mr Henry Tang, at the Discussion Forum on Strengthening Hong Kong as China's International Capital Formation Centre by the Hong Kong Exchanges and Clearing Limited today (May 31):
Ronald, Paul, distinguished guests, ladies and gentlemen,
Good morning. First of all, I would like to thank Ronald for his very kind introduction. I am delighted to be here this morning to talk about Hong Kong as a capital formation venue for global enterprises.
Hong Kong as an International Financial Centre
As one of the most vibrant international financial centres in this region, we build our success on a number of fundamental strengths. To name just a few: the rule of law upheld by an independent judiciary, free flow of capital and information, a simple and low tax regime, and a broad and deep pool of talents with extensive international experience that are best suited to the Hong Kong and the Mainland markets and Asia, as well as a very broad and deep international outlook. Our strengths in having a free economy and providing a favourable environment for doing business are also widely recognised. Indeed, Hong Kong has been ranked by the Heritage Foundation as the world's freest economy for 13 consecutive years. We have also been ranked the second most preferred destination for foreign investment in Asia for five consecutive years by the United Nations World Investment Report 2006.
On top of our fundamental strengths, we have a very vibrant capital market and a sound banking system, with around 70 of the world's top 100 banks operating in the city. Our asset management business has also been expanding rapidly with total assets under management exceeding US$580 billion at the end of 2005. The insurance sector, now served by around 180 insurers from around the globe, has also been registering a double-digit growth every year in the past decade.
Above all, the development of our stock market in recent years is particularly impressive. Last year, we raised over US$42 billion through IPOs, which made us the second largest IPO fund-raiser worldwide. The market capitalisation of our stock market has also quadrupled in the past decade to reach US$1,800 billion, which makes us currently the second largest in Asia and the 8th largest in the world. For the first 5 months in 2007, the total turnover of our stock market was HK$5 trillion, which already exceeded the total annual market turnover in 2005. I am very pleased to see that the platform of HKEx is sound and well on the day when we have record turnover. The operation was smooth, reliable and not a hiccup was experienced.
The encouraging performance of our financial services sector in recent years has gained considerable international recognition. For instance, the Global Financial Centres Index, published by the City of London earlier this year placed Hong Kong the third worldwide in terms of financial centre competitiveness, and regarded Hong Kong as a genuine global financial heavyweight in the years ahead. So, that is truly complimentary.
Economic Summit on "China's 11th Five Year Plan and the Development of Hong Kong"
As you can tell, financial services is one of our most important and promising sectors. It is therefore of paramount importance to continue to sharpen our competitiveness vis-ˆj-vis other places in the region to provide fresh impetus for Hong Kong's future economic development. The Chief Executive convened an Economic Summit on "China's 11th Five Year Plan and the Development of Hong Kong" last September to show how Hong Kong should respond to the challenges and opportunities arising from the national 11th Five-Year Plan. Under the Economic Summit, a Focus Group on Financial Services was formed to study the further development of Hong Kong's financial services sector.
In its report published in January, the Focus Group on Financial Services proposed an Action Agenda of 80 recommendations. Strategically, it recommends Hong Kong should develop itself as China's international financial centre of global significance. In doing so, Hong Kong should strengthen our financial co-operation with the Mainland by developing a cooperative, complementary and interactive working relationship between the two financial systems. Specific actions have been identified in five areas to enhance the role that Hong Kong plays in the process of Mainland's financial development and reform.
From a market-specific perspective, although Hong Kong has already established ourself as a leading securities market in the world, we cannot be complacent and should continue to broaden and deepen our market. On the one hand, Hong Kong should continue to facilitate capital formation for Mainland enterprises as we have always done. As an international financial centre, Hong Kong's securities market should also extend its reach to potential quality issuers outside China.
Hong Kong as a Premier Capital Formation Centre for Mainland
As the premier capital formation centre for Mainland enterprises, we now have over 375 Mainland enterprises listed on our stock market, representing over 30% of the listed companies and 50% of the market capitalisation. Having raised more than US$200 billion through listing on our exchange, these Mainland enterprises cover a wide spectrum of businesses, ranging from energy, natural resources, cars and garments manufacturing, to financial institutions, telecommunications and even supermarkets.
To promote the greater use of Hong Kong as a capital formation centre for Mainland enterprises as recommended by the Action Agenda, the Government has co-organised a Beijing-Hong Kong Financial Services Co-operation Forum with the People's Government of Beijing Municipality earlier this month. More than 100 Hong Kong delegates took part in the Forum, including representatives of HKEx and leading financial experts from commercial and investment banks, venture capital and private equity firms, fund management and insurance companies, securities firms and other financial intermediaries and practitioners.
I understand that HKEx will conduct a series of road shows in the Mainland in the coming six to nine months, to promote Hong Kong as a premier listing venue for global and Mainland enterprises. The first and upcoming one will be a listing seminar to be held at Changsha next week, followed by visits to six other Mainland cities, namely Changchun, Dalian, Shijiazhuang, Jinan, Holhot and Xian.
Establishing Hong Kong as an International Listing Platform for Overseas Companies
Apart from promoting Hong Kong as a preferred listing platform for Mainland enterprises, we will also extend the reach of our securities market to potential quality issuers in other economies as recommended in the Action Agenda. Our strengths as an international listing platform are attractive not only to Mainland enterprises but also to global enterprises in different parts of the world. And there are good reasons for that:
First, many well-known international investment banks, law firms, accounting firms and other related professional institutions have been using Hong Kong as a base to manage their operations in the region. These companies are important partners in the international market and the listing of global enterprises.
Second, we adopt international market rules, regulations and accounting standards that professionals in other economies will readily understand and are familiar with.
Third, we have a large and deep market, attracting funds from all over the world. We are able to provide the liquidity necessary to support big listings.
Lastly, enterprises seeking to list in the region would surely prefer a listing venue which is easily accessible. In this connection, Hong Kong is strategically located at the heart of Asia. You can reach half of the world's population within five hours of flying time. If you look at the Pacific Rim, and imagine it as a giant wheel, Hong Kong is the hub from which the spokes of access and opportunity in the region naturally emanate.
At present, companies incorporated outside Hong Kong and other pre-approved jurisdictions such as the Mainland, Bermuda and Cayman Islands, seeking a primary listing on HKEx are assessed on a case-by-case basis. The companies have to demonstrate that they are subject to appropriate standards of shareholder protection which are at least equivalent to those required under Hong Kong law. To extend our reach to potential quality issuers outside Hong Kong and the Mainland as recommended by the Action Agenda, HKEx and the Securities and Futures Commission have published a joint policy statement regarding the listing of overseas companies in March this year.
The policy statement clarifies requirements in the Listing Rules and provides a schedule of key shareholder protection measures to companies seeking to list in Hong Kong which are incorporated outside Hong Kong and the pre-approved jurisdictions. The schedule of key shareholder protection measures in the joint policy statement would help applicants in providing submissions on key requirements to demonstrate they are subject to appropriate measures. The policy statement is intended to ensure listing in Hong Kong is not overly burdensome for overseas companies. In other words, we welcome you. It is expected to facilitate and hopefully reduce the amount of work required for overseas companies seeking to list in Hong Kong, thereby streamlining the listing process for overseas issuers while, at the same time, maintaining the quality of our market for investors both locally and worldwide.
With the continuing growth of Hong Kong's financial market, we believe more and more companies worldwide, especially those with business interests or other ties in the Mainland and Hong Kong, will over time seek to raise funds and be traded here. To actively promote Hong Kong as an international listing platform, HKEx has recently signed cooperation agreements with Kazakhstan and Abu Dhabi. HKEx has also visited a number of overseas economies in the past few months and will continue to conduct promotional activities in overseas economies including Vietnam, South Korea, Taiwan, Outer Mongolia, Japan and India.
Future Prospects of Hong Kong's Securities Market
Looking ahead, I am optimistic about the prospects of Hong Kong's securities market as increasingly we serve not only capital inflows to the Mainland but also outflow of savings from the Mainland. The Mainland currently possesses the world's biggest savings pool and the world's biggest foreign currency reserves. As a measure to relax foreign exchange control on investment in overseas markets, Mainland authorities have introduced QDII arrangements in April 2006. Under this new arrangements, individuals can invest overseas through offshore wealth management products offered by banks and investment funds offered by fund management companies, and insurance company can also invest a part of their assets overseas.
We are very pleased that the arrangements have been expanded earlier this month, following efforts made by Hong Kong and Mainland financial regulators in strengthening the relevant supervisory co-operation arrangements. As announced by the China Banking Regulatory Commission (CBRC), Mainland banks can now invest for their clients in Hong Kong equities, funds and Hong Kong equity-linked products. The move is a concrete response to the relevant recommendations of the Focus Group on Financial Services, it is certainly a welcomed development for our securities market. It will provide Hong Kong's financial industry with increased business opportunities, while enhancing the co-operation and development of financial institutions in Hong Kong and the Mainland. It will also help to contribute to the maintenance of our status as an international financial centre which is stipulated in the 11th Five Year Plan.
We have achieved significant progress in implementing a number of recommendations of the Focus Group on Financial Services in the past few months, and our efforts do not stop here. The Action Agenda of the Focus Groups will be an important reference in formulating our economic strategy in the next few years, and we will continue our endeavours in studying and implementing the Action Agenda.
Concluding Remarks
Ladies and Gentlemen, the development of Hong Kong as an international financial centre in recent years has been most impressive. All these did not come by luck, but as a result of concerted efforts of the professionals, the regulators, and of the Government. With the high liquidity and strong fund-raising capability of our stock market, we are well placed to serve as the preferred capital formation centre for Mainland and global enterprises. With our determination and collective efforts, I see a bright future for Hong Kong to secure its position as an international financial centre and a premier listing venue on the global scale.
I wish all of you an enjoyable and fruitful morning. Thank you very much.
Ends/Thursday, May 31, 2007
Issued at HKT 14:20
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