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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Hong Kong Town Hall Meeting of the World Federation of Exchanges today (March 26):
Ron (Arculli), Paul (Chow), Distinguished Guests, Ladies and Gentlemen,
Good afternoon.
It is a great pleasure for me to join you on the occasion of the Hong Kong Town Hall Meeting of the World Federation of Exchanges. It is a rather quaint title for such an impressive gathering of people. We value the role of the World Federation of Exchanges and its vision in working towards a more standardised, efficient and vibrant exchange sector.
I can't think of a more appropriate time - given the extent of the current market volatility -, or place to get together to discuss the development of the exchange sector and the market potential in the Asia-Pacific region.
On the first point, I wish to assure you that we remain extremely vigilant in monitoring the situation in the US to ensure that our intermediaries as well as our markets are able to minimise the effects brought about by the sub-prime problem in the US. The financial services sector in Hong Kong remains healthy and well-funded, but this is no time to let our guard down.
As to the market potential in this region, I'm sure that you will not be disappointed with what you see here in Hong Kong.
In the next few minutes I shall talk about some of the opportunities that I see for Hong Kong's financial sector, the challenges we are facing and how we intend to overcome them.
Allow me to set the stage.
In my Budget last month, I announced a record surplus of $115.6 billion. This was due in no small part to some HK$35 billion coming from stamp duty on stock transfers in the 2007-08 fiscal year. This amount is more than double that of our earlier prediction. Our stock market is currently the world's seventh largest and third largest in Asia with total market capitalisation more than US$2 trillion as at the end of January this year.
In terms of equity funds, we are fifth in the world and second in Asia with US$71.5 billion worth of funds raised at end-2007. And since 1993, Mainland enterprises alone have raised more than US$200 billion in equity capital in Hong Kong.
Financial services accounted for some 16% of GDP in 2006, and currently employ some 5.5% of the total workforce.
That's not bad for a city the size of Hong Kong, with a comparatively small local economy, but we can and we will do even better.
Today, we are working hard to strengthen our position as a major financial centre in the Asian time zone. Our geographical location, between London and New York, means that we are well placed to contribute to the seamless transition of trading activities carried out on a 24-hour basis around the globe.
This advantage was highlighted in the January 28 edition of TIME magazine, which focused on the unique relationship between New York, London and Hong Kong. The magazine coined the name "Nylonkong" to highlight the extent to which these three cities have become models of globalisation.
I cannot agree more.
There are distinct advantages to 24-hour-a-day trading, keeping the trading book open and passing it between time zones. Transactions can continue around the clock without investors fearing that they may lose their shirt while they are sleeping!
We already have the necessary soft and hard infrastructure in place to contribute to 24-hour trading in an efficient, safe and stable environment. Our sound regulatory regime, freely convertible currency, free flow of information and rule of law underpinned by an independent judiciary provide a solid platform for cross-boundary trading.
We are continuing to enhance our Real Time Gross Settlement, the RTGS system, to eliminate the settlement risk of international transactions. A delivery-versus-payment link between Hong Kong's US dollar RTGS system and Malaysia's Ringgit RTGS system was announced last October. And a RTGS system for the Euro and the US dollar has been in operation for several years.
I mentioned Malaysia not only because that they are good friends of Hong Kong, but because it leads me to my next point, Islamic finance.
Malaysia has taken the lead in developing Islamic finance in Asia. Hong Kong is by comparison a late starter, and it was only last year that the first Islamic retail fund was launched in the city, with the approval of the Securities and Futures Commission.
However, developments have been moving rather quickly since then.
In January this year, we hosted a high-level conference on Islamic finance, and our Chief Executive visited the Middle East to get a first-hand look at what will be required to establish a successful market here for Shariah-compliant products.
Islamic finance offers huge potential with the market estimated at some US$1 trillion. But if it is to become an effective global market, the complex rules and regulations governing Shariah compliancy need to be reviewed and standardised.
Hong Kong can play an important role in this process. We already have a highly transparent regulatory regime, deep pool of expertise, and we have the necessary experience. This experience comes from our work in more closely aligning the two financial systems in Hong Kong and in the Mainland of China.
Being in the East Asian time zone again works in our favour because it overlaps with the working day in the Middle East.
Highlighting a spirit of co-operation on this front, the Dubai Financial Services Authority will be holding its board meeting here in Hong Kong next week. It will be another opportunity to exchange ideas and forge a closer working relationship so that we can take the process forward expediently.
Let me now turn our attention closer to home. A few moments ago, I mentioned our work in helping to open up financial markets on the Mainland by dovetailing the different systems in Hong Kong and the Mainland.
Closer financial integration between Hong Kong and the Mainland will be vital in enhancing our capabilities as both an international financial centre and as China's global financial centre. This dual role was set out for Hong Kong in our National 11th Five Year Plan, which gives full support to Hong Kong as China's global financial centre. This is both a great responsibility and great opportunity, which we are grasping whole heartedly with both hands.
To achieve this goal, we have devised a five-pronged strategy.
The first part of our strategy involves expanding the presence of our financial institutions on the Mainland.
Our big advantage here is our unique free trade pact with the Mainland, the Closer Economic Partnership Arrangement, or CEPA for short. CEPA offers companies enhanced market access to the Mainland. It has some important implications for enhancing financial co-operation by increasing the flexibility for Hong Kong's financial services providers and professionals to conduct business in the Mainland.
I should mention that, although CEPA is an exclusive arrangement between Hong Kong and the Mainland, its rules are nationality neutral. This allows foreign firms incorporated in Hong Kong to enjoy the same benefits as locally owned enterprises.
We welcome and encourage even more overseas companies to take advantage of this unique opportunity.
One good example of how CEPA works is in the banking sector. As of January 1 this year, the asset threshold for banks acquiring a shareholding in a Mainland bank has been lowered to US$6 billion from US$10 billion. Business operation requirements have also been eased so that more banks can take advantage of the arrangement.
So called "green lanes" have also been set up to fast-track applications from Hong Kong banks wishing to expand into Guangdong Province as well as to other areas in the central western and northeastern parts of China.
It's not only banks that benefit. CEPA enables Hong Kong insurance companies to set up wholly owned enterprises on the Mainland to provide services to the Mainland insurance companies as well.
Secondly, we need to play a bigger role in the outward mobility of funds from the Mainland. The bullish stock market across the boundary and the gradual liberalisation of Mainland's capital account bode well for the future.
We have made progress in expanding the Qualified Domestic Institutional Investor scheme or what is commonly known as QDII. The scheme allows qualified Mainland banks, securities and insurance companies to invest in Hong Kong and overseas.
Thirdly, we are mindful of the potential of offering Hong Kong financial instruments in the Mainland.
A stronger link between markets in Hong Kong and the Mainland will increase the overall size, breadth and depth of the markets. However, the markets currently operate under different systems. There may be a large price differential of shares in the same company issued in Hong Kong and on the Mainland. These issues are not insurmountable and the benefits would be greater market efficiency and stability.
The fourth part of our strategy concerns money. It is important to continue developing Renminbi transactions in Hong Kong, which were launched back in 2004. There has been steady progress since then, and last June the first Renminbi bond was successfully launched here, making Hong Kong the only place outside the Mainland to operate a Renminbi bond market. We will continue to explore new types of Renminbi business in Hong Kong. The development of Renminbi business in Hong Kong enables Hong Kong to serve as a reliable testing platform for the use of Renminbi in financial transactions outside the Mainland.
Last but not least, we are working to more closely align the infrastructure of the two financial systems. One possible area is settlements. Hong Kong has a world-class multi-currency settlement system, which could facilitate the Mainland in settling its foreign currency transactions.
The Hong Kong Government is actively exploring these initiatives and opportunities with the Mainland authorities. I am confident that this five-pronged approach will enhance the competitiveness of our financial markets.
In a nutshell, Hong Kong is in a strong position to build on its status as an international financial centre. We aim to play an important role as East Asia's financial hub in a seamless round-the-clock trading scenario. In exploring new opportunities, we are making progress in developing a market for Islamic finance in Hong Kong. And efforts towards further integration with markets in the Mainland of China are bearing fruit.
Our priorities are to upgrade our financial infrastructure and promote new products and services that reflect our strengths and are well suited to today's globalised environment.
Establishing broader and deeper markets will be the best way to strengthen our position as the Mainland number one city for international finance and as a global financial centre.
Ladies and Gentlemen, thank you so much for the kind invitation for me to meet with you today and to allow me to talk about the opportunities and challenges that we are facing in the financial sector here in Hong Kong. I wish you all a successful meeting and an enjoyable stay here in Hong Kong. Have fun and shop a lot.
Thank you.
Ends/Wednesday, March 26, 2008
Issued at HKT 15:57
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