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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Standard Chartered Board Meeting today (April 1):
Mervyn (Davis), Peter (Sands), Ben (Hung), Ladies and Gentlemen,
Good afternoon.
Thank you so much for the invitation for me to speak with you today.
Standard Chartered Bank has a long and distinguished history in Hong Kong, dating back some 150 years. The bank has consistently been at the forefront of our city's development. We value this partnership very much, and we look forward to working closely with you in the next century and a half, and beyond.
Today, financial services constitute the core strength that provides the solid foundation that we need for the next stage of our development as Asia's world city.
In the next few minutes, I shall say a few words about how we intend to build on our strengths to get ourselves in the best possible shape to meet the challenges and to grasp the opportunities that lie in front of us.
In drawing up my first Budget that was delivered at the end of February which seems like decades ago, I stressed our commitment to continuing with the well-established principles of prudent finance management. I shall continue to keep expenditure within limits of revenues, maintain a low and simple tax regime and abide by the philosophy of "Market Leads, Government Facilitates". These principles have served us well in the past and I have no doubt that they will continue to do so in the future.
In my Budget, I also talked about the thinking behind my fiscal deliberations and the application of the three principles that defined the Budget initiatives. These principles of commitment to society, sustainability and pragmatism serve to enhance the prudent nature of my approach. You should not be surprised that my daughter's name is Prudence.
My job was made somewhat easier because we managed to get a little more money than we originally estimated. The revised surplus was actually a record $115.6 billion. However, in carving up the fiscal pie, I was well aware that it was impossible to please all of the people all of the time. So, I tried to please most of the people some of the time.
With this in mind, it was important to frame the decision-making process with some well-defined goals, which were simply to support economic growth and to meet the needs of the community. The sizable surplus also afforded the opportunity for me to adopt a long-term strategy and spend on items that can help sustain growth.
We are committed to strengthening our business friendliness and incentivising society to create a larger economic pie. A case in point is the reduction of profits tax by one percentage point to 16.5%. We are also upgrading our infrastructure, enhancing education and strengthening research capabilities.
To sustain growth, we need also to promote new business opportunities.
In the Budget, I proposed waiving Hotel Accommodation Tax and reducing duties on wine and beer to zero. As popular as these moves are, they are really not intended to make it cheaper for you all to enjoy your favourite tipple. They are more about increasing the potential of the logistics, tourism, convention and wine industries that will create real opportunities and real jobs for the community at large.
Now let me zero in on another great opportunity, Hong Kong's status as an international financial centre.
In its January 28th edition, TIME Magazine grouped Hong Kong together with New York and London as partners in globalisation. The magazine coined the name "Nylonkong" to describe the connectivity between these cities and highlight Hong Kong's potential in the Asian time zone.
Although Hong Kong, as the youngest of the three, has some catching up to do, we do have plenty in common with New York and London.
All three cities have adapted from manufacturing centres to service centres, and each has a great port and a history of successful trading. Hong Kong, New York and, increasingly, London, are all open to immigrants and, of course, all three cities are magnets for financial sector talents.
Hong Kong continues to rank third in the world, behind London and New York, in the March, 2008, publication of the bi-annual Global Financial Centres Index, or GFCI, of the City of London Report.
The report measures areas including the depth and breadth of a city's pool of expertise, its tax system, regulatory environment, market access and the efficiency of its financial infrastructure as well as overall competitiveness.
The question now is how to build on these strengths and become a truly global financial centre.
One area, and possibly the key one, is to become a more efficient and more effective conduit in connecting the Mainland banking market to the world.
The Action Agenda that was identified from our summit on "China's 11th Five-Year Plan and the Development of Hong Kong" delineated five priority areas. First, we should expand the presence of our financial institutions on the Mainland; second, increase outward mobility of the Mainland's investors, fund-raisers, and financial institutions through HK; third, allow Hong Kong financial instruments to be traded on the Mainland; fourth, enhance our capability in handling Renminbi transactions and, finally, fifth, strengthen cross-boundary financial infrastructure.
We have been working hard to achieve these goals, and we are beginning to see some results.
Under the Closer Economic Partnership Arrangement, or CEPA - our unique free-trade pact with the Mainland - it is now easier for banks to enter the Mainland market. Fast-track channels have been set up to speed up applications by Hong Kong banks wishing to establish branches in Guangdong province and in the north-eastern and central-western areas of the Mainland. And the asset requirement threshold for banks acquiring a stake in a Mainland bank has been lowered to HK$6 billion.
The Qualified Domestic Institutional Investors, or QDII, scheme for Mainland investors was also expanded last year. The scheme currently enables fund managers, securities firms and insurance companies on the Mainland to directly invest in Hong Kong. Local banks can provide a full range of services in connection with the scheme.
Renminbi business, which was launched in Hong Kong in 2004, continues to grow. As of end-January this year, Renminbi deposits totalled 40.4 billion yuan in about 700,000 accounts. Almost all retail banks in the city currently offer Renminbi banking services.
We are also looking forward to expanding the Renminbi bond market, which was launched last year. There were three issues of Renminbi bonds last year totalling 10 billion yuan. We expect more Renminbi bonds to be issued this year, and there had been a few informal announcements of intentions. These can help banks provide new intermediary services, by acting as placing banks and selling these bonds to their customers. At the same time, they can diversify their Renminbi balance sheet.
Let me turn now to the potential of new and emerging markets, an area of particular interest and expertise for Standard Chartered Bank.
In the past few months, we have led delegations from different sectors to Russia, Vietnam, India and the Middle East. We shall continue to reach out to new markets and strengthen our international ties. Later this year, I intend to visit cities in Central Europe and South America to further explore opportunities in these parts of the world.
I take this opportunity to thank Standard Chartered Bank for your assistance in our overseas promotion activities. I am particularly grateful for all the help you have rendered in my visit to India in December last year. The resultant increase in the number of direct flights between Hong Kong and Indian cities as well as triple digit increases in our exports to India in February are not mere accidents that just happened. They are clear indications of the enhanced interest between Hong Kong and India, and I look forward to establishing even closer relations with these centres of business. I know that some of our institutions are actively following up a number of exciting initiatives. So thank you.
The Government's role in this opening up process is to explain Hong Kong's advantages to business leaders in these new markets, raise the profile of our city and build closer international ties. The rest is up to you the business community. With Government leading the way, I hope that the private sector will find it easier to do their jobs more effectively. This is a modality that seems to work, and so I look forward to further co-operation with you in future.
My final topic is one that has been making rapid progress and where Standard Chartered Bank is heavily involved; that topic is Islamic finance.
With estimated assets under management of about US$1 trillion, and an estimated annual growth rate of about 15%, there is no doubting the potential for an Islamic financial market in Hong Kong.
Early indications are positive. In November last year, the Securities and Futures Commission authorised the first retail Islamic fund in Hong Kong. In the first week it raised more than US$20 million, and a few weeks later - at year-end - the fund had grown to US$62 million.
Hong Kong, with its well-developed financial system, deep and liquid capital markets and sound regulatory environment is well placed to develop a market for Shariah-compliant products. Hong Kong would also be the natural bridge between investors with an Islamic background and the Mainland China market.
This would help to meet the financing and investment needs of both sides.
The Government is fully committed to supporting the development of Islamic capital markets in Hong Kong. In fact, it would be a natural extension of our role as an international financial centre.
Against this backdrop, the Treasury Markets Association, the TMA, formed a Working Group on Development of Islamic Finance last August. Its role was to assess the market potential, identify hurdles and make recommendations on changes that may be needed to the taxation, legal and regulatory frameworks.
I would like to thank Standard Chartered Bank for your contributions as a member of this Working Group. Policy recommendations from the Working Group will be put forward for consideration by the middle of this year.
The TMA has also been encouraging the development of an Islamic equity index in Hong Kong. Dow Jones is in the process of creating a new Islamic index for Hong Kong red chips and H-shares. This will enrich their Islamic Index basket for Hong Kong stocks, which already covers composite and blue chips segments.
On the back of the new Islamic index, the Hong Kong Monetary Authority, the HKMA, is encouraging the innovation of new Islamic investment products, which may take the form of market access products, or MAPs. The MAPs being structured is in the form of a zero strike warrant which tracks closely the underlying investment including securities listed in overseas markets, commodities or derivatives.
The Chief Executive's visit to the Middle East in January also helped to open up new channels of communication and to identify new opportunities. An Islamic bank has expressed interest in establishing a presence here in Hong Kong, and we are looking at how its business strategy would fit into our current supervisory regime.
InvestHK is working with the Abu Dhabi Investment Authority and the Kuwait Investment Authority to facilitate their setting up investment offices here.
We will continue to raise Hong Kong's profile as an Islamic finance platform. The Secretary for Financial Services and the Treasury is planning to visit the Middle East later this year to further enhance relations.
The TMA is also helping to promote Hong Kong in the Middle East by co-organising - with the HKMA - a road show that will tour Dubai and Jordan next month. The road show will showcase Hong Kong's potential to regulators, intermediaries and prospective investors in the region.
With continued co-operation between the public sector and the financial industry, I am confident that Hong Kong can become an important platform for Islamic finance.
We count on your support to help create an accessible and market-friendly financial infrastructure to develop Shariah-compliant products more freely and cost-effectively. Not only will it be good for business, it will also help to further enhance Hong Kong's status as an international financial centre.
Ladies and Gentlemen, Standard Chartered Bank has been part of the Hong Kong story since its establishment here in 1859, and working together, we, Standard Chartered and Hong Kong, can continue to go from strength to strength for many more years to come.
Thank you.
Ends/Tuesday, April 1, 2008
Issued at HKT 16:44
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