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Following is the speech by the Chief Secretary for Administration, Mr Henry Tang, at Trade Development Council Business Luncheon in Milan, Italy today (May 9, Milan time):
Distinguished Guests, Ladies and Gentlemen,
It is a great pleasure to be in Milan. Thank you for your wonderful hospitality. I am looking forward to exploring your magnificent city during this visit.
In the next few minutes I will talk about some of our two cities' mutual strengths and areas of potential further collaboration so that we may grow our bilateral ties. I also hope to encourage more Italian businesses to come to Hong Kong and get a first-hand look at the possibilities in our part of the world.
There is no better time to invest in Hong Kong, form business partnerships or simply to come and visit us.
These are uncertain times for the global economy, but thanks to China's robust economy, Hong Kong has been spared the worst effects of the credit crunch brought about by the sub-prime lending problem in the US. Our banking system remains healthy and the financial services sector is a strong pillar of our economy.
Milan knows what it takes to be a major financial centre. It is the administrative centre of the wealthiest region in Italy. Hong Kong is the wealthiest city in China. Both cities have a strong banking sector and deep pool of expertise in the financial services sector.
Hong Kong is both an international financial centre and China's global financial centre. One of our most important roles is to dovetail the two financial systems in Hong Kong and the mainland.
Business using the mainland currency, the Renminbi, was launched in Hong Kong in 2004. It continues to grow and at end-January this year, Renminbi deposits totalled 40.4 billion yuan, which is equivalent to some 3.6 billion Euros.
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 (900 million Euros). We expect more Renminbi bonds to be issued this year.
With these initiatives we hope to build up Hong Kong's capacity and capability to handle Renminbi transactions.
We also have the Qualified Domestic Institutional Investors scheme, or QDII. This is an avenue for mainlanders to invest in Hong Kong and overseas. 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.
Given our deepening integration with the mainland of China, our economic prospects are closely linked with those of our nation. China's economy grew 11.9% last year so the outlook is pretty positive.
Last year, the Hong Kong economy expanded 6.3%. In the last four years our economy grew at an annual average rate of 7.2%. We have forecast GDP growth of between 4 and 5% for the whole of this year. Although that would be a little slower than in recent times, it would still be pretty good for a small externally oriented economy such as ours.
I am pleased to see the strong relations between Italy and China at both the political and business level. Our two countries issued a joint statement in 2004, defining the all-round strategic partnership between Italy and China. There have been several high-level visits by both sides in recent years and bilateral trade is strong.
Hong Kong has established itself as a gateway to China for overseas companies including Italian companies. Last year almost 15% of total trade between Italy and China was routed through Hong Kong. Also last year, Italy was Hong Kong's third largest trading partner among European Union nations with bilateral trade of 5.3 billion Euros.
I am confident we can build on this performance. Hong Kong has a prime location in the heart of East Asia, on the southern tip of China - making the city ideally situated for companies looking to tap the China market, as well as the broader Asia market.
We are also fully plugged into the global village.
In its January 28th edition, TIME Magazine coined the name "Nylonkong", placing Hong Kong alongside London and New York as examples of globalisation. As the youngest city of the three, we have some catching up to do. We are working hard to further streamline procedures and improve the efficiency of our international trade.
Today, more than 6,400 overseas and mainland companies have a presence in Hong Kong. That includes roughly 1,650 firms of EU origin. Some 84 Italian companies have their regional headquarters or regional offices in the city.
There is plenty of room for more companies to join them and take advantage of our business-friendly environment.
Take our low and simple tax system as an example. From the start of this fiscal year on April 1st, we lowered profits tax by one percentage point to 16.5%. Salaries tax was also reduced by one percentage point to 15%. We have no GST, no VAT, no capital gains tax and only income sourced in Hong Kong is taxable.
We also provide a stable and business-friendly environment. The rule of law is upheld by an independent judiciary, we continue to follow the common law legal system, we have a clean and efficient government and we provide a level playing field for business. Our Independent Commission Against Corruption is one of the most effective anti-corruption agencies in the world.
For 14 years in a row we have been ranked the world's freest economy by the US-based Heritage Foundation. This is a good reflection of the government's firm belief in open markets and using a soft touch when it comes to regulating the business.
Allow me to introduce a new business opportunity. As a wine enthusiast myself, visiting a country famous for its wine, this is of particular interest. It is about turning Hong Kong into Asia's hub for the wine industry.
We have recently taken the bold move of exempting duties on wine. As you may expect, it was a generally popular decision. But our aim is more about creating an ideal environment to make Hong Kong Asia's centre for wine trading and distribution.
Asia is acquiring a taste for fine wines and we expect business volume in trading, storage and auction of wine may increase by as much as 300 million Euros.
I hope Italian companies will be attracted by the opportunities.
I will turn now to another area of mutual interest, conventions and exhibitions. Tomorrow I will visit the MIDO exhibition, the leading international eyewear fair. Hong Kong is the second largest exporter of spectacles and frames after Italy, so naturally we have a pavilion at the exhibition.
I am looking forward to seeing the venue, the Rho-Pero exhibition complex, which I have heard so much about.
In Hong Kong, we host more than 300 events a year including some of the world's biggest. Last year, Asia's largest air show, the Asian Aerospace International Expo, took place at the AsiaWorld-Expo. This is a world-class venue near the Hong Kong International Airport. In 2006, ITU Telecom World came to Hong Kong and in 2005 we hosted the Ministerial Conference of the World Trade Organization.
With two state-of-the-art facilities, the AsiaWorld-Expo and the Convention and Exhibition Centre - which is located in downtown Hong Kong - as well as many smaller venues, we are looking to expand this sector.
We already have the necessary transport, accommodation, IT, and a professional and experienced workforce required to stage mega events. Hong Kong is no more than five hours flying time from half the world's population, so we have a pretty good chance of matching the right buyers and suppliers.
On the topic of big events, they don't come much bigger than the Olympics.
In three months, we will face one of our biggest challenges, as a co-host city for the Beijing Olympics. Hong Kong has the honour of staging the Olympic and Paralympic Equestrian Events. The city is gearing up for this once-in-a-lifetime experience and we are confident of doing a good job.
Our high-profile participation at the 2008 Summer Games is another example of the deepening and broadening relationship we have with our motherland. Just last week, we saw the smooth and orderly relay of the Olympic Torch in Hong Kong. The city embraced the Torch with an atmosphere of carnival.
There are, of course, many other less high-profile examples of closer cross-boundary integration. On infrastructure, these include new roads and railways connecting Hong Kong to the dynamic Pearl River Delta region, which is sometimes described as the "factory of the world".
This year alone we expect to spend 1.8 billion Euros on infrastructure projects. Many of these projects will make it more efficient, reliable and cost-effective to do business in the mainland, and for mainland products to reach their destinations around the world.
We are building an Express Rail Link, which will join up Hong Kong with the high-speed national rail network. This will cut travelling time between Hong Kong and Guangzhou in half, to 48 minutes. A rail journey to Shanghai will take eight hours instead of the current 20 hours, and it will take just 10 hours to get to Beijing by train.
Our biggest advantage over other competitors in Asia is a landmark free trade pact with the mainland of China, which was launched in 2004. It is called the Closer Economic Partnership Arrangement, or CEPA for short. CEPA is an evolving arrangement. It was expanded at the start of this year with the inclusion of another 11 services sectors. Currently 38 services areas are covered by CEPA. These include key areas such as banking, logistics, insurance, tourism, convention and exhibition and professional services.
Through CEPA, companies in Hong Kong enjoy WTO-plus access to mainland markets and preferential terms. CEPA rules are nationality neutral, which allows foreign companies, including Italian firms, incorporated in Hong Kong to enjoy the same benefits as local firms.
CEPA applies across the whole country, so just imagine what it could do for your business.
Ladies and gentlemen, I hope I have given you a few good reasons to expand our bilateral co-operation.
But Hong Kong is not only a place for doing business. We have a vibrant cultural scene and a cosmopolitan society that is fully engaged in the city's development. To enhance our status as a modern international city, we have a strong focus on developing arts and culture. We are establishing a world-class cultural centre on a 40-hectare site on the Kowloon waterfront. It will be home to a variety of performing arts, galleries and museums, as well as commercial enterprises. Our goal is to enrich Hong Kong people's lives, stimulate our cultural and creative industries, and attract visitors from around the world.
We will undoubtedly be calling on some of the world-renowned Italian flair and expertise in this area to help develop the best arts and culture scene for people in Hong Kong as well as our visitors.
It just remains for me to thank you once again for your hospitality. I hope you will be able to pay us a visit soon to see for yourselves the opportunities in Hong Kong.
Ends/Friday, May 9, 2008
Issued at HKT 21:00
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