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FS' speech at Columbia Business School "Pan-Asian Reunion Hong Kong 2008" (English only)
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     Following is the speech by the Financial Secretary, Mr John C Tsang, at the Columbia Business School "Pan-Asian Reunion Hong Kong 2008" today (October 24):

Glenn (Hubbard), Distinguished Guests, Ladies and Gentlemen,

     Good afternoon.     

     I am delighted to join you all today for your inaugural Pan-Asian Reunion.  Columbia Business School is a world leader in its field, and products of this august institution, and I see quite a few of you out there, form a powerful network of influence in the business world.  It is true here in Hong Kong, and it is true also in other business centres around the world.  It is, indeed, a rare occasion for you all to come together in one place.  And that is why I am sure that this symposium, with its roster of distinguished speakers and successful alumni, will no doubt shed new light on the current financial turmoil and how best to meet the challenges.  Over the next couple of days, you will be discussing issues concerning the theme of this year's Reunion, "Asia and the World Economy".  These are issues that are particularly relevant to Hong Kong today as this region seeks an even larger slice of the global economic pie.

     It was almost exactly a year ago that I had the great pleasure of speaking at the Weatherhead Policy Forum at Columbia University.  I had a tremendous time interacting with the faculty and students, but the local media coverage of my speech, which focused on the virtues of Hong Kong as an international business centre, certainly did not measure up to that made by another speaker who spoke a week or so before me.  The speaker was President Ahmadinejad of Iran, and his speech was about even more exciting issues.

     Today, drastically different issues dominate newspapers and television news from New York to London to Hong Kong.  It's all about the financial tsunami that has exploded to crisis proportion affecting every corner of the earth, with the US Presidential election running a distant second.  

     American politics to me is still quite interesting, but I do not intend to talk about that today.  I will keep my comments instead on matters closer to home.  I will highlight for you a few of the things that we are doing in Hong Kong to weather the current financial storm and to maintain Hong Kong's position as an international business centre.  I will also talk about how, in the words of our Chief Executive in his Policy Address last week, we intend to turn crises into opportunities.

     As a small city at the crossroads of international trade and finance, turning challenges into opportunities doesn't only sound good, it is actually essential for our survival.  Fortunately for us, Hong Kong people have become used to the city reinventing itself over and over again, and have consistently proved that the "can do" spirit is still alive and well in this corner of the world.

     Hong Kong has benefited hugely from being on the doorstep of the Mainland of China during a period of dynamic growth and change.  And we have played an increasingly important role in facilitating the policy of the Mainland's opening up and reform over the past three decades.  Our linguistic and cultural affinities as well as our increasingly close economic co-operation with the Mainland continue to stand us in good stead.

     We are also a sound and reliable platform for Mainland enterprises seeking to reach out and to go global.  In the opposite direction, we are also actively facilitating foreign enterprises' interest to explore and to tap into the Mainland market.  

     Over the past three decades, Hong Kong has transformed itself from a small manufacturing base to a global financial centre.  Today, services, including financial services, account for some 90% of our GDP.  Our stock market is ranked 7th in the world and 3rd in Asia in terms of market capitalisation, which stood at some US$1.6 trillion at end-September.  I think it is safe for me to say that it is a little less now.  For equity funds raised through initial public offerings, Hong Kong ranked 4th in the world and 2nd in Asia in 2007.  

     We are also one of the world's largest banking centres with about 70 out of the 100 largest banks in the world having a presence here in Hong Kong.  We also have the highest concentration of insurers in Asia, and we are one of the largest asset management centres in the region.  

     All this adds up to a considerable pool of financial talent and expertise. But unfortunately, it does not mean that we are shielded from the impact of the global credit crisis.

     The current financial crisis is dealing a heavy blow to the economic development as well as financial and social stability on the global, regional and local levels.  In the past month or so, we have seen a seismic shift in the international financial landscape, and much has changed fundamentally.  The volatility and nervousness in the markets has been much worse than many had expected.

     Notwithstanding the aggressive and unconventional policy measures adopted by the US Federal Reserve Board and many other central banks, the global credit crisis remains a serious issue.  This reflects concerns about counterparty risks, unwillingness to undertake risk by many financial institutions, and worries about further significant deterioration in the US property market and economy.  

     Against this challenging backdrop, while Hong Kong's financial system remains structurally stable and fundamentally sound, we see growing volatility and nervousness in our local markets, which, if not properly managed and dealt with, will breed further instability.  

     So what is Hong Kong doing in the face of the financial storm?

     On restoring financial stability, we are making concerted and co-ordinated efforts with other governments and financial regulators in weathering the crisis.  National authorities of major economies are now striving to re-establish confidence in the soundness of markets and financial institutions.  Monetary and fiscal stimulus packages, central bank liquidity operations, policies to promote asset market liquidity, and actions to resolve problems at specific institutions are some of the measures already employed.  

     International standard-setting bodies and organisations are also mapping out their action plans.  Hong Kong will continue to stay alert to the global developments and closely monitor the extent of market liquidity.  We, through our financial regulators, will continue to participate actively in international fora and meetings and closely follow up on the developments.  Reviews of, and adjustments to, our market framework will be made as and when appropriate.

     Indeed, in the past months, we have put in place a number of necessary measures to help restore market confidence.  

     Quality financial reporting is of paramount importance in upholding Hong Kong's corporate governance regime.  The Hong Kong Financial Reporting Standards, which are issued by the Hong Kong Institute of Certified Public Accountants, have been fully convergent with the International Financial Reporting Standards since January 2005.

     In response to the worldwide credit squeeze, amendments have been made to the International Accounting Standards and International Financial Reporting Standards.  These amendments permit the reclassification of certain non-derivative financial assets to their fair value, instead of their mark-to-market value as required under the old regime.

     This provides a means for corporations to rationalise the impact of the current crisis.  We recently adopted the same amendments to help stabilise the local market and offset some of the uncertainties in the international financial markets.  

     In addition, the Hong Kong Monetary Authority - our de facto central bank - has put in place five temporary measures to provide liquidity assistance to licensed banks in Hong Kong.  These measures, which include the acceptance of US dollar assets as eligible securities for access to liquidity assistance through the Discount Window, and also the extension of the duration of liquidity assistance from overnight money to maturities of up to three months, will be in force until the end of March 2009.

     We have also used the Exchange Fund to guarantee repayment of all customer deposits held in authorised institutions in Hong Kong.  This follows the principles of the Deposit Protection Scheme that is currently in place.  The guarantee applies to both Hong Kong-dollar and foreign-currency deposits, including those held with Hong Kong branches of overseas institutions.

     We have also established a Contingent Bank Capital Facility to make available additional capital to locally incorporated licensed banks on request and subject to supervisory scrutiny.  Both of these measures will remain in force until the end of 2010 when a decision will be made in the light of international financial conditions on whether they should be extended.

     On advancing financial development, we will strengthen our dual role as both an international financial centre and as China's most important centre for global finance.

     Our strategy for restoring financial stability and advancing development was highlighted in the Chief Executive's annual Policy Address last week.

     In his Policy Address, the Chief Executive announced that he would establish and chair a task force, entitled the Task Force on Economic Challenges.  The task force will evaluate the impact of the crisis on the local economy and on our major industries.  Most importantly, it will propose options on how to address these challenges, and how to turn the current crisis into new opportunities for our business community.  This is very important work that will help set our future course.  I shall be concentrating my efforts in churning out initiatives that will help allay the impact of the crisis.

     In parallel with the work of the task force, we will review and strengthen the supervisory framework for authorised institutions in Hong Kong.  This will enhance the resilience of Hong Kong's banking system and reinforce our role as an international financial centre.  This is in line with recommendations from the Financial Stability Forum, the Basel Committee on Banking Supervision and other international organisations charged with analysing the causes and effects of the subprime and credit market crisis.

     We shall also review the coverage and protection limit of the Deposit Protection Scheme to provide enhanced protection to depositors.  Recommendations from the review are expected by the first quarter of 2009, following which consultations with the industry and the public will be conducted.  This time scale will fit in well with our declared deposit guarantee that will expire at the end of 2010.

     Working with the insurance industry, we will further examine possible options on the development of a policyholders' protection fund to improve market stability and safeguard the interest of policyholders in the event of insolvency of an insurer.  

     These are some of the specific measures put in place in response to the current market situation.  At the same time, we are continuing to take forward our financial co-operation with the Mainland as a primary long-term strategy.  This means developing a mutually-assisting, complementary and interactive relationship between the financial systems of the two places.

     Other initiatives include attracting listings of quality overseas companies to Hong Kong and promoting the development of Hong Kong as a platform for Islamic finance.  We are also strengthening our conventional bond market and asset management industry, enhancing the quality of our financial markets by improving the regulatory regime and fostering good corporate governance.

     As you can see, we are busy on a number of fronts.

     When markets begin to stabilise and economies begin to recover, institutions such as the Columbia Business School as well as the local business schools here in Hong Kong and around the world will no doubt be analysing what went wrong and devising ways to avoid future global credit crises.  

     This brings me to my final point, international co-operation.  I am impressed by the partnering initiative of the University of Hong Kong with the Columbia Business School and the London Business School.

     This brings together leading business schools in the three most important global financial centres and provides unique opportunities for students in Hong Kong, New York and London to broaden their international experience and deepen their understanding of global finance.

     TIME Magazine neatly described the relationship between Hong Kong, New York and London when it coined the name "Nylonkong" in its January 28th edition this year.

     The lead article described the unique relationship between these three cities as a model of globalisation.  Although Hong Kong, as the youngest of the three, has some catching up to do, we are determined to strengthen our position as a global financial centre.

     Situated in the Asian time zone, midway between New York and London, we have an important role to play in today's round-the-clock financial trading schedule.  With the continuing opening up of China and growing connectivity between markets, I am confident that Asia will strengthen further its hand in the world economy, and that Hong Kong will remain in the thick of the action.   

     Ladies and Gentlemen, I hope I have been able to give you an idea of what we are doing in the face of some pretty tough financial difficulties, and where our strengths lie going forward.

     Reunions, including this Pan-Asian Reunion, are all about bringing people together, meeting old friends and making new ones.  When this reunion is over, I hope you will take away from it some fresh ideas as well as some fond memories.  And to our visitors, I hope you will come back and visit us again soon.

     I wish the Pan-Asian Reunion every success and hope you all have an enjoyable and fruitful time here in Hong Kong.

     Thank you.

Ends/Friday, October 24, 2008
Issued at HKT 15:15

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