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Following is the speech by the Financial Secretary, Mr John C Tsang, titled ¡§Reinventing Asian Economies for Sustainable Growth and Prosperity¡¨delivered at the 4th Asia Economic Summit held at J W Marriott Hotel today (December 8):
Ronnie (Chan), President Mahathir, Dato Dr Yeoh, distinguished guests, ladies and gentlemen,
Good morning.
It is my great pleasure to join you at the 4th Asia Economic Summit. This is the first time the summit is being held outside Kuala Lumpur, and we are delighted to be your hosts.
A warm welcome to you all, especially those of you who have travelled great distances to be here.
Hong Kong is a most suitable location to hold the Summit,¡§Reinventing Asian Economies for Sustainable Growth and Prosperity¡¨. This city has a great deal of experience reinventing ourselves. Over the years, Hong Kong has evolved from a fishing village to a manufacturing centre. And from a manufacturing centre to the services-based and knowledge-based economy that you see today. Where things used to be ¡§made in Hong Kong¡¨ they are now ¡§designed, branded and marketed in Hong Kong¡¨. With the financial tsunami at hand, further reinvention is beginning to take shape as we seek to turn the current crisis into opportunities.
It is often said that necessity is the mother of all invention. With the theme of the summit in mind, I would like to adapt that slightly and say: Necessity is the mother of all reinventions. This has certainly been true of Hong Kong¡¦s economic evolution. As a small externally oriented economy, we have had no choice but to adapt to a rapidly changing world around us.
Today, our most pressing necessity is to find the smoothest course possible through the global financial crisis. I will talk about Hong Kong¡¦s role in reinventing ¡V or at least refining ¡V financial and economic strategies so that we can overcome the global financial difficulties and return to the path of sustainable growth and sustainable prosperity.
I will also look at Asia¡¦s collective role in shaping a new global financial architecture to meet the demands of the 21st century.
First though, allow me to take stock of where we are at present.
As one of the most open economies in the world, Hong Kong is feeling the full impact of the financial tsunami.
Our third-quarter economic growth slowed notably to 1.7% compared with the same period last year. That is considerably lower than the 4.2% growth we had in the second quarter of this year. Although we have seen the global financial crisis spreading towards Asia for some months and we have taken measures in my Budget back in February to reduce its impact, we still have been unable to side-step totally the global downturn.
Our full-year economic growth forecast for 2008 is between 3 and 3.5%. This has been revised downwards from our previous forecast of between 4 and 5%. We have also seen unemployment rise from 3.2% in the second quarter of this year to 3.5% in the three months to October. Not an alarming percentage yet, but this figure is bound to rise in the months ahead.
Of course, Hong Kong is not alone.
The International Monetary Fund has lowered its forecast for global growth and projected an economic contraction in advanced economies in 2009, the first full-year decline in the post-war era.
The biggest risks to Asian economies are the negative sentiments developing within financial markets, and the housing market slump in the US and European economies. These two factors can mutually reinforce each other, generating a downward spiral of balance sheet adjustments, credit tightening and lower asset prices. All this will further increase the strain on international financial markets. This downside force needs to be properly addressed to avoid a destructive economic adjustment in Asian economies.
The global financial system remains fragile and the credit squeeze is acute. Spillover of adverse financial market conditions in the US and European financial markets to Asia has intensified since the demise of Lehman Brothers in September. We have seen sharp declines in the Asian equity markets, in line with the trends of various global indices. The lending appetite in Asia has diminished, and we have seen the depreciation of a number of Asian currencies.
So where do we go from here?
Necessity points to a reinvention of global financial systems. This could be in the form of a ¡§new Bretton Woods¡¨, setting new rules for trade and finance in the 21st century. Last month, I attended the G20 financial summit in Washington DC, and our Chief Executive attended the APEC Leaders Summit in Lima, Peru. Both of these meetings highlighted clearly the need for global collaboration in weathering the current financial storm and preventing such a damaging financial crisis from recurring.
In Hong Kong, we are working closely with other economies and international financial organisations in responding to the crisis in a co-ordinated and mutually reinforcing manner. We are taking necessary measures to implement the Action Plan set out in the G20 Declaration, and that is a very detailed declaration, which put forward a number of recommended measures on the basis of five principles. These principles are: strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international co-operation and reforming international financial institutions.
This adds up to a greater sharing of information at corporate, national and international levels to help prevent a problem in one economy spreading to another. This domino effect has been a feature of the current crisis, which began as a subprime lending problem in the US more than a year ago before impacting on Europe, Asia and the rest of the world.
The progress of taking forward the G20 Action Plan will be discussed at the Asia-Pacific Regional Meeting organised by the Financial Stability Forum (FSF) here in Hong Kong later this month.
And importantly, there is a timetable for financial system reform with a progress report expected from each of the G20 members in March next year.
As a vital first step towards financial stability, we need to restore confidence. This includes confidence among financial lenders, confidence among the labour force and confidence in our ability to overcome the current crisis.
Asia can take some comfort from the lessons learned during the Asian financial crisis a decade ago. Since then, we have seen a greater accumulation of foreign reserves in Asia, more sound and resilient banking sectors, more transparent and robust regulatory regimes, and more responsible risk-taking in the housing and corporate sectors.
This has helped us in shoring up financial markets in this part of the world and responding to the current economic turmoil better than would otherwise have been the case.
If we are to successfully reinvent Asian economies, we must also play our part in reforming the global economic systems through greater co-operation, greater transparency and a firmer focus on good corporate governance. I'll be attending a corporate governance conference later today and this is a key issue we will be facing in the coming year.
As China¡¦s international financial centre, Hong Kong will continue to streamline the two financial systems in Hong Kong and the Mainland, and open up new channels for trade and investment between China and the rest of the world.
The Central People¡¦s Government in Beijing has also thrown its full support behind reviving the Hong Kong economy and preserving our status as an international financial centre. This support includes fast-tracking cross-boundary infrastructure projects that will create many jobs and improve our long-term competitiveness in the region.
Our tourism sector is set to benefit also by the planned expansion of the individual travel scheme. Under the scheme, visitors from the Mainland are able to travel to Hong Kong on their own, without having to join a tour. So far, we have 49 cities and we expect this number to grow.
There will also be greater cross-boundary co-operation in improving the prospects for small and medium-sized enterprises and managing financial risk as we tackle the financial crisis.
In response to the current turmoil, we have established a Task Force on Economic Challenges which will be meeting later this afternoon for the second time, to identify the most vulnerable areas of our economy and seek out new opportunities arising from the financial turmoil.
After its first meeting last month, the task force identified financial services, trade and logistics, tourism and consumption-related services, real estate and construction as the four areas likely to be hardest hit by the downturn in the next year or so.
We are already focusing efforts on enhancing competitiveness and exploring new opportunities for these sectors. Our initiatives include speeding up infrastructure projects and other public works - and we have a massive programme ahead of us - helping small and medium sized enterprises (SMEs) by enhancing the existing funding schemes and we will be introducing a Special SME Loan Guarantee Scheme which will not only be providing a lot more liquidity for SMEs but also provide a revolving fund.
To restore confidence and the smooth operation of the financial market, we have injected a total of about HK$80 billion into the market since September this year. Five temporary measures have also been introduced to provide liquidity assistance to licensed banks in Hong Kong. In addition, we will use the Exchange Fund to guarantee repayment of all customer deposits held in authorised institutions in Hong Kong. We have also established the Contingent Bank Capital Facility to make additional capital available to local banks on request.
Ladies and gentlemen, I have outlined some of the things we are doing in Hong Kong to cope with the global financial crisis. We will continue to strengthen our position as a global financial centre in the Asian time zone and serve the region as a modern, efficient and reliable business partner.
I look forward to learning what the other speakers have to say about reinventing Asian economies, and I wish you all a successful and enjoyable Asia Economic Summit and a pleasant stay in Hong Kong. If you have time, do some shopping and I¡¦m sure you will find bargains you will not see anywhere else.
Thank you.
Ends/Monday, December 8, 2008
Issued at HKT 16:49
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