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Consolidating our Position as a Financial Centre
43. Since the outbreak of the financial crisis, the global financial industry has been facing great changes. All economies have been seeking a new balance between financial innovation and effective supervision. During this period of global financial change, we must capitalise on our strengths and improve our supervisory framework. This will benefit both Hong Kong and our nation.
44. Financial services are high value-added industries and are closely inter-related with other professional services. A highly efficient and robust financial industry provides a financing channel for all businesses, increases their competitiveness, and indirectly creates a large number of jobs in other industries. We will seize the moment to improve the efficiency, supervision and transparency of the financial market, strengthen our competitiveness and prepare ourselves for increasing financial co-operation with the Mainland.
Participating in the Work of International Financial Institutions
45. Last November, as a member of the Chinese delegation, I had the opportunity to attend the G-20 Leaders Summit on Financial Markets and the World Economy held in Washington D.C. After the meeting, the leaders issued a statement outlining direction for reforming the international financial system and relevant action plans. They are expected to meet again in London this April to review the progress of reform and discuss related economic issues. We will participate in the preparation work for the London Summit. I hope that the Summit can achieve results in restoring market confidence, promoting global economic growth and taking forward the reform of the international financial system.
Increasing Co-operation with Emerging Markets
46. To consolidate Hong Kong's position as an international financial centre, we will further develop and increase financial co-operation with emerging markets. Particular measures are needed to improve Hong Kong's regime as a platform for the growing area of Islamic finance. Since the structure of most Islamic financial products involves the sale and re-purchase of assets, such transactions may entail tax liabilities in Hong Kong. Therefore, we plan to submit to the Legislative Council in 2009-10 a proposal to create a level playing field for Islamic financial products vis-ˆj-vis conventional ones. The proposal will include making changes to or clarifications of the arrangements for stamp duty, profits tax and property tax.
Optimising the Supervisory Framework
47. The Lehman Brothers Minibonds Incident has exposed certain problems of banks in conducting securities business. After considering reports prepared by the Hong Kong Monetary Authority and the Securities and Futures Commission, we have drawn up an Action Plan for conducting consultation on the recommendations and implementing the related measures in phases so as to further improve our regulatory framework and enhance investor protection.
48. We are now working with the regulatory bodies to implement the initial phase of improvement measures. These include the introduction of new administrative guidelines or codes to strengthen the regulation of the business operation and conduct of financial intermediaries. Some of these improvement measures have already been implemented immediately. Further measures will be implemented after the regulatory bodies have completed their consultations. We are also considering action for the next phase and preparing for consultations on certain subjects relating to structural adjustment of our financial regulatory framework. We will also take into account the views of the Legislative Council Subcommittee to Study Issues Arising from Lehman Brothers-related Minibonds and Structured Financial Products, which will help us formulate the relevant legislative proposals. We will seriously and pragmatically review and implement the relevant measures in light of Hong Kong's unique background and needs, global financial development trends, recommendations of international financial institutions (including the G-20 and the Financial Stability Forum) and views from various sectors of the community.
Promoting Further Development of the Bond Market
49. Promoting the development of the bond market is important to reinforcing Hong Kong's position as an international financial centre. This can provide more diversified investment products and avenues for financing to attract more overseas capital, enhancing stability of our financial system. The Government has been working on this. Apart from providing the necessary financial infrastructure and relevant tax incentives, we have offered investors more choices through issuing different types of bonds. To promote the further and sustainable development of our bond market, we intend to implement a programme to issue government bonds.
50. I would like to emphasise that the aim of the government bond programme is to promote the further development of our bond market and to provide more choices to both institutional and individual investors. In view of the current investment market conditions and low interest rates, we believe that there is demand for quality bonds. The sums raised will be credited to a fund to be established under the Public Finance Ordinance. The fund will not be treated as part of the fiscal reserves and will be managed separately. We will seek the views of the trade on details of the bond programme later and make necessary adjustments at the implementation stage having regard to market needs. We will put forward to the Legislative Council as soon as possible the resolutions for issuing bonds under the programme and for establishing the fund. We will also examine, in consultation with relevant sectors, whether there is room for further improvement in the existing financial infrastructure and mechanisms, so as to promote the development of bond products.
Extending the Network of Agreements for Avoidance of Double Taxation
51. Agreements for the avoidance of double taxation with major economies will help improve the business environment and facilitate flows of trade, investment and talent between Hong Kong and the rest of the world. They help reduce tax burdens on individuals and enterprises and eliminate uncertainties over tax liabilities. They also enhance Hong Kong's position as an international business and financial centre. To this end, I signed the fifth agreement of this kind with Vietnam during my visit there last December.
52. In recent years, our major trading partners have raised the requirements on the exchange of tax information under such agreements. Our existing legislation has not kept pace with this development. To further extend our network of such agreements, we consulted the industry in mid-2008 on liberalising the arrangements for the exchange of tax information. I believe that the business and professional community generally agrees that Hong Kong should align its arrangements for the exchange of tax information with international standards so that we can enter into such agreements with more economies. We plan to put forward relevant legislative proposals by the middle of this year.
(To be continued)
Ends/Wednesday, February 25, 2009
Issued at HKT 11:43
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