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Following is the speech by the Financial Secretary, Mr John C Tsang, at the conference on "Preparing for the Global Recovery: the Role of Financial Markets in Asia" this (March 23) morning:
Professor Lau, distinguished guests, ladies and gentlemen,
Good morning.
I am delighted to join you all for the opening of this workshop which is aptly entitled "Preparing for the Global Recovery: the Role of Financial Markets in Asia". I wish to congratulate Chatham House and our Central Policy Unit for having such foresight in putting together such a timely and fascinating programme.
First and foremost, a warm welcome to our visitors to Asia's world city, and especially to our event hosts from London.
Chatham House has always been an important stopping point for Hong Kong officials visiting the UK. I had the pleasure of speaking there only a couple of years ago. I am pleased to have this opportunity today to reciprocate the warm hospitality that our delegations have always received during our visit to No 10, St James's Square.
Hong Kong is the third overseas stop in connection with this Chatham House project, after the Gulf and Japan. From a global perspective, these are two very important markets for Hong Kong - Japan as one of our largest traditional markets, and the Gulf as one of the more prominent emerging markets.
In terms of global finance, Hong Kong has a pivotal role to play in the 24-hour trading day. We are midway between London and New York, our working day overlaps with that in the Middle East and we are in the heart of East Asia, on the southern tip of China. In other words, Hong Kong is right in the thick of the action.
In what some describe as a "flat world", geography is only part of the puzzle.
Increasingly important is the maturity of markets, expertise, access to capital, sophisticated information technology and transparent regulation.
Of course, the trick is to bring all these pieces together to achieve the boom without the bust. Only time will tell whether we can achieve this goal. However, I believe that the current global financial crisis provides a genuine opportunity to rearrange the puzzle to better fit this "flat" world of ours.
So what is Hong Kong's role in this, and what strategy should governments adopt?
Allow me to address the second part of this question first - the role of our government in paving the way for Hong Kong's financial and economic recovery and sustainability.
In an economy such as ours, which has been built on open markets and free trade, the Government's number one objective is to provide the right regulatory environment for both financial innovation and effective risk management. In this regard, the Asian financial crisis a decade ago certainly taught this region a few painful but constructive lessons, which is perhaps why Asia appears better able to cope with the current difficulties than many other places.
The lessons we have taken on board from the Asian financial crisis include a need for more prudent risk taking to ensure our banks are well capitalised and to encourage greater transparency in the markets.
Even this, however, is providing only limited cover from the current financial storm.
The extraordinary collapse of US investment bank Lehman Brothers last September was perhaps the biggest single shock to the global financial system in recent times. Some Hong Kong investors have become caught up in what has become known as the Lehman Brothers minibond saga.
Our response has been to launch a full review of our regulatory framework. Our regulatory bodies, including the Hong Kong Monetary Authority and the Securities and Futures Commission, have already made a series of recommendations. Some have already been implemented to improve investor protection. They include new codes regarding the conduct of financial intermediaries and guidelines to improve regulation of business operations.
Last Friday, the Hong Kong Association of Banks announced plans to implement the recommendations on segregation between traditional banking and investment businesses by September this year as well as enhancements to risk profiling of customers with mandatory recording by July 1 this year. We expect more measures to take effect soon to further enhance our regulatory framework and restore public confidence in the financial system.
On the flip side of the coin, we need to encourage innovation in the financial markets to properly prepare for the recovery ahead.
Over the past three decades, Hong Kong has both benefited from, and contributed to, China's programme of economic reform and the process of opening up. Financial innovation - coupled with a spirit of mutual co-operation - has helped us a long way down the road of making our two financial systems even more complementary.
One particularly successful area has been the introduction of renminbi banking services, which were launched in Hong Kong in 2004.
As at end-January this year, the outstanding amount of renminbi deposits held in Hong Kong banks exceeded 54 billion yuan. Renminbi services that are available in Hong Kong include deposits, credit cards and remittances.
We are also the only jurisdiction outside the Mainland to have a renminbi bond market, which was launched two years ago. So far there have been seven renminbi bond issues with a total worth of some 22 billion yuan.
Another area where we are looking to expand our scope of financial services is through trade settlement using the Mainland currency. This follows an agreement by the Central Government in Beijing in December to allow eligible companies to use renminbi to settle trade transactions in Hong Kong.
Invoking "Chatham House Rules" for a moment, I can tell you that we expect encouraging announcements in this area very soon.
Preparing for the recovery of the global financial markets means strengthening our position as our nation's most important city for global finance.
At the same time, there are opportunities beyond our shores that must not be overlooked.
Our sound regulatory regime, liquid markets and deep pool of international talent help to make Hong Kong an ideal platform for Islamic finance.
In only the past year or so, we have launched a variety of Islamic facilities and products. During the coming financial year, we hope to make the necessary legislative changes to the collection of stamp duty, profits tax and property tax in order to create a level playing field for Shariah-compliant products vis-ˆj-vis conventional ones. In other words, our financial world is about to get even "flatter".
Ladies and gentlemen, earlier this month I attended the G-20 Finance Ministers and Central Bank Governors Meeting as part of the Chinese delegation in a beautiful countryside setting called Horsham in England. The meeting reaffirmed, among other things, the importance of maintaining free trade, with a commitment to fight all forms of protectionism.
The meeting also recommended several measures to strengthen the global financial system. We discussed appropriate regulation and oversight of all systemically important financial institutions, markets and instruments. Hedge funds, derivatives and credit rating agencies all came under the microscope.
A solid platform has been laid for the G-20 London summit next week. As a global financial centre, Hong Kong will continue to contribute to the G20 discussions. We will also work closely with other economies and international financial institutions in co-ordinating our response to the crisis.
I look forward to hearing the thoughts of our esteemed speakers today and to following the progress of this Chatham House project.
Once the global economic recovery begins, I am confident that Hong Kong will have an even greater role to play in the international financial markets. I have no doubt that Hong Kong will remain in the thick of the action.
Thank you very much and have a pleasant day.
Ends/Monday, March 23, 2009
Issued at HKT 10:15
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