********************************************************
Following is the speech by the Financial Secretary, Mr John C Tsang, at the "Hong Kong - an International Financial Centre" Gala Dinner in San Francisco, USA today (April 29, San Francisco time):
Distinguished Guests, Ladies and Gentlemen,
Good evening.
It is a great pleasure for me to be here again in the beautiful Bay Area.
My thanks to our San Francisco Economic and Trade Office and the Hong Kong Association of Northern California for organising this Gala Dinner.
I am delighted to see so many of you here this evening. Thank you for your continued support of Hong Kong. I appreciate very much your sacrificing the game between the Giants and the Dodgers, just to be with us this evening. As a long time Yankee fan myself, I would stay clear of this North South rivalry, and will instead take this opportunity to step up to the plate and bat for Hong Kong.
In recent months, our minds have focused prominently on the global financial crisis and how best to revive our economies.
Today, I will talk about some of the things that we have been doing in Hong Kong to limit the impact of the global economic crisis. I will also highlight the main areas where we are taking advantage of today's unique opportunities to make Hong Kong an even more competitive place to do business.
First though, a few words about the G20 Leaders Summit in London earlier this month. Hong Kong was happy to be involved in the G20 process as a member of the Chinese delegation. We were active participants in the preparatory phase of the meeting in London, as well as at the first G20 Leaders Summit in Washington last November.
As a free and open economy, Hong Kong was encouraged by the G20's commitment to avoid protectionism. This is a significant step towards restoring the health of the global economy. I understand the temptation to protect jobs and companies at home. But history has taught us that protectionism is a shortsighted approach, and one that will only prolong the economic difficulties that we face today.
Hong Kong is also firmly behind an early conclusion to the World Trade Organisation's Doha Development Round to promote and support free and open trade. We have been advocating the benefits of the Doha Round at every opportunity, and we will continue to do so.
We also welcome the agreement in London to bring hedge funds into the global regulatory net. Greater oversight and information-sharing will help to establish a more stable environment for the hedge fund industry. If left unregulated, hedge funds could cause future instability for the international financial community.
One final point on the G20 - the Summit underscored our nation's growing prominence on the world's financial stage. Hong Kong is rising to this challenge as China's premier global financial centre. I will tell you how a little later.
So what impact is the global economic turmoil having on Hong Kong?
We certainly share many of the same concerns as you all here in the U.S. We expect negative growth for our economy this year of between minus 2 and minus 3 per cent. We face the prospect of rising unemployment, and our pillar industries which include trade, logistics, tourism and financial services can expect a difficult time in the months ahead.
After a prosperous start to the 21st Century for most economies, the financial crisis has knocked the wind out of our sails. In Asia, we saw the storm clouds gathering in the US and Europe. That gave us some time to prepare for a direct hit, but no one could have predicted how bad things would become.
As the ripple effect of the crisis approached our shores, we took a series of measures to boost confidence in the financial sector. We have guaranteed deposits in local banks and made additional capital available to banks should they need it. Our financial system has remained relatively stable and none of our banks have failed.
In my past two Budgets, and in various economic relief packages in-between, we have earmarked about US$9 billion to provide jobs and training opportunities and to cushion our community from the impact of the financial tsunami.
We have also provided US$13 billion [HK$100 billion] in loan guarantees to small and medium sized enterprises (SMEs). Depending on the twists and turns that this economic crisis takes, we will consider further stimulus measures if need be.
I have covered a few of our main strategies for dealing with the global financial crisis. No doubt, there is some way to go before our economies get back on their feet. But they will recover, I can assure you, and when they do we must be prepared for the upswing.
Earlier this month, the World Bank predicted that China's economy would begin to recover as early as the second half of this year, as massive stimulus packages kick in. The World Bank report predicted that this would also help to stabilise economies throughout Asia.
What does this mean for Hong Kong?
We are a relatively small city. Our population recently hit seven million, similar to that of the Bay Area.
At the same time we are one of the world's top trading economies with the world's 7th most capitalised stock market. About 70 of the world's largest 100 banks have operations in our city and we have the highest concentration of insurers in Asia. So we are firmly in the top league in terms of financial services.
All this will come as no surprise to US companies based in Hong Kong, which stand to benefit from an early economic recovery in Asia.
Our 2008 company survey showed that there are more than 1 300 US companies with regional operations or local offices in Hong Kong. That's more than from any other country.
They all enjoy our low and simple tax system with a top rate for salaries tax at 15 per cent and profits tax at 16.5 per cent. We have no inheritance tax, no capital gains tax and only income sourced in Hong Kong is taxable. We also have a trusted legal system; global connectivity, world-class services and a free flow of information. These business-friendly credentials have served us well in the good times, and they will continue to underpin our strengths during this difficult economic period.
At the same time, this is a great opportunity to concentrate on new ways to become an even more competitive and attractive place to do business.
We are continuing to invest heavily in education, research and development activities and high tech industries in order to move up the value chain. This includes "borderless innovation" between Hong Kong and our neighbouring city of Shenzhen under an initiative we call the "Shenzhen-Hong Kong Innovation Circle".
Last month, US company DuPont opened a new Solar Energy Research and Industrial platform at the Hong Kong Science Park. It is the first major project under the "Innovation Circle" framework. This initiative combines the advantages of Shenzhen - with its high-tech industry base, and Hong Kong - with its high-quality research talent and robust protection of intellectual property.
I hope more US companies will take advantage of this exciting initiative.
This financial year, we expect to spend some US$6.5 billion [HK$50 billion] on strengthening our infrastructure. Not only with this help create jobs, it will also make our city a more efficient place to do business and a more appealing place to live, work and to visit.
Some of the large-scale projects that are under way or about to begin are cross-boundary projects. They will link our railway system to the high-speed network on the Mainland and better connect our roads to the dynamic Pearl River Delta Region.
In January, the Central Government announced a new framework to establish the Pearl River Delta, as one of the most competitive regions in the world by 2020. This strategy supports greater co-operation between the Special Administrative Regions of Hong Kong and Macao as well as Guangdong Province in the Mainland.
Key areas for Hong Kong under the framework include speeding up cross-boundary infrastructure as well as supporting shipping, logistics and environmental co-operation. Importantly, the framework also focuses on an area I mentioned earlier and will talk about now in more depth. That is, our city's position as a global financial centre.
As the Mainland's economy and currency, that is the Renminbi, become more prominent globally, Hong Kong's advantages are clear.
We have our own fully convertible currency. The Hong Kong Dollar has been linked to the US dollar since 1983. Under the successful "One Country, Two Systems" formula for our reunification with the Mainland of China, we continue to follow the common law legal system. Our legal system is based on the English system and underpinned by an independent judiciary. Our people cherish their personal freedoms, including free speech, media freedom, freedom of association, of assembly and freedom of religion.
In fact, Hong Kong has been ranked the freest economy in the world for each of the past 15 years by the Heritage Foundation based here in the US. Maintaining the top spot is something we take seriously because it underscores the fundamental strengths of our city, as well as our competitive spirit.
As an international financial centre in the Asian time zone, midway between the trading days of London and New York, Hong Kong is a financial gateway to the Mainland. We have an important role to play in the internationalisation of the Mainland currency.
Renminbi banking was introduced in Hong Kong in 2004 and has since expanded to include a comprehensive range of services such as deposits, remittances, cheques, and currency exchange. At end-February this year, the total amount of outstanding deposits was about US$8 billion [RMB 54 billion].
Our Renminbi bond market - the only one outside the Mainland - has increased from three issues in 2007 to seven issues today with a combined value of some US$3.2 billion [RMB 22 billion].
This is set to increase further under a new set of measures announced earlier this month by the Central Government to help Hong Kong weather the financial storm. These measures include expanding the number of companies allowed to issue Renminbi bonds and increasing the amount of funds to be raised.
The Central Government will also make it easier for Hong Kong companies operating in Shanghai and Guangdong to raise capital by using their Hong Kong assets as collateral. Authorities in the Mainland will also assist Hong Kong firms in distributing their goods across the boundary.
In addition, a pilot programme to settle cross-boundary trade using the Renminbi has been given the all clear. Currently, cross-boundary trade is settled mostly in Hong Kong Dollars or US Dollars. Renminbi settlement will give companies more flexibility and an opportunity to counter the risks of exchange rate fluctuations.
Last year, the value of exports to the Mainland from Hong Kong amounted to US$175 billion and imports from the Mainland exceeded US$180 billion. And while it is still unclear how many of our traders will opt for the new Renminbi settlement arrangements, there is no denying that this pilot scheme offers a glimpse of the enormous financial services potential of such transactions.
The pilot programme is the first major step towards promoting the Renminbi as an international currency. It also gives a strong impetus to Hong Kong to become a regional Renminbi clearing centre, strengthening our role as an international financial hub.
Under the programme, our banks will be able to expand their range of services to include enterprises as well as individuals, further developing Renminbi business in Hong Kong.
Although this is a timely improvement to our business environment, we still have a long and hard road to travel in stopping the economic slide and dealing with the aftershocks of the crisis that will surely follow.
But, Ladies and Gentlemen, I am confident that we are on the right path - a path towards greater transparency, stability and international co-operation.
In Hong Kong, we will remain alert to the threat of more unwelcome surprises during the economic downturn and take all necessary measures to revive our economy. We will continue to promote free trade and open markets in our part of the world, and provide a positive business environment for all our firms.
Low taxes, high-quality services and an efficient civil service are a few of the things our business community has come to expect from the world's freest economy.
We have the full support of our nation in overcoming the financial crisis. I invite more US companies to test the water in our part of the world and to experience for themselves the opportunities of having a base in Hong Kong, Asia's world city.
Although the global economy is suffering a slump in form at the moment, it will recover, and when it does you will find Hong Kong to be a dynamic, exciting and - above all - a level playing field for all.
Thank you.
Ends/Thursday, April 30, 2009
Issued at HKT 11:45
NNNN
