*******************************************************
Following is the speech by the Financial Secretary, Mr John C Tsang, at HSBC's Quest for Opportunities Luncheon "Building a sustainable recovery" today (October 23):
Peter (Wong), Distinguished Guests, Ladies and Gentlemen,
Good afternoon. Thank you for the invitation to lunch.
It is my pleasure to be here this afternoon. I'm delighted to report that my doctor's prediction of a "V"-shaped recovery has proven to be accurate, but we will have to wait a little longer before we know for certain the shape and timing of recovery for the global economy.
Nevertheless, we have every reason to be confident that Hong Kong's economy will make an early recovery, and that we will seek to strengthen our position as a global financial centre in the Asian time zone.
I don't presume to know the inner thoughts of HSBC's management, but the indications are that the bank shares my optimism. We look forward to welcoming [HSBC Chief Executive] Michael Geoghegan to Hong Kong next year, but I must learn how to spell his name.
Announcing Michael's relocation to Hong Kong, Stephen Green said, and I quote: "Asia and China are the centre of gravity of the world and of our business." End quote.
I can assure you that in the quest for opportunities in this part of the world, there is no better place to be than here in Hong Kong, right in the thick of the action.
The theme of my talk today, "Building a sustainable recovery" was also at the heart of the Chief Executive's Policy Address last week. And, at the G-20 Summit in Pittsburgh last month, strategies for recovery and sustainability also took centre stage.
Although the global financial crisis is not yet totally behind us, economies are gradually returning to the path of growth. We should also remember that the "green shoots" of recovery are at least partly the result of huge stimulus packages deployed to cushion economies from the full impact of the financial tsunami.
In Hong Kong, we have earmarked some $87.6 billion for economic stimulus and relief measures over the past 20 months - equivalent to 5.2 per cent of our GDP. At the same time, we have launched a series of relief initiatives, some of which will remain in effect until the end of next year.
Withdrawing the stimulus cushion too soon could result in a bumpy landing, while keeping it in place for too long could provide a false sense of security, increase inflationary pressure and lead to damaging results.
We need to find the optimal time to implement our strategies and make a smooth exit from the unprecedented measures taken to soften the impact of the financial crisis on Hong Kong.
The liquidity provision measures have already exited smoothly thanks to Hong Kong's robust banking and financial systems. The Contingency Bank Capital Facility is also expected to exit smoothly when it expires at the end of next year. None of our banks have required the use of the Facility so far.
Exiting from full deposit guarantee is a little more delicate process. The full guarantee is due to expire at end-2010. The Deposit Protection Board, with the assistance of the Hong Kong Monetary Authority (HKMA), has conducted a review of the Scheme with a view to ensuring enhanced protection for depositors after the full-protection arrangement ends.
On a regional level, the HKMA, Bank Negara Malaysia and the Monetary Authority of Singapore have set up a tripartite working group to co-ordinate a smooth exit from full deposit protection in the respective jurisdictions at the end of next year.
Not only will this help to maintain banking stability in Hong Kong but also in the region. And we see that regional stability is becoming increasingly important to the well being of Hong Kong.
At the same time, we are working with the industry to identify ways to create a more conducive environment for our wealth management business. This includes modernising our trust law to facilitate the creation and administration of even more trusts here. A public consultation was recently completed, and we are refining the proposals.
Maintaining investor confidence and enhancing market quality is vital to our status as a major wealth management centre. We are engaged with our regulators on ways to provide effective long-term protection for investors.
We will consult the public by the end of the year on the proposal to set up an Investor Education Council to raise awareness among investors about the risks involved among other things. The Council would work with different public and private sector organisations to establish an integrated approach to investor protection in Hong Kong.
Our regulators have formulated measures to strengthen both product and conduct regulation. Some measures have already been implemented by the HKMA. The Securities and Futures Commission recently launched a public consultation on initiatives, including the authorisation of investment products and the regulation of intermediary conduct and selling practices.
We also know that whatever we do, inevitably sometimes things will go wrong - and so, what happens then? We are looking at remedial measures to settle disputes simply and quickly, for example through a resolution mechanism for financial services.
We are also looking to improve market transparency. This may include the codification of certain listing requirements for the disclosure of price-sensitive information.
Our goal is to achieve a balance between enhancing investor confidence and protection while, at the same time encouraging innovation in the sector.
So, what makes Hong Kong such a hotbed for opportunities in Asia?
Location is certainly one of our key advantages. But you can't build a house on sand, however beautiful the beach, and expect it to last. You need solid foundations. I don't think you need to go to architecture school, like I did, to know that.
For us, that means maintaining a stable investment environment with a free flow of information, ideas and capital. This is reinforced by a transparent regulatory regime, the rule of law and a common law legal system underpinned by an independent judiciary.
This, together with low taxes, clean and efficient Government and business-friendly policies have helped to maintain our number one ranking as the world's freest economy as rated by the Heritage Foundation for each of the past 15 years.
Also, earlier this month, the World Economic Forum's Financial Development Report 2009 ranked Hong Kong 5th out of 55 economies - up from 8th place last year.
The report rated Hong Kong as the best place in the world for "banking financial services", noting in particular the size and efficiency of our financial services sector. We also scored top marks in three other areas, namely; "taxes", "equity market development" and "commercial access".
These results are encouraging, especially given the global financial difficulties over the past 18 months or so. The Financial Development Report also underlined areas where we can and will improve, such as enhancing the business environment, liberalising the financial sector and reducing the cost of doing business here.
Ladies and Gentlemen, the Chief Executive in his Policy Address last week highlighted a number of key areas for the sustainable recovery and growth of our financial services sector. The underlying theme is that Hong Kong can and must play an even greater role as our nation's global financial centre. Indeed, the vast Mainland market provides immense opportunities for us to expand the scope of our financial services activities.
The Chief Executive outlined a multi-pronged strategy:
Firstly, attracting more international capital, financial institutions, products and talent; secondly, strengthening Hong Kong's role as a testing ground for Renminbi products and the internationalisation of the Mainland currency; thirdly, to serve as the preferred capital raising centre for Mainland enterprises; and fourthly, strengthen links between Hong Kong and Mainland financial markets.
The global financial crisis has highlighted many challenges and opportunities for financial services in Hong Kong and in our nation. In particular, it has turned the spotlight on the Mainland's future role in the global financial system.
In the past year, we have seen remarkable developments in terms of dovetailing the financial system in the Mainland with ours in Hong Kong.
Only last month, we received a huge vote of confidence when the Central Government issued sovereign bonds in Hong Kong totalling 6 billion Renminbi. This is the first time that our nation has issued sovereign bonds outside the Mainland. This represents a significant milestone in promoting the depth and breath of our bond market, and strengthening our position as a global financial centre.
In July, our banks began offering trade settlement transactions using the Renminbi. This cross-boundary trade settlement scheme highlights the growing importance of the Renminbi internationally. It is also a major step for Hong Kong in becoming the one and only offshore clearing centre for Renminbi transactions.
Also over the summer, the Mainland subsidiaries of Hong Kong banks became the first ones outside the Mainland to issue Renminbi-denominated bonds. This is another way of opening up new fund-raising opportunities for multinational companies in Hong Kong.
We will continue to break down barriers to cross-boundary trade and investment under the framework of the Closer Economic Partnership Arrangement. The latest supplement to CEPA took effect at the beginning of this month. The new measures include allowing branches established by a Hong Kong bank in Guangdong to set up "cross-location" sub-branches in Guangdong Province. This will help them expand their business network across the boundary and improve the quality and efficiency of banking services. The new measures also allow Hong Kong securities companies to participate in the development of the Mainland's securities market.
These are some of the ways Hong Kong can contribute to the development and opening up of the Mainland's financial services sector, and the gradual internationalisation of the Renminbi.
Ladies and Gentlemen, at the G-20 Summit in Pittsburgh last month, Finance Ministers and Central Bank Governors were called on to launch a framework by next month for "Strong, Sustainable and Balanced Growth". As a member of the Chinese delegation at the G-20, Hong Kong will be involved in formulating this framework. Together with our regulators, we will improve our regulatory regime. We will put in place timely strategies for withdrawing the measures provided to offset the impact of the financial crisis. We will also shoulder our part of the collective responsibility to promote a resilient international financial system.
At the same time, we will strengthen co-operation with the Provincial Government in Guangdong and the Central Government in Beijing to enhance the cross-boundary flow of capital, financial products and talent.
I am confident that this will help us build a sustainable recovery and increase at the same time the gravitational pull of Hong Kong as a global financial centre in the Asian time zone.
Thank you very much and have a great day.
Ends/Friday, October 23, 2009
Issued at HKT 14:55
NNNN
