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Reinforcing our Position as a Financial Centre
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68. Apart from being one of our most competitive industries, the financial services sector can best play a unique role in complementing the development of China. In the current financial crisis, the Mainland has emerged as a prominent economic power. With the emergence of a new economic order, our country will further integrate with the international financial community. Hong Kong can play a more important role in this process. The Chief Executive has already indicated in the Policy Address that we will develop offshore Renminbi (RMB) business and make Hong Kong a global financial centre and asset management centre, attracting capital and talent from within and outside the country. In the process, we will endeavour to meet the overall development needs of our country.
Developing Offshore Renminbi Business
69. As our country's capital account has yet to be fully liberalised, developing offshore RMB business in Hong Kong is the best option for promoting the use and circulation of RMB outside the Mainland in an orderly manner. In December last year, Premier Wen Jiabao told the Chief Executive that the Mainland would continue to promote cross-border trade settlement in RMB in Hong Kong, explore ways of developing various businesses that would facilitate the circulation of RMB, and foster the development of RMB bond business in Hong Kong. We are grateful for this encouragement and support. In the long run, we hope that Hong Kong will become the first testing ground for all new measures relating to the liberalisation of China's capital account and the regionalisation and internationalisation of RMB. The SAR Government will continue to actively take forward work in this regard.
70. Since the introduction of RMB trade settlement in July 2009, corporations in Hong Kong and other areas (e.g. the ASEAN countries) can conduct trade settlement in RMB through banks in Hong Kong. We, together with the Mainland authorities, will continue to study the ongoing refinements to the RMB trade settlement services, and to promote the expanded use of RMB outside the Mainland. We will also continue to develop the RMB clearing platform in Hong Kong, thereby facilitating Hong Kong's development as a regional RMB settlement centre.
71. Last year, the amount of RMB bonds issued in Hong Kong reached RMB 16 billion, including RMB 6 billion of sovereign bonds launched in Hong Kong for the first time. This reflects the popularity of RMB investment products in Hong Kong. We hope to further promote the development of RMB bond business in Hong Kong, such as expanding the issuance size of bonds and increasing the types of bond issuers and the classes of qualified investors. The recent elucidation by the HKMA has suggested that apart from approved Mainland entities, non-Mainland entities may also issue RMB bonds in Hong Kong. As long as the bond issuance does not entail cross-border flows of RMB funds into and out of the Mainland, the range of eligible issuers and issue arrangements can be determined in accordance with the applicable regulations and market conditions in Hong Kong. We also hope that RMB sovereign bonds will be issued on a regular basis in Hong Kong and that RMB-denominated investment products will be developed. With all of this, we hope to see RMB business scale new heights this year.
Promoting Asset Management Business
72. In the financial tsunami, the strong rebound of China's economy has spearheaded the overall economic recovery of Asia and created abundant investment opportunities in the region. Asia is now the bright spot in the eyes of global institutional investors. We believe that more institutional investors will give greater weight to Asia in their investment portfolios and choose to establish footholds in Asia as the platform for their investment. Equipped with world-class hardware and software, including a strong asset management foundation, and benefiting from a huge demand for wealth and asset management services in the Mainland, Hong Kong is well placed to become Asia's premier asset management centre.
73. I propose to introduce a number of measures to strengthen the competitiveness of the industry and attract more talent, capital and products to Hong Kong. First, I propose to extend the stamp duty concession in respect of the trading of exchange traded funds (ETFs). Currently, we waive the stamp duty for the trading of ETFs with no Hong Kong stock in their portfolios. ETFs with Hong Kong stocks, regardless of the weightings, are not entitled to this concession. With further integration of the financial markets in Asia, ETFs that track a basket of stocks in the region will become increasingly popular. To facilitate the development of ETFs, I propose to extend the concession to cover ETFs that track indices comprising not more than 40 per cent of Hong Kong stocks. This will reduce the trading cost and promote the diversification and healthy growth of the ETF market.
74. As for the local bond market, currently a concessionary profits tax rate at 50 per cent of the normal rate is applied to the interest income and profits derived from qualifying debt instruments with a maturity period of less than seven years but not less than three years. I propose to extend this concession to cover qualifying debt instruments with a maturity period of less than three years. To better meet market requirements, we also plan to amend the provisions under the Inland Revenue Ordinance that require such debt instruments to be issued to the public in Hong Kong.
75. The Commissioner of Inland Revenue will further clarify the definition of "central management and control" to address the industry's concern about the residency requirement for directors of the management committee of offshore funds in their applications for profits tax exemption. This will help attract more fund managers to manage overseas funds in Hong Kong. I also propose to update the lists of recognised stock exchanges and futures exchanges under the Inland Revenue Ordinance so as to extend the application of tax exemption for offshore funds engaged in futures trading.
Improving the Financial Regulatory System
76. Our financial system is sound with strong fundamentals. While the current financial crisis did not cause systemic problems to our financial system, we will still take steps to further improve Hong Kong's financial regulatory system so as to strengthen investor protection.
77. The Government and regulators will continue to adopt a disclosure-cum-conduct based regulatory approach for the authorisation and sale of structured financial products. This regulatory regime rests on two important pillars, namely information disclosure and suitability assessment. On this basis, we have worked out an action plan for phased implementation. The measures in the first phase, which focus on improving the sales practices for investment products, the professional conduct of intermediaries and investor education, have been implemented. For the longer-term measures, we are consulting the public on proposals to establish an "Investor Education Council" and a "Financial Dispute Resolution Centre". Our aim is to strengthen investor protection in every aspect, from investor education, authorisation of investment products, disclosure requirements, sales practices, conduct of intermediaries to financial dispute resolution mechanism.
78. We have been fostering a continuous disclosure culture among listed companies. We are preparing for public consultation on a proposal to amend the Securities and Futures Ordinance to require timely disclosure of certain price-sensitive information by listed companies. Our aim is to enhance the quality and transparency of the stock market.
79. To consolidate our position as a financial centre, we will also continue with the following work this year:
(1) Launch the second phase consultation on the draft provisions of the Companies Bill to modernise the Companies Ordinance, so as to enhance corporate governance and facilitate business;
(2) Conduct consultations on the establishment of an independent Insurance Authority and a Policyholders' Protection Fund; and
(3) Study the introduction of a corporate rescue procedure, with a view to reducing corporate bankruptcy and preserving employment.
(To be continued)
Ends/Wednesday, February 24, 2010
Issued at HKT 11:50
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