***********************************************************
Following is the speech by the Financial Secretary, Mr John C Tsang, at a business luncheon organised by the Malaysian International Chamber of Commerce and Industry and the Associated Chinese Chambers of Commerce and Industry of Malaysia in Kuala Lumpur, Malaysia today (March 18):
Distinguished Guests, Ladies and Gentlemen,
Good afternoon.
It is my great pleasure to be here in Kuala Lumpur.
First of all, I would like to thank the Chambers for your warm hospitality and for organising this event on my behalf.
My only slight regret is the timing of my visit. A couple of weeks later, and it would have tied in nicely with the world-famous Malaysian Formula One Grand Prix. Then, I could have talked about Asia being in pole position in the global economic recovery; how Malaysia and Hong Kong are switching gears in their drive for economic progress, and how our economies have managed to get back on track following the global financial crisis.
The motor racing puns will have to wait for another day.
But, this does not change the fact that most economists agree, Asia is out in front in terms of the new economic order. The financial shake-up has also presented us with a great opportunity to strengthen relations between Malaysia and Hong Kong.
Strengthening ties is the focus of my visit ¡V and in this respect, the timing could not be better.
I see a number of exciting opportunities ahead of us in terms of regional co-operation, the strength of China and financial integration.
Just last month, I delivered my Budget with a key objective to grasp these very opportunities.
Let me pick out a few of the items from my Budget that may interest you.
Despite spending some HK$87 billion (MYR38 billion Ringgit) over the past two years in battling the financial crisis, we still managed to record a budget surplus. I had expected a deficit of some $40 billion, but the better than expected economic conditions resulted in a surplus of some HK$14 billion (6 billion Ringgit) for the financial year ending March 31st. I should also mention that our financial reserves have increased to over HK$500 billon (220 billion Ringgit). So, we remain in pretty sound financial health.
We forecast GDP growth for Hong Kong of between four and five per cent for 2010.
The big question is this. How do we make the best use of our healthy position for the long-term development and prosperity of our city?
We recently embarked on an ambitious infrastructure development programme. This includes cross-boundary projects that will open up new markets in the Mainland of China, reduce costs for business and boost efficiency.
At the end of last year, construction began on a massive 29-kilometre bridge connecting Hong Kong with the Special Administrative Region of Macao, and with Zhuhai in the western Pearl River Delta, or PRD.
When the Hong Kong-Zhuhai-Macao Bridge opens in around 2016, it will substantially reduce the current four-hour trip between Zhuhai and the Hong Kong International Airport to less than 40 minutes.
A vast number of people live in the western part of the Pearl River Delta which has not been developed any where near the extent experienced by eastern PRD, a land mass that is physically contiguous to Hong Kong, so you can imagine the size of the potential of the expanded hinterland.
In January, work started on the Guangzhou-Shenzhen-Hong Kong Express Rail Link, or XRL. High-speed trains will soon be able to travel between the terminus in West Kowloon to Guangzhou in the Mainland in less than 50 minutes as compared to the time required for current journeys of over 100 minutes. The XRL will also plug into the Mainland's high-speed rail network and provide through-train services from Hong Kong to 16 major cities across China, including Shanghai and Beijing.
We will continue to invest heavily in infrastructure development with record-high capital works expenditure of around $50 billion (21.5 billion Ringgit) for the next few years.
In addition to infrastructure development, another strategy has been to identify six new priority industries that have the best chance of diversifying our economic base and creating jobs and opportunities for our community. I mention this because it is similar to your development strategy here in Malaysia.
Last July, your Prime Minister (Datuk Seri Najib Razak) announced six key areas or NKRAs (National Key Results Areas) as vital to leading Malaysia's economic development. They include education, crime reduction, battling corruption, improving living standards, rural development and improving public transport.
At about the same time in Hong Kong, we have switched gears slightly and identified six new industries as key engines to drive our future economic development. These industries are educational services, medical services, testing and certification, innovation and technology, environmental industries and cultural and creative industries.
There are similarities between our two sets of initiatives and the sectors involved. I see great opportunities for co-operation in achieving our mutual goals, and we should try to explore these opportunities together.
In Hong Kong, the development of these six industries will provide a more broad-based economy and support our sustainable development. It is also an indication of where our priorities lie ¡V in promoting creativity, innovation and upgrading talent.
We are not picking winners with these six industries. They are already highly competitive and well established. What we can do is clear away hurdles to further growth so that these industries have the best chance to achieve their full potential.
My Budget proposals included providing more land resources, investment, infrastructure and more training places to ensure adequate talent for these industries to thrive.
Developing these industries alongside our traditional pillar industries will help further strengthen our economic foundations. You may be familiar with our four pillar industries. They are financial services, trade and logistics, professional services and tourism. In sum, they currently contribute over 60% of our total GDP.
Let me zoom in on financial services. This is one of the most important aspects of our bilateral relationship, and our role as a springboard for overseas companies, including Malaysian firms, doing business in the Mainland.
We already enjoy a great deal of financial co-operation between Malaysia and Hong Kong. And recent financial liberalisation measures both here and in Hong Kong have opened the door to new opportunities for even greater co-operation.
One important area for further co-operation is Islamic finance. Malaysia has a great deal of experience in Islamic finance, and so we look forward to exploring more opportunities for collaboration between Malaysia and Hong Kong in this field.
I am pleased to note that a Memorandum of Understanding was signed between Bank Negara Malaysia and the Hong Kong Monetary Authority (HKMA) last September, and another between the Securities Commission Malaysia and our Securities and Futures Commission last November, to further co-operation between Malaysia and Hong Kong in such areas as Islamic finance.
In terms of Islamic finance development, Hong Kong will continue to leverage our position as the principal financial gateway to the Mainland, bridging the investment opportunities between Muslim economies and the Mainland. Our current focus is to promote the development of a market for Islamic bonds, or sukuk.
To this end, we are in the process of amending our tax laws with a view to levelling the playing field for common types of Islamic bonds vis-ˆj-vis conventional bonds as far as tax liabilities are concerned. We are also continuing our efforts in enhancing market infrastructure and product development, promoting education among market participants and investors, and raising the profile of Hong Kong as an Islamic finance platform.
Last year was a breakthrough year on various fronts for our financial integration with the Mainland of China. This included the launch last July of a pilot scheme for Renminbi trade settlement. Also, Hong Kong banks on the Mainland were given the green light to issue Renminbi bonds in Hong Kong for the first time. Two banks actually did. And, the Central People's Government in Beijing launched the first Renminbi sovereign bonds in Hong Kong totaling six billion Renminbi.
We shall continue to strengthen Hong Kong's role as the testing ground for the regionalisation and internationalisation of Renminbi. This includes further developing the Renminbi clearing platform and Renminbi bond business in Hong Kong.
To speed up our financial integration with the Mainland, new measures that have not been attempted nationally will be implemented with our neighbours in Guangdong Province on an early and pilot basis.
This will accelerate the two-way flow of financial institutions, financial products, capital and talent between Hong Kong and the Pearl River Delta region.
The multi-currency cross-border payment arrangements between the Mainland and Hong Kong, which cover the Hong Kong dollar, US dollar, Euro and British sterling, have been operational since last March.
We shall continue to streamline the two financial systems in Hong Kong and the Mainland to become an even more efficient and low risk corridor for investment into and out of the Mainland.
Malaysia and Hong Kong already have a strong history of financial services co-operation.
In 2006, the HKMA and Bank Negara Malaysia established a payment-versus-payment link between Hong Kong's US dollar real time gross settlement systems and Malaysia's Ringgit real time gross settlement system. It was the first such link in the region, reducing foreign exchange settlement risk and improving payment efficiency. It is also an important element in our role as a global financial centre in Asia.
This spirit of co-operation sends out a very positive message as our economies recover from the global financial crisis.
Ladies and Gentlemen, throughout the economic downturn, Hong Kong has remained faithful to its core values. We continue to be ranked number one in the Potential Competitiveness Ranking of the Japan Centre for Economic Research. We have retained the top position for five years in a row. According to the latest rankings released last month, Hong Kong came out first in the categories of internationalisation and finance, and we ranked second in the world for competitiveness in infrastructure and enterprises.
Importantly, the study indicates potential competitiveness and, more specifically, the ability of a nation or territory to grow after the global financial crisis. So, this is indeed an encouraging study for us.
On the subject of international rankings, Hong Kong remains the world's freest economy. Both the US-based Heritage Foundation and the Fraser Institute in Canada have ranked Hong Kong as number one for each of the past 16 years. This period covers the Asian financial crisis a decade ago, the SARS outbreak, the bursting of the dot.com bubble and the global financial tsunami.
This indicates our commitment to providing the best possible business environment based on free trade and open markets. We have low taxes with profits tax capped at 16.5 per cent and people pay no more than 15 per cent salaries tax. An independent judiciary underpins our common law legal system; we have a transparent regulatory regime and zero tolerance of corruption.
At the same time, the Mainland's economy has continued to surge ahead. China recorded 8.7 per cent GDP growth last year and equally strong growth for our nation has been forecast for this year.
As the premier international gateway to the Mainland of China, we are well placed to capitalise on our nation's economic might. And, I should add, we have an important part to play in our nation's continued opening up and reform, particularly in our neighbouring Pearl River Delta with a population of 50 million.
Ladies and Gentlemen, trade between Malaysia and Hong Kong has been growing at an average annual rate of 7.5 per cent over the past five years. Last year, Malaysia was our 11th largest trading partner with bilateral trade worth more than HK$93 billion (40 billion Ringgit). At the same time, almost 15 per cent of Malaysia's trade with the Mainland of China ¡V worth nearly HK$62 billion (27 billion Ringgit) ¡V was routed through Hong Kong.
We shall continue to break down barriers to cross-boundary trade, services and investment under our unique free trade arrangement with the Mainland, the Closer Economic Partnership Arrangement, or CEPA for short. The latest supplement to CEPA came into effect last October. This increases to 42 the number of services areas that enjoy preferential access to markets throughout the Mainland. And because CEPA is nationality-neutral, Malaysian enterprises can enjoy the full benefits of this free trade pact.
Ladies and Gentlemen, I have mentioned some of the ways that I believe we can build on the already robust relations between Malaysia and Hong Kong.
Hong Kong will remain a great place to do business with a free and open economy, the rule of law, a freely convertible currency and free flow of ideas, information and talent.
We shall continue to invest heavily in infrastructure to promote economic development in Hong Kong, and to open up new markets and business opportunities in the Mainland of China.
Emerging from the global financial crisis, we have a unique opportunity to build on the already strong relations between Malaysia and Hong Kong. I, for one, look forward to even closer ties between our business communities.
Once again, thank you for this opportunity to speak with you today.
I wish you all a prosperous Year of the Tiger, and a memorable Formula One Grand Prix next month.
Ends/Thursday, March 18, 2010
Issued at HKT 14:57
NNNN
