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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Macquarie China/Hong Kong Conference 2010 "From Crisis Back to Confidence: Meeting the New Growth Challenge" this morning (April 26):
Distinguished Guests, Ladies and Gentlemen,
Good morning.
It is my great pleasure to join you again today for the Macquarie China/Hong Kong Conference.
A warm welcome to you all, especially to those of you who have travelled many miles to be here.
Since we met last year, Hong Kong has returned to the path of growth and profits. We have good figures to demonstrate this shift in fortune, but what we can't gauge with facts and figures is the level of confidence - especially in today's uncertain economic environment where the pace of recovery around the world is uneven and the global economy is still basically out of whack.
Certainly Hong Kong and, indeed, Asia has regained some of its swagger following the global financial crisis. But we also have to guard against over-confidence as well as complacency.
Allow me to use a golfing analogy.
Any golfer will tell you that there is a fine line between confidence and bravado. Certainly you are not going to win a tournament if you don't believe in your own ability.
But over-confidence - or a lack of respect for the course and its many traps - can lead to unwise tactics and rash stroke-play that will land you in the rough.
The great champion Tom Watson once said, and I quote: "Confidence in golf is being able to concentrate on the problem in hand with no outside interference." End quote.
In Government, we don't have that luxury because there are always outside influences of one sort or another. It is especially so in Hong Kong where the external sector dominates. However, we are totally focused on the problems in hand. So, let me begin with one of our most pressing concerns at the moment - the property market.
I notice that one of your Panel discussions this afternoon focuses on the property sector in Hong Kong and the Mainland, and poses the question: "Bubble or no bubble"?
I will not attempt to answer that question. Instead, I will leave that to your panel of experts - and I look forward to hearing your conclusion.
But I will give you the Government's take on the current situation on Hong Kongˇ¦s property sector.
Much of the debate about my Budget, which was announced in February this year and passed by our Legislative Council last week, has to do with property sector initiatives. In particular, the measures to reduce the risk of a property bubble forming.
Some critics said that we are not doing enough, others insist we are going too far. I believe that this divergence of opinion is a good indication that we are probably on the right course.
The "quantitative easing" policy that was adopted by many economies to cope with the credit crunch has increased the flow of global liquidity. In Hong Kong, we have seen a huge flow of "hot money" into our financial system. We also have an extraordinarily low interest rate environment at the moment.
This, together with a relatively low supply of flats in Hong Kong in recent years, coupled with the economic recovery has fuelled property price rises.
From experience, we know that this combination of factors will not last too long. "Hot money" will eventually be withdrawn as central banks around the globe commence monetary policy tightening upon increasing evidence of an entrenched global economic recovery. And interest rates will return to normal levels affecting mortgage repayments. The only question is "when?".
Recent stress tests that we have conducted indicate that if interest rates were to rise by three percentage points from the currently exceptionally low level, back to a more normal level, monthly mortgage payments would surge 30 per cent. Home-buyers need to be aware of the inherent risk!
To manage the risks of a property bubble, we have focused on four main areas. These include increasing the supply of new flats, curbing speculative activities, increasing market transparency and preventing excessive borrowing.
Allow me to highlight some of our strategies.
The first set of measures tackles the supply of new residential properties.
Although supply has been relatively low in the past two years, the current market-driven Application List system for sale of government land is still working well. It is an effective mechanism for ensuring a stable and healthy development of the property market.
Since the end of last year, three residential sites have been sold through the Application List system. Another two large residential sites from the Application List will be put up for auction next month.
And just last week, I announced that two additional sites on top of the current auction programme, one in Kowloon and the other one on Hong Kong Island, will be auctioned in June and July respectively this year.
So we have four auctions in the next three months. Of course, developing these sites will take some time, but the string of land sales indicates the future direction of the market and our determination to boost supply.
In addition, more than 800 Sandwich Class Housing Scheme units have recently been put up for sale by the Hong Kong Housing Society. And the Hong Kong Housing Authority will release the remaining 4,000 or so Home Ownership Scheme units in June.
All this means that we expect over 60,000 flats to come onto the market in the next three or four years.
Our second strategy is to curb speculation. In the Budget, I raised the stamp duty on luxury flats - valued at more than HK$20 million - to 4.25 per cent from 3.75 per cent. Also, buyers can no longer defer payment of stamp duty on such transactions. These measures took effect from the start of this month. If necessary, I will consider applying these measures to units at or below HK$20 million too.
Our Inland Revenue Department (IRD) is on the lookout for suspected property speculation. The IRD will levy profits tax on people or companies found to be taking profits from property speculation.
The third point is about strengthening regulation and transparency of new property transactions. I have proposed various measures related to sales and price transparency. This includes making price lists available at least three days before sales start and including more units in the first price list. Developers will also be required to indicate transactions that involve board members, and their immediate family members, and to provide units onsite for people to visit.
The fourth and final strategy is to curb excessive borrowing. Last October, banks were required to lower the loan-to-value ratio for mortgages on properties valued at $20 million or more. Banks are also required to process mortgage loan applications prudently.
The Hong Kong Monetary Authority (HKMA) is also considering including mortgage data in the positive credit data sharing arrangement. This will help banks to effectively manage credit risks. It will also help to prevent borrowers from over-extending themselves financially.
So, what effect are these measures having?
Since the Budget was announced in February, the overall rise in flat prices has slowed, increasing 1.1 per cent in both February and March. This is down from a 2.5 per cent jump in January. Property turnover fell from more than 11,700 transactions in February to about 10,900 in March.
There is also indication in the past week that the second-hand market has also showing some signs of slowing down as well. Although the momentum in the property prices has slowed in recent months, the risk of a property bubble remains. We will continue to monitor the situation closely and take more measures, if and when required.
Turning now to the confidence-boosting economic figures that I promised to share with you at the beginning of my talk.
We forecast economic growth for Hong Kong of between 4 and 5 per cent this year. Unless there is a deep downturn due to external forces in the second half of the year, I believe we will remain on course to achieve this level of growth. This compares to a GDP contraction of 2.7 per cent for 2009.
In the first two months of this year, total exports of goods have grown substantially by 23 per cent year-on-year. The total value of merchandise exports in recent months has almost returned to its level before the financial tsunami. Domestic demand has also increased further, reflecting a significant improvement in both consumer and business confidence.
Perhaps most encouraging of all is the unemployment situation. Our jobless rate stands at 4.4 per cent; a full percentage point lower than it was this time last year.
One area that has gained strong momentum in the past year or so has been regional co-operation, particularly in the Pearl River Delta, or PRD.
We have a great opportunity here to foster stronger ties between Guangdong, Hong Kong and Macao.
Earlier this month, we signed the "Framework Agreement on Hong Kong/Guangdong Co-operation" with Guangdong Province. Significantly, the signing took place not in Hong Kong or Guangdong, but in Beijing. It was witnessed by state leaders. I mention this because this is the first such agreement to be endorsed by the State Council and has far-reaching implications for our cross-boundary collaboration.
The framework agreement is key to implementing the "Outline of the Plan for the Reform and Development of the Pearl River Delta". This Outline was announced by Beijing in January last year with a goal of establishing the PRD as one of the most competitive regions in the world by the year 2020.
We will also continue to invest in cross-boundary infrastructure to strengthen our physical links with the Mainland and neighbouring areas. Construction works for the Hong Kong-Zhuhai-Macao Main Bridge, site formation works for a new cruise terminal and the works for the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link project have all commenced this year.
Work will soon begin on the Kai Tak Cruise Terminal Building and ancillary facilities. Including other works projects, the capital works expenditure for each of the next few years will be at an all-time high of something over HK$50 billion. These projects will not only enhance the competitiveness of Hong Kong, but also create employment opportunities and promote economic development.
Hong Kong's strength as an international financial centre will also come into play to help meet the overall needs of our nation's development.
We will continue to develop offshore Renminbi business and boost our status as a global financial centre and asset management centre.
The business of cross-boundary trade settlement in Renminbi has been increasing steadily since it was introduced in July last year. In February this year, the HKMA issued a circular to banks on the supervisory principles and operational arrangements regarding Renminbi business. This has made clear our policy stance and increased the scope and flexibility of developing Renminbi business in Hong Kong.
With our fully convertible currency, free flow of capital and information and transparent regulatory regime, Hong Kong has a unique part to play in the regionalisation and internationalisation of the Renminbi.
Now, a few words about financial competition between Hong Kong and Shanghai.
The Central Government has made no secret of its intentions to promote Shanghai as an international financial centre. We welcome this for two main reasons.
First, our nation is large enough to accommodate two, or even more, international financial centres.
Secondly, competition is a positive force and something that Hong Kong thrives upon.
In reality, Hong Kong and Shanghai will be both competitors and collaborators in supporting our nation's financial development ˇV so we will have the best of both worlds.
Shanghai can count on our full support and experience in developing global finance. At the same time, our cities enjoy different advantages that will benefit overall development.
Shanghai is strong in the domestic financial sector with Renminbi business far exceeding that in Hong Kong. It is fully integrated with the Mainland's business and legal traditions.
On the other hand, Hong Kong's common law legal system is underpinned by an independent judiciary. We enjoy a free market economy with a low and simple tax system. Hong Kong also has a good deal of experience in international best practice as well as a deep pool of talent from around the world.
We will be the twin engines of growth for China, and the development of dual financial centres will benefit both cities as well as our nation as a whole. We look forward to this new era of financial co-operation.
Finally, I would like to address a topic that I am often asked about these days. That topic is the appreciation of the Renminbi and its implications for Hong Kong.
The Central Government in Beijing has made no bones about the fact that a stable Renminbi benefits not only our nationˇ¦s economic development but also the global recovery.
Many economists also agree that Renminbi appreciation cannot solve the trade deficit problem of the US.
I believe China will take forward reform in the Renminbi exchange rate regime in light of the evolving global economic situation, and the development needs of the Mainland economy. The Central Government will continue to improve the Renminbi exchange rate formation mechanism in a proactive, controllable and progressive manner in order to avoid shocks and undue fluctuations.
In fact, Renminbi has appreciated by over 20 per cent against the US dollar in an orderly manner since mid 2005.
Given the Hong Kong Dollar's peg to the US Dollar, this has indeed increased pressure on some local companies. However, the Hong Kong economy has, on the whole, adjusted well to the changes with no major adverse effects.
The strengthening of Renminbi has in fact boosted the spending power of our Mainland visitors to Hong Kong, whose number reached almost 18 million last year.
Overall, Hong Kong should be flexible and resilient enough to adjust to Renminbi appreciation if it were to proceed in a controlled and step-by-step manner. However, we will continue to monitor the situation and its impact on our export competitiveness and inflation.
Ladies and Gentlemen, Hong Kong is well along the road from crisis towards confidence.
By taking steps to avoid a property bubble from forming, strengthening co-operation with the Mainland and boosting our competitiveness as a global financial centre in the Asian time zone, we will continue to make progress.
I will leave you with the thoughts of another legendary sportsman, tennis player Stan Smith. He said, and I quote: "Experience tells you what to do; confidence allows you to do it." End quote.
In Hong Kong, we do have a good deal of experience in how to make the best of our advantages. And, with the global financial crisis behind us, I can assure you that we have the confidence to do exactly that.
Thank you very much, have a great Conference and a very enjoyable stay in Hong Kong.
Ends/Monday, April 26, 2010
Issued at HKT 11:25
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