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Following is the speech by Under Secretary for Financial Services and the Treasury, Ms Julia Leung, at "Hong Kong: China's Global Financial Centre Conference" today (March 1, New York time):
Distinguished guests, ladies and gentlemen,
I am so glad to be in New York on this bright, warm spring day.
New York and Hong Kong
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Even though Hong Kong and New York are on the exact opposite sides of the world, any frequent visitors to our cities will recognise our strong resemblance.
Starting with physical attributes, we are both famed for our trademark picture-perfect and photogenic high-rise cityscapes. We are both blessed with a sea of beautiful water that runs through the heart of our business districts.
Our resemblance is not just superficial. Our deep harbours have allowed us to operate major sea ports. Our two cities have often been described as efficient, driven and entrepreneurial. We even walk at the same fast pace. We are also dynamic and fun.
Most of all, we cherish and pride ourselves on our economic freedom. Hong Kong has been recognised as the world's freest economy by both the Heritage Foundation and the Fraser Institute for 17 consecutive years.
Our economic freedom is rooted in the free flow of capital, freedom of speech, and the common law tradition. Such is our conviction that it has helped propel both of us to become two of the world's most competitive international financial centres and equity fund-raising centres.
Like New Yorkers, Hong Kongers are nimble and versatile, seizing opportunities as they present themselves. Hong Kong, having grown 6.8% last year, is looking to 4-5% growth rate this year. We are right at the centre of Asia's full circle back to economic growth and prosperity led by China.
Two policy trends in China
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Let me turn to two strategic policy shifts being pursued by China that may shape the economic and financial agenda in its next Five Year Plan. First is China's effort to move toward a more balanced and sustainable economic growth model. Emerging from the global crisis, China has become the driver of growth in the world's two-speed recovery. With developed markets expected to go on a slower economic track, the pre-crisis emphasis on exports may not be sustainable for China's growth.
Premier Wen Jiabao has made it a policy priority in the 12th Five Year Plan, the details of which will be revealed later this month, to expedite the shift towards boosting private demand, domestic consumption and adjusting the economic structure to achieve more balanced growth. This is also a policy that would reduce trade tension with the US and other trading partners.
Second, China is internationalising its currency. With its restricted capital account, China is embarking on an important reform in the use of its currency - to make the RMB "tradable" by denominating international trade and services, as well as overseas investments, in yuan.
The yuan is increasingly convertible in the offshore yuan market in Hong Kong, a pilot that is providing important benchmarks toward a more market-based exchange rate regime over the longer term. This is another policy that, over time, may lead to a more balanced international reserves system.
The ultimate goal for China is to find a formula for sustainable and stable growth that would lead to improving the quality of life of Mainland Chinese. There will be challenges, and we should not underestimate the difficulties in shifting to a new economic growth model. I believe, however, China has demonstrated a strong determination to do just that.
Hong Kong's role for China
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Where does Hong Kong fit into all this?
Well, for a long time, Hong Kong - with our prime location and international connectivity - has served as a gateway for businesses, including American businesses, into and out of Mainland China.
But Hong Kong also serves as a springboard in another dimension. Hong Kong has long been an important testing ground for new ideas in China's economic reform. As China liberalises its capital account gradually, Hong Kong has become an even bigger laboratory. While Eddie Yue will speak on how that is being played out in the internationalisation of the yuan, I will focus on "why Hong Kong?"
Let's turn to history for guidance. In 1979, the visionary late Chinese leader Deng Xiaoping chose Shenzhen to be the first special economic zone for an important reason - it borders on Hong Kong. Today, 30 years later, Hong Kong remains the single biggest source of foreign direct investment but for the whole of China, accounting for more than half of such inflows.
Another milestone in Hong Kong's role in China's reform came in 1993 with the listing of China's first state-owned enterprise, Tsingtao Brewery, on the Stock Exchange of Hong Kong. Back in the early 1990s, China had no capital market and most companies were state-owned. Those Mainland companies had no corporate governance structure nor did they comply with international accounting standards. Hong Kong saw the opportunity and actively lobbied for Chinese companies to be listed on our stock exchange.
Chinese leaders embraced the established market discipline in Hong Kong, which brought Mainland companies much-needed international best practice standards in corporate governance, accounting, disclosure and management. A Hong Kong listing also gave these companies attractive valuations and access to a deep international liquidity pool. In Hong Kong, we have the requisite professional knowledge in banking, law and accounting to get the job done, and done well.
Since Tsingtao's historic listing, the Stock Exchange of Hong Kong has hosted 595 Mainland enterprise listings, which together raised a total of US$384 billion, as of end January 2011. These included the highly successful mega listings of all four state-owned commercial banks. Chinese enterprises now account for about 60% of Hong Kong's market capitalisation. The China factor has not only propelled Hong Kong to the top of the world IPO league, but also branded our stock exchange as the place to be for any international company with a good China story.
This is pushing the evolution of Hong Kong into a capital-raising platform for the world. Last year, the first company to list was South Gobi Resources, a mining company listed in Toronto but with mining assets in Mongolia. It was followed by the Russian company UC Rusal, then American International Assurance, British insurer Prudential and French skincare company L'Occitane. Italian luxury goods company Prada is seeking a Hong Kong listing this year.
This development as a global capital-raising centre stands alongside China's third reform initiative in which Hong Kong participates and one that is rapidly gathering momentum as we speak. In June last year, China announced an expansion in the use of its currency in cross-border international trade. Six months later, in January 2011, the yuan began to denominate overseas investments. The vision is bold, and in my view, its significance is no less than the economic opening in 1979. Its implications on the international currency reserves system will be profound.
There are two big hurdles in making a start - one, yuan are not convertible and two, there are virtually no yuan in use outside the Mainland. With one minor exception - as early as 2004, Hong Kong piloted a narrow banking service in yuan for retail customers and as a result, a small pool of yuan deposits has accumulated. We already have a clearing and settlement platform, and our banks are well plugged into the yuan business. With that head start, international banks in Hong Kong are well positioned to take advantage of the latest moves to bring yuan trade settlement, currency conversion and bond issuances to New York, London and other financial centres.
Walking through history helps us understand the unique role of Hong Kong in the strategic economic development of China. It is a role different from Shanghai and not replaceable by Shanghai. Hong Kong is part of China, yet distinct and separate from the financial markets of China under "One Country, Two Systems". This allows RMB convertibility to be tested in Hong Kong while providing a natural firewall to protect financial security on the Mainland markets.
Like the economic reform before, China's capital account liberalisation is an irrevocable process. Hong Kong's role as an offshore RMB capital market hub will only expand as the pool of offshore liquidity grows and as convertibility increases. Even though there are uncertainties as to the timetable and roadmap for this reform, it is a process that will not reverse itself.
Ladies and gentlemen, Hong Kong is unique in its status as a global financial centre, situated within a large and fast-growing economy. We are on course to contribute, in no smaller ways than before, to the unfolding transformation of China. Our continuing value proposition lies in our ability to serve the joint needs of the Chinese economy and the global financial community.
We value your participation in today's conference, and we hope you will gain insights about the exciting developments in our market.
New York is a city on the move and Hong Kong is a city on the go. We look similar, we treasure similar economic values and we have similar aspirations. Together we will make a great team in serving the needs of our economies, our markets and the rest of the world.
Thank you.
Ends/Wednesday, March 2, 2011
Issued at HKT 12:41
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