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Following is the speech delivered by the Financial Secretary, Mr John C Tsang, at "Greater China Conference ¡V China 2011: From Rising Power to Centre Stage" organised by Macquarie Group Limited today (May 11):
Mark (Duncan), distinguished guests, ladies and gentlemen,
Good morning.
I am delighted to join you again this year for the Macquarie Greater China Conference.
A warm welcome to you all, particularly our friends from overseas. I wish you a most enjoyable stay here in Hong Kong.
This is the third time that I'm privileged to speak at this conference. If you were here last year, you may recall that I used a golfing analogy to describe our overall approach to the economic recovery.
The general philosophy was to play it safe during uncertain economic times and avoid making rash moves that could land us in trouble. This prudent strategy has paid off for us.
Interestingly for golf fans, the golfing world has gone through quite a transition, rather traumatic for some, I believe. A couple of years ago, Americans dominated the golf world rankings, and Tiger Woods seemed to have installed himself as the number one golfer for life.
Today, an Englishman is number one, four Europeans are in the top five of the world rankings, and a little known South African recently won this year¡¦s US Masters.
Over a similar period of time, the financial world too, has been turned almost on its head. The advanced economies have encountered structural shifts that would take years to unwind, but most significant of all is the changes in the emerging economies, particularly China¡¦s progression from being a rising power to taking centre stage.
Last month, I visited the Mainland cities of Chongqing and Chengdu. Business and financial activities in both of these so called second line cities were amazingly impressive. You can see why this is so given the strategic location of these centres of population in helping to tap the vast potential of China¡¦s western region.
In the overall scheme of things, Hong Kong continues to have an important role to play as our nation develops its financial services sector and opens up further to the rest of the world.
In terms of world rankings, Hong Kong has remained the world's freest economy for each of the past 17 years according to the US-based Heritage Foundation. Our stock market has been number one for IPO funds raised for each of the past two years. And Hong Kong has cemented its position as the leading offshore centre for business using the Mainland currency, the Renminbi.
Of course, for us, world rankings are not the ultimate goal. But they do provide an indication as to where our strengths lie and what challenges we are likely to face.
Hong Kong's strengths are also reflected in our nation's 12th Five-Year Plan. This development blueprint was unveiled by the Central Government in March this year. I shall talk more about that later.
But first, allow me to give you the macroeconomic perspective of our nation's progression from rising power to centre stage.
First of all, the global financial crisis has really shaken things up. Today, emerging and developing economies are generally faring better than more established financial powerhouses in the West.
The International Monetary Fund (IMF) has forecast global economic growth of 4.4 per cent this year. This follows growth of 5 per cent last year. The IMF also expects growth in emerging and developing economies to outpace advanced economies. It estimates that these developing economies will expand at an above average rate of 6.5 per cent in 2011.
I don't expect this comes as breaking news to Macquarie. I understand that you have been expanding the Group's footprint in emerging economies for some time, and you will surely appreciate the momentum of growth in these areas.
The IMF's prediction that the Mainland's economy will grow by 9.6 per cent this year is another sign that, here in Hong Kong, you are in the right place at the right time.
Another interesting forecast from the IMF is that, based on purchasing power parity, PPP, China will overtake the US as the world¡¦s largest economy by 2016 - in just five years' time.
Once again, world rankings indicate both strengths and challenges.
In terms of economic growth, the uneven pace of the global recovery, combined with rising inflation, represents our most pressing challenges.
The recovery in the US is finally showing some signs of life. In recent months, consumer and business spending have seen some revival. Production activity has also picked up somewhat in the US.
Yet the fundamentals remain weak. These include a depressed housing market, ongoing de-leveraging, and high unemployment which is still lingering at 8.8 per cent in March. The stimulus measures introduced during the global financial crisis have provided some support to the economic recovery. At the same time, these measures, including quantitative easing, have exacerbated the already high government debt level, which will likely reach 99.5 per cent of GDP in 2011 as forecast by the IMF.
Over in Europe, we see a divergent growth pattern. There is a core of steady growth in countries, such as Germany and France. Other EU member states are considerably more sluggish with Greece, Portugal and Ireland having to accept bailouts from the IMF.
Unemployment in the Eurozone, which was 9.9 per cent in March, is a lingering concern. This is especially worrying now that inflation is trending up. Just last month, the European Central Bank raised interest rates by 25 basis points to counter inflation. This is a strong signal of the concerns in Europe.
Fortunately, for us, the picture is quite different here in Asia.
Mainland China continued to experience strong GDP growth of 9.7 per cent in the first quarter of this year.
Despite the need to tighten policy to tackle the threat of rising inflation, Asian economies are widely expected to continue to outperform major advanced economies. This is largely due to sound fundamentals and strong domestic demand.
Here in Hong Kong, activities have remained quite vibrant in the first quarter of this year. After recording overall economic growth of 6.8 per cent last year, we forecast 4 to 5 per cent GDP growth this year, and the upside is looking increasingly apparent.
In the first quarter of this year, the volume of retail sales expanded at a double-digit rate of 16.3 per cent.
Our labour market has continued to improve, with the unemployment rate falling to 3.4 per cent in the first quarter of 2011, adding to rising wage pressure.
Job opportunities have increased notably for both higher-skilled as well as lower-skilled workers. Business sentiment remains positive.
However, with abundant global liquidity and surging international food and commodity prices, our region is currently facing the dual threat of rising inflation and asset market bubble risks.
The robust economic condition in the region are fuelling domestic cost pressures. Hong Kong is no exception.
Fighting inflation will be our most important local task this year. In my Budget in February, I announced a series of one-off relief measures. These are aimed at helping to ease the pressure from higher inflation on the livelihood of the lower-income people.
Our main strategies include cooling the property market, preventing excessive credit growth, and pursuing a prudent fiscal policy. We shall monitor the situation closely and implement appropriate measures, when necessary, to maintain macroeconomic and financial stability.
Conditions for sustainable recovery in key advanced economies are not yet fully in place. The ultra-loose monetary stance is expected to prevail for an extended period, and that would heighten the volatility in the financial and currency markets, and increase asset bubble and inflation risks in our region.
New geo-political challenges have also emerged. Political and social unrest in North Africa and parts of the Middle East is impacting on commodities prices, especially oil.
Also, the full implications of the earthquake and tsunami in Japan are yet to be revealed. This is particularly so with the incident at the Fukushima Nuclear Power Plant.
Although the incident is likely to cause some short-term disruptions to regional trade, investment and people flows, it should not significantly derail the economic growth of our region.
So what does all this mean for the Mainland's elevation to centre stage and Hong Kong's positioning as China's Global Financial Centre?
In a nutshell, Hong Kong is where the China advantage and the global advantage converge.
Hong Kong enjoys deep and broad connections with the Mainland Chinese market. We have a unique role to play in the rapid development of the Mainland¡¦s capital markets and the internationalisation of its currency.
The recently announced 12th Five-Year Plan, which I referred to earlier, encourages Hong Kong's further development as the offshore Renminbi business centre and international asset management centre.
In the Plan, the Central Government also reinforces its support for Hong Kong¡¦s position as China's Global Financial Centre.
This includes the expansion of Renminbi business in Hong Kong. This is an area where we have made enormous strides in the past year. Outstanding Renminbi deposits jumped from around RMB60 billion in early 2010 to over RMB450 billion according to the latest figures.
An impressive variety of issuers, including the Ministry of Finance of the Central People's Government, corporations, such as Hopewell Highway Infrastructure, Caterpillar and MacDonald's, as well as financial institutions from Hong Kong, the Mainland and overseas, such as the Bank of China, HSBC and the Bank of East Asia, have issued Renminbi bonds in Hong Kong. International organisations, including the World Bank and the Asian Development Bank, have also completed successful issuances.
Hong Kong also handles the lion's share of international trade settlement conducted in Renminbi between third countries and the Mainland. The Renminbi trade settlement pilot scheme was introduced in 2009 and expanded last year. Currently, Hong Kong accounts for over 70 per cent of the Mainland's Renminbi trade settlement. However, the base level is still relatively small. Yet, there is clearly huge potential to expand Renminbi trade settlement, given the current volatility of exchange rates as well as the Mainland¡¦s rapid economic growth and the increased trade flow.
In parallel, the value of assets managed by fund managers in Hong Kong has rebounded strongly since 2009. This has been fuelled by the recovery in global financial markets as well as the expansion of some major companies in our region.
The many innovative outfits in hedge fund management, venture capital and private equity springing up in our city have been impressive.
Hong Kong remains a premier capital formation centre globally. Total IPO funds raised in Hong Kong last year exceeded US$57 billion. We were able to welcome companies from Russia, Brazil and France to list on our stock exchange for the first time.
In terms of our position in the global arena, Hong Kong has long been recognised as a major financial centre in the Asian time zone. The latest Global Financial Centres Index ranks Hong Kong alongside London and New York with a distinct lead over other major financial centres around the world.
Our business environment is world-class and fully integrated with the international community. This includes a highly open and internationalised market, a regulatory regime that is aligned with major overseas markets, the rule of law, a rich pool of professional talent, robust infrastructural support and the free flow of information and capital.
All these attributes make Hong Kong an ideal place from which to carry out China-related activities as well as global operations - especially those with an emphasis on Asia.
We welcome financial institutions and other businesses to come to Hong Kong, where they can tap into two pools of opportunities, both in Mainland China and also throughout our region.
Our city's simple formula for success is this: "China Advantage" plus "Global Advantage" equals "Hong Kong Advantage".
Ladies and gentlemen, looking ahead, the economic emergence of our nation and our region on centre stage will continue to produce opportunities for Hong Kong and for our business community.
We will continue to play a full and enthusiastic role in the gradual development and liberalisation of Mainland China's financial markets. This is ingrained in our city's financial DNA and endorsed by the Central Government's 12th Five-Year Plan.
The unprecedented opportunities brought about by the changing global financial landscape and new economic order converge in Hong Kong.
As our nation takes centre stage, Hong Kong will play a strong role in connecting the Mainland to the rest of the world. And the best way to achieve that is by providing a business-friendly environment for our companies, including the Macquarie Group, right here in Hong Kong.
I wish to thank Macquarie for its commitment to Hong Kong, and wish you all a fruitful Greater China Conference. I also wish our visitors a memorable stay in Hong Kong.
Thank you very much.
Ends/Wednesday, May 11, 2011
Issued at HKT 11:02
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