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Following is the speech by the Chief Executive, Mr Donald Tsang, at "Hong Kong: China's Global Financial Centre" Conference in Edinburgh today (September 15, Edinburgh time):
Mr Swinney, distinguished guests, ladies and gentlemen,
Good morning. I'm delighted to be here in Edinburgh. My only slight regret is that we couldn't hold this conference earlier to take advantage of the very best cultural entertainment at the Edinburgh Festival.
As the French writer Voltaire once said: "We look to Scotland for all our ideas of civilisation."
As you probably know, Voltaire was referring to the period of "Scottish Enlightenment" in the 18th Century that helped shape European society.
Given Hong Kong's long and deep connections to Scotland, we have also benefited from many great Scottish ideas.
A Scotsman, Thomas Sutherland, provided the inspiration for establishing a bank called the Hong Kong and Shanghai Banking Corporation (HSBC) back in 1865.
Nowadays, HSBC is a household name, while Hong Kong has firmly established itself as an international financial centre in the Asian time zone.
Today, I'd like to talk about Hong Kong's role in Asia's fast-moving financial markets and our ideas and aspirations for our city and our business partners, including those from Scotland.
I believe there is no better time than now to expand the already strong links between our two business communities.
Asia has emerged from the recent global financial crisis in relatively good shape. Hong Kong has made a full recovery, recording GDP growth of 7 per cent last year. In the first half of this year, our economy expanded by 6.3 per cent.
Part of Asia's recovery has been home-grown, and reflects the region's rapid and comprehensive policy response to the financial tsunami.
In particular, we learned some very important lessons from the Asian financial crisis a decade earlier. As a result, across our region, fiscal positions have improved, monetary policies have been strengthened and corporate and bank balance sheets are healthier.
When the global financial tsunami hit, many governments in Asia were able to cut interest rates sharply and implement large fiscal stimulus packages without creating policy excesses.
We all benefited from Mainland China's resilience to the global financial crisis. The Mainland helped to cushion an export collapse with strong domestic demand, lifting credit constraints and implementing an exceptionally large fiscal stimulus. At the outbreak of this financial tsunami, all of Asia lost about 20 per cent of its trade with Europe and America.
But what of Hong Kong?
Similar to Edinburgh, Hong Kong is built upon a rock; in our case famously suggested by Lord Palmerston in the 1840s to be a "barren rock". Fortunately for us, the past 170-plus years have been anything but barren.
Hong Kong has successfully evolved into an international business and financial centre. And we are not done yet.
Our unique and rapid development makes Hong Kong an interesting test case for the free economy philosophy.
The economist Milton Friedman long argued that economic freedom is a key to economic prosperity. Hong Kong's ranking as the world's freest economy by both the Heritage Foundation in the US and the Canada-based Fraser Institute for the past 17 years would seem to prove his point.
Friedman summed it up by saying, quote: "If you want to see capitalism in action, go to Hong Kong." I was rather amused in fact by the Guardian the day before yesterday. They published a report on my appearances at various seminars in London referring to me as a senior communist official from China. I was very "fascinated" because I have been known as a die-hard capitalist throughout the world, for what I've done and what I've said. And I haven't seen a communist wearing bow-tie either. For that matter they are very gracious to make the correction today. But it's interesting how a capitalist can be misunderstood.
The foundations that underpin Hong Kong's economic freedom include: the rule of law; the free flows of capital, ideas and information; a low and simple tax regime with profits tax of 16.5 per cent and salaries tax capped at 15 per cent. No income tax, no VAT, no estate duties, no capital gains tax and even zero duty on wine in Hong Kong. We also work hard to maintain a highly transparent and effective regulatory environment.
Let me highlight three areas to illustrate Hong Kong's strengths as both a global financial centre and as China's most important city for international finance.
First, we are increasing our cross-boundary collaboration with our immediate neighbours in Guangdong Province, particularly in the Pearl River Delta, or the PRD. This region is often called "the world's factory" because of its dynamic manufacturing base - which I hasten to add includes substantial Hong Kong investments. Eighty thousand Hong Kong factories operating there, employing over 10 million workers. Our closer links with the PRD are helping to open up new business opportunities and strengthen our financial ties with the Mainland.
Last year, we signed a Framework Agreement on Hong Kong/Guangdong Co-operation. This reflects a shared commitment to break down barriers to trade and investment and open up the flow of ideas and innovation throughout the PRD region.
The Agreement reaffirms Hong Kong's status as a global centre for finance, trade and logistics. By combining our city's strengths with those of our neighbour, we aim to establish the PRD as one of the most competitive regions in the world by 2020.
A number of major infrastructure projects are underway or planned to improve physical integration within the region.
These include: The Hong Kong-Zhuhai-Macao Bridge, which will span 30 kilometres and provide quicker and easier access to the relatively undeveloped western shores of the Pearl River Delta. An express rail line that will plug Hong Kong into our nation's expansive high-speed rail network. A new boundary crossing to improve access between Hong Kong and the fast-growing Shenzhen city in PRD.
These large scale projects will open up new opportunities and make it easier and more efficient to move people and goods around the region, and together with it, the movement of funds as well. The region measures about 180,000 square kilometres, more than double the size of Scotland. It has a population of more than 100 million - about 20 times the population of Scotland, or more than one and a half times the size of the UK.
The second area that highlights Hong Kong closer financial integration is our role in the liberalisation of the Mainland currency, the Renminbi.
At a time when markets in Europe and the US remain volatile, Asia, and in particular China, have been relatively resilient to the economic downturn.
Economists are debating when the Mainland currency, the Renminbi, will become an international currency. It will eventually, but it will take time. As China's global financial centre, the internationalisation of the Renminbi is a vitally important area for Hong Kong.
Meanwhile, under "One Country, Two Systems", Hong Kong will be the main testing ground for the wider international use of the Renminbi.
We bring to the table what no other city in China has - a freely convertible currency and have free flows of capital and information. Our financial system is highly transparent and is driven by international best practice. And we have the highly developed multi-currency, real-time gross settlement system needed to handle massive volumes of currency transactions.
Renminbi banking in Hong Kong has been gathering momentum since its launch in 2004. Today, some 128 authorised institutions engaged in Renminbi business including deposits, remittances, credit cards and checking accounts. Total Renminbi deposits in Hong Kong at the end of July topped 572 billion Renminbi, or about 55 billion Pounds.
A more recent development has been the introduction of the Renminbi trade settlement scheme. Businesses around the world are now able to settle trade using Renminbi with companies in the whole of China.
In the first seven months of this year, Renminbi trade settlement through Hong Kong's banking system reached 953 billion Renminbi, or almost 93 billion Pounds. I'm sure that by the end of this year, this will reach about 1.5 trillion Renminbi, and that would mean about 150 billion Pounds. In fact, trade through Hong Kong accounted for more than 80 per cent of the total cross-border trade settlement in Renminbi.
Our deep pool of local and international financial talent, and large cluster of international banks, makes Hong Kong an ideal conduit for the wider use of Renminbi outside the Mainland.
This brings me to my third point. How Hong Kong can use its special status as China's offshore Renminbi centre to play a greater role in the international financial community.
For one thing, we will continue to encourage more overseas companies to use Hong Kong as a centre for settling their Mainland trade in Renminbi, instead of using a third currency. In fact, we are now talking seriously with London how we would be able to help them to become a financial centre in Renminbi in western Europe. And we certainly would be able to help on the settlement and clearing system.
Last year, Hong Kong became the first place outside the Mainland to have an interbank market for Renminbi. Also, businesses from anywhere in the world can now open an account in Hong Kong and freely exchange Renminbi.
All this activity is encouraging a greater range of financial products in the marketplace. This is spurring Hong Kong's development as a capital-raising centre for overseas businesses.
Last year, fast-food giant McDonald's Corporation became the first non-financial overseas company to issue a Renminbi corporate bond in Hong Kong. This represented the start of a new funding channel for overseas companies looking to raise capital for their China operations. They may have difficulties in raising the same liquidity within the Mainland, but they would have this additional channel to do so through Hong Kong. Renminbi that raised can be then channeled back to the Mainland to help their operations on the Mainland.
In the first half of this year, 38 entities issued Renminbi-denominated bonds raising a combined total of 42.7 billion Renminbi or more than 4 billion Pounds.
We also see great potential for more overseas companies to list on the Hong Kong stock market.
For the past two years, Hong Kong has led the world in total funds raised through Initial Public Offerings (IPOs), surpassing London or New York. In recent months, high-profile brands including Prada, Samsonite, Prudential and L'Occitane have successfully listed in Hong Kong. I hope we will see Scottish companies launching IPOs in Hong Kong soon. And this is very important. It’s not only the question of raising liquidity in a very profitable market, but also companies which are listed profile themselves throughout the Chinese nation, attracting investors in the nation. To these companies, this is almost free advertisement, the best way of profiling a company in a huge economic area.
As well as tapping wealthy investors from the Mainland and across Asia, a Hong Kong listing also helps companies promote their brands across the region. That includes a potential customer base of over a billion people in China alone. Just imagine what that could do for your businesses!
Ladies and gentlemen, with me today are a number of representatives from Invest Hong Kong, our inward investment agency. InvestHK has a great track record of assisting companies, big or small, to set up in Hong Kong or expand their operations in our city.
They will be happy to share their experience and ideas with you. Please feel free to raise any questions with them about exploring the business potential in our neck of the woods.
Of course, we cannot guarantee that a business venture will succeed in Hong Kong, but we'll do our best to ensure that every company has the best opportunity to get it right.
Having said that, I can assure you, that the future in our part of the world is extremely bright. We look forward to seeing more great Scottish ideas, innovations and products coming to Hong Kong soon.
Finally, a heart felt "thank you" to InvestHK, Scottish Development International and Scottish Financial Enterprise for organising this event.
I wish you all a very fruitful conference.
Ends/Thursday, September 15, 2011
Issued at HKT 21:51
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