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Following is the speech by the Financial Secretary, Mr John C Tsang, at the 5th Annual Conference of the Hong Kong Investment Funds Association this morning (October 28):
Distinguished guests, ladies and gentlemen,
Good morning to you all.
I am delighted to join you all this morning.
I had the pleasure of speaking at the first Conference in 2007. Back then, the third term HKSAR Government was in its infancy, and I was new to the post of Financial Secretary. I also had less grey hair then!
As we are now in the final year of the current term of government, I decided to compare the points that I made in my talk here five years ago. It was an interesting exercise. Here are some of my observations.
In my talk in 2007, there was no mention of terms such as "credit crunch", "sovereign debt crisis", "financial tsunami" or "quantitative easing". People even don't know what QE was. They thought it was a big ship. All these excruciating experiences were to come later. Although these are not exactly new industry terms, they are now familiar to the general public and commonplace in the mainstream media.
Back in 2007, there was little mention of the National Five-Year Plan - after all, Hong Kong barely got a mention in the previous ones. And five years ago, there were few indications of the enormous opportunities that would emerge for offshore Renminbi business.
I also compared some of the figures from five years ago.
At the end of 2006, Hong Kong's combined fund management business amounted to around $6 trillion. Today it exceeds $10 trillion. This represents an annual growth rate of about 18 per cent over the past decade. Currently two-thirds of funds are sourced from non-Hong Kong investors. Hong Kong continues to be a preferred location for overseas fund managers in Asia.
Another interesting comparison is the number of high-net-worth individuals in the Asia-Pacific region - people with net assets of more than US$1 million. In the World Wealth Report released by Capgemini and Merrill Lynch in 2007, the number was 2.6 million in the Asia-Pacific. This year's report says there are now 3.3 million high-net-worth individuals in the region. That is more than the number of such individuals in Europe and second only to North America.
I mention these facts and figures because they illustrate some of the challenges and opportunities of the past five years. They highlight the uneven nature of the global financial crisis, and they demonstrate that our region is, indeed, riding the wave of change.
As most surfers will tell you, the challenge in riding any wave is to read the conditions, play to your strengths and anticipate your next move.
Let's take a brief look at the prevailing economic conditions.
Undoubtedly, we are facing a series of uncertainties and challenges: the unstable US economy and fiscal position, the Euro zone sovereign debt crisis, although there has been some movement of late, but we need to look at the details to see how that will progress, as well as inflationary pressures in the emerging markets, and these are just some of the topics on our radar screen.
Although we are affected by external forces, we are indeed fortunate in Hong Kong to have a relatively clear path ahead.
The IMF has projected real GDP growth in emerging Asian economies this year to be a healthy 8.2 per cent, and 8 per cent next year. Mainland China's real GDP growth rate is expected to remain robust at around 9 per cent next year.
Hong Kong's main advantage, as you all know, is its proximity to the Mainland and our well-defined status as a global financial centre in the Asian time zone.
Perhaps it is no surprise that The Banker magazine, in its asset management survey earlier this month, described Hong Kong as, and I quote, "an increasingly popular destination for asset managers".
This brings me to the main subject of my talk: the implication of the National 12th Five-Year Plan, and how Hong Kong's asset management industry can steer a path towards new opportunities.
Mainland China is now the world's second largest economy after the US. As the Mainland continues its reforms and opening up policies, Hong Kong is the ideal testing ground for Renminbi products.
We have free flows of capital, information and ideas; the rule of law; a transparent regulatory regime; open markets; and zero tolerance of corruption.
Over the past year, there has been significant progress in the development of offshore Renminbi business in Hong Kong.
At the end of August, total outstanding Renminbi deposits in Hong Kong amounted to some RMB610 billion. This compares to just RMB63 billion in 2009. Almost a tenfold increase.
In 2007, Hong Kong became the first and only place outside the Mainland to have a Renminbi bond market. Up to the end of September this year, there had been 95 Renminbi bond issues, with the total issuance size amounting to some RMB160 billion.
Building on this experience, and underpinned by our expanding pool of Renminbi liquidity, Hong Kong is fully involved in Renminbi trade settlement. In the first eight months of this year, more than RMB1 trillion worth of Mainland trade was settled in Hong Kong using the Mainland currency. This amounts to more than 80 per cent of the total trade settled in Renminbi.
The National 12th Five-Year Plan adopted in March this year explicitly supports the development of Hong Kong as an offshore Renminbi business centre and an international asset management centre.
For the first time, the Plan affirms the function and role played by Hong Kong's asset management industry.
I encourage you all to make the most of this opportunity.
Vice-Premier Mr Li Keqiang shed more light on the Central Government's aspirations for our asset management industry during his visit here in August this year.
The Vice-Premier announced new initiatives, such as allowing investments in the Mainland equity market through the RMB Qualified Foreign Institutional Investor scheme, or RQFII. He also announced the launch of an exchange-traded fund with Hong Kong stocks underlying on the Mainland.
And since Mr Li's visit, the Central Government has given approval for the first non-financial Mainland firm to issue Renminbi-denominated bonds in Hong Kong.
These measures will increase the supply of Renminbi in Hong Kong and stimulate the launch of more innovative Renminbi-denominated products.
These measures not only facilitate the development of Hong Kong as an offshore Renminbi centre, they also help promote the growth of our asset management industry.
The Government will, no doubt, continue to foster a favourable environment for the development of the fund industry in Hong Kong. We have launched a global campaign to promote Hong Kong as China's global financial centre. Successful promotions have been held in London and New York. The momentum of this campaign will continue with upcoming events, including roadshows in Switzerland and Luxembourg, and we will also have the 5th Asian Financial Forum in Hong Kong in January next year.
To enhance our financial infrastructure, we are also preparing legislative amendments to modernise our trust law. This will encourage more local and overseas settlers to choose our jurisdiction as the governing law of their trusts and administer their trusts in Hong Kong. We intend to consult the trade on the draft Trust Law Bill in the first quarter of 2012.
My final point today is Islamic finance. I spoke about this topic in some length in 2007. However, due in part to the distractions of the global financial crisis and other significant international events, this initiative has so far made modest progress.
Nevertheless, Hong Kong is well-suited to become a vibrant Islamic financial platform and market for Sharia-compliant bonds, or sukuks. This is an opportunity we will continue to pursue. We are working on a bill to provide a level playing field for sukuks vis-à-vis their conventional counterparts in terms of tax liabilities.
We aim to conduct a second round of consultation with major market players on the relevant details of our legislative proposal in the first quarter of 2012.
Ladies and gentlemen, despite the current global financial and economic uncertainties, Hong Kong is in relatively good shape. I am confident that, in five years' time, we shall be able to look back and see that our asset management industry has continued to progress by leaps and bounds.
I would like to take this opportunity to congratulate the Hong Kong Investment Funds Association on staging its 5th Annual Conference. I also thank all the participants and expert speakers for taking advantage of this Conference to share ideas and insights about Hong Kong's fund industry.
By adapting to the prevailing conditions, playing to our strengths and plotting a clear path forward, I have no doubt that our asset management industry will continue riding high on the wave of change.
Thank you very much.
Ends/Friday, October 28, 2011
Issued at HKT 11:42
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