***********************************************************
Following is a speech by the Financial Secretary, Mr John C Tsang, at a business luncheon co-hosted by the Hong Kong Trade Development Council and the Johannesburg Chamber of Commerce and Industry in Johannesburg, South Africa, today (December 6, South Africa time):
Distinguished Guests, Ladies and Gentlemen,
Good morning – or perhaps I should say "Howzit".
It is my great pleasure to be here in the Rainbow Nation.
First of all, thank you for coming to this luncheon.
I like to thank also the Johannesburg Chamber of Commerce and Industry and the Hong Kong Trade Development Council consultant office here in Jo'burg for organising this event.
I cannot think of a better way to kick off my visit to South Africa than with a few words of wisdom from the great statesman, Nelson Mandela.
Mr Mandela once said, that: "We must use time wisely and forever realise the time is always ripe to do right."
As we meet here beside Nelson Mandela Square, I promise to use my time with you wisely. In particular, I will explain to you why the time is ripe for South Africa and Hong Kong to forge deeper and broader links. I am not just referring to closer trade links, but also stronger financial, creative and cultural ties.
Broad and wide-ranging collaboration is the best way to turn the challenges of globalisation into opportunities for our economies and for our people. This is particularly the case now, given the unstable global economic climate.
I also believe that Hong Kong has an important role to play in the relationship between South Africa and our nation China. As members of the so-called BRICS group of major emerging economies, strong connectivity between our nations will help shape global economic growth in the 21st century.
Similar to South Africa, Hong Kong too, has experienced a period of great change, upheaval and progress in recent decades.
Hong Kong's reunification with Mainland China in 1997 brought a whole new set of challenges and opportunities for our community. I am pleased to tell you that, with hard work, confidence and sound planning, and perhaps a little bit of luck, we are making the most of our new relationship with our nation and, by extension with our partners around the world.
This brings me to the main topic of my talk: "Hong Kong – The Premier International Gateway to Mainland China". I should point out that this is not a new development. Hong Kong has acted as the swing-door into and out of China throughout our recent history. Since the Mainland embarked on its policies of reform and opening up in 1978, that door has been swinging wider open. Today, Mainland China is South Africa's single largest trading partner, and Hong Kong is in the thick of the action.
Nowadays, Hong Kong is much more closely integrated with our nation on all fronts in trade, investment, education and the creative and cultural spheres. This is good for our city and good for our nation.
At the same time, since reunification our city has retained all its unique ingredients for success. This is achieved under the principle of "One Country, Two Systems". This principle was first proposed for Hong Kong by the late Deng Xiaoping. It is now stipulated in our constitutional document, the Basic Law.
In a nutshell, Hong Kong is a city in China but outside the Mainland. Our city has grown up differently from the rest of the nation, and differently from the rest of our region. Herein lies our greatest advantage and the greatest competitive edge for overseas firms based in Hong Kong.
Under the principle of "One Country, Two Systems", Hong Kong retains its own legal system separate from that of the Mainland. Our common law system is based on the English system and underpinned by an independent judiciary.
We have our own freely convertible currency. The value of the Hong Kong Dollar and the South African Rand is close to parity. Our currency has been pegged to the US dollar since 1983. This currency peg has served our city well over the years, in times of prosperity and in times of economic uncertainty.
We also have our own low and simple tax regime. In Hong Kong, profits tax is capped at 16.5 per cent and people pay no more than 15 per cent in salaries tax. There is no VAT or GST, no death duties and no capital gains tax. We also have zero wine duties which have captured the attention of the global wine industry, South African wine merchants among them. I should also mention that we don't pay taxes to the Central Government in Beijing.
All this, together with free flows of information, ideas and talent has contributed to Hong Kong's ranking as the world's freest economy for the past 17 years.
In our experience, open markets and low taxes – or no taxes - encourage productivity and innovation and create jobs and wealth.
Currently almost 7 000 Mainland and overseas companies use Hong Kong as their base in Asia. More than half (3,752) of these firms run their regional operations out of Hong Kong. Although Hong Kong is a relatively small place, especially compared to South Africa, I can assure you that there is still plenty of room to accommodate more companies.
Major South African firms based in Hong Kong are involved in a broad range of activities. They include financial services, trading, aviation, mining and food and beverage, to name just a few.
Think of Hong Kong as a two-way platform. On the one hand, Mainland Chinese companies take advantage of our city's international connections, standards and experience to go global. At the same time, many of the foreign firms in Hong Kong, including South African companies, are keen to tap the huge market potential in Mainland China – a rapidly developing country of 1.3 billion people.
One of our great advantages is the free-trade pact with Mainland China, what we call the Closer Economic Partnership Arrangement, or CEPA. This is the only instance of a city having a free trade arrangement with its sovereign – another example of "One Country, Two Systems" at work.
Under CEPA Hong Kong firms have a "first-mover" advantage in the Mainland. Products carrying the "Made in Hong Kong" label enjoy tariff-free access to Mainland markets. CEPA also provides for preferential access to Mainland markets in 44 services areas, including key sectors such as logistics, legal services, financial services, mining and science and technology services.
The important thing to remember here is that CEPA rules are nationality-neutral. In other words, South African companies and all foreign firms incorporated in Hong Kong, can enjoy the full benefits of CEPA.
My final point today is about financial co-operation. We welcome investors from South Africa to take full advantage of Hong Kong's position as a global financial centre in the Asian time zone.
One way to do that is to use Hong Kong as a capital-raising platform. For each of the past two years, Hong Kong has led the world in funds raised through Initial Public Offerings (IPOs). Last year alone, total IPO funds raised in Hong Kong amounted to some US$57 billion, or almost 500 billion Rand.
In the past couple of years, we have been attracting more foreign companies to list in Hong Kong. Resources firms from Russia, Mongolia, Kazakhstan and Brazil are among them. High profile Italian and French brands have also launched successful IPOs in Hong Kong. I hope South African companies will soon follow suit.
A listing in Hong Kong not only attracts wealthy investors from Hong Kong, the Mainland and around Asia, it also raises the company's profile in our region. Those involved in the resources sector can also leverage the Mainland's high demand for energy.
Another development has been Hong Kong's emergence as a key testing ground for Mainland China's financial reform. This provides opportunities for South African companies.
Hong Kong's role in streamlining the Mainland's financial system with that of the rest of the world covers three broad areas. These areas are Renminbi banking, Renminbi trade settlement and Renminbi capital raising.
Renminbi banking was launched in Hong Kong in 2004. Banking institutions across the city have embraced this development and established a full range of Renminbi banking services for their customers. As at the end of September, total Renminbi deposits in Hong Kong exceeded 620 billion Renminbi. That is more than double the amount at the start of this year.
In 2007, Hong Kong became the first and only place outside the Mainland to have a Renminbi bond market. Today, local and overseas firms are able to issue Renminbi bonds to raise capital for their operations in Mainland China. US companies McDonald's and Caterpillar were among the first foreign firms to issue such bonds. Trans-national organisations, including the Asian Development Bank and the World Bank have also tested the waters for these products. Since 2009 the Central Government in Beijing has issued sovereign bonds in Hong Kong on three separate occasions, most recently a 20 billion Renminbi issue in August this year.
Turning to Renminbi trade settlement, which was launched by the Central Government in Beijing in 2009. The Scheme enables companies around the world, including South Africa, to settle their Mainland trade in Renminbi instead of a third currency. This can remove exchange rate uncertainty and attract Mainland partners who prefer to do business in Renminbi. Supported by our experience in Renminbi business, Hong Kong banks have so far handled some 1.7 trillion Renminbi worth of trade settlement, which is over 80 per cent of the total.
Ladies and Gentlemen, I have mentioned some of the opportunities for South African entrepreneurs to deepen their engagement with Hong Kong, with Mainland China and with our region.
We are already on the right path. Last year, the total value of trade between South Africa and Hong Kong reached almost 12 billion Rand (HK$11 billion).
In the first nine months of this year, our bilateral trade increased 24 per cent (24.3%) compared to the same period last year. South Africa is our largest export market in Africa with total exports last year valued at 6.3 billion Rand.
Our relationship reminds me of an old African proverb that says: "If you want to go fast, go alone. If you want to go far, go together."
South African entrepreneurs have already established deep roots in Hong Kong. I am confident that the time is ripe to deepen our mutual engagement on all levels so that South Africa and Hong Kong can go even further together.
Thank you very much.
Ends/Tuesday, December 6, 2011
Issued at HKT 20:37
NNNN