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Following is the speech by the Financial Secretary, Mr John C Tsang, at the HSBC Luncheon in Cape Town, South Africa, today (December 8, South Africa time):
Distinguished guests, ladies and gentlemen,
Good afternoon.
I am delighted to join you for lunch here in the wonderful city of Cape Town.
While flying in to Cape Town from Jo'burg yesterday, I was reminded of something the explorer Sir Francis Drake said about his first impressions of this part of the world in 1580. He said that "This cape is the most stately thing and the fairest cape we saw in the whole circumference of the earth." End quote.
From what I have seen so far, I tend to agree!
Cape Town's reputation as a safe haven for navigators who were brave enough to sail round the Cape of Good Hope earned it the nickname "The Tavern of the Seas" for its plentiful supplies.
This city continues to supply seafarers and city dwellers, tourists and entrepreneurs, and people like me, with unique opportunities and experiences - not to mention great food and great wine.
I am told that just 20 years ago, the Victoria and Alfred Waterfront comprised little more than a few taverns and a derelict railway that used to serve the old docklands.
The transformation of this area over the past two decades has been spectacular. The old smell of fish has been replaced by the sweet fragrance of success!
It is an example of what can be achieved with vision, collaboration and investment.
This brings me to the main theme of my talk today: the vision, collaboration and investment to take Hong Kong-South Africa relations to a new level.
Judging by past experience, HSBC will be an important part of this.
First of all, while HSBC has its headquarters in London and branches in Cape Town and around the globe, the bank's deepest roots are in Hong Kong.
The Hong Kong and Shanghai Banking Corporation showed great vision when it opened for business in our city in 1865.
HSBC has been collaborating with Hong Kong throughout its transformation from a small fishing village in the mid-19th century to a manufacturing hub in the 1960s and '70s, and into the international business and financial centre it is today.
Nowadays, Hong Kong is ranked alongside London and New York as an international financial centre, while HSBC is the world's local bank.
Given the growing trade between South Africa and Asia, and particularly with Mainland China, there is huge potential for our investors.
The economist Milton Friedman long argued that economic freedom is a key to economic prosperity. To support his argument, Mr Friedman said that "If you want to see capitalism in action, go to Hong Kong." End quote.
Our city has been ranked as the freest economy in the world for each of the past 17 years.
The foundations that underpin Hong Kong's economic freedom include: the rule of law; the free flows of capital, ideas and information. We also have a low and simple tax regime with profits tax of 16.5 per cent and salaries tax capped at 15 per cent. There is no VAT, no GST, 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. All this has provided a sound foundation for our growth and prosperity over the years.
Today, Hong Kong is home to around 7,000 companies from Mainland China, South Africa and around the world. They can take full advantage of our free and open economy as well as our proximity to, and close collaboration with, Mainland China.
Let me highlight three areas that illustrate Hong Kong's strengths as both an international business hub and as China's global financial centre.
First, we are increasing our cross-boundary collaboration with our immediate neighbours in Guangdong Province. 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 across the boundary.
The Framework Agreement reaffirms Hong Kong's status as a global centre for finance, trade and logistics. By combining our city's strengths with those of Guangdong, we aim to establish the Pearl River Delta (PRD) region as one of the most competitive regions in the world by 2020. The PRD region already has a population of over 100 million and is known as "the factory of the world" for its tremendous manufacturing output.
As China's global financial centre, Hong Kong is also fully engaged with the Central Government in the liberalisation of the Mainland currency, the Renminbi.
We bring to the table what no other city in China has - a freely convertible currency and 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. Currently some 130 authorised institutions offer Renminbi services, including deposits, remittances, credit cards and checking accounts. Total Renminbi deposits in Hong Kong at the end of October were around 620 billion Yuan, or almost 800 billion Rand.
A more recent development has been the Central Government's introduction of the Renminbi trade settlement scheme. Businesses around the world are now able to settle trade using Renminbi with companies throughout Mainland China. Since the settlement scheme was launched in 2009, banks in Hong Kong have handled over 80 per cent of the total amount, or about 1.7 trillion Yuan worth of trade settlement. Currently, about 10 per cent of Mainland China's trade is settled in Renminbi. It was near zero about a year ago. South African firms can reduce exchange rate risks and costs and become more attractive to Mainland buyers and suppliers by settling their trade in Renminbi.
We also see good opportunities for South African firms to use Hong Kong as a capital-raising centre. And that includes raising Renminbi capital for their Mainland operations.
Since 2007, Hong Kong has been the first and only place outside the Mainland to have a Renminbi bond market.
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.
Up to the end of October there have been 100 Renminbi bond issues in Hong Kong with a combined value of 166 billion Yuan, or about 211 billion Rand.
Another attractive capital-raising option is to list on our stock market, the Hong Kong Stock Exchange or HKEx. It is the seventh largest exchange in the world and third largest in Asia with market capitalisation of around US$2.1 trillion.
Almost 1,500 firms are listed in Hong Kong with over 40 per cent of them being Mainland Chinese companies.
I should also mention that companies engaged in the resource sector account for about 15 per cent of our stock market's total capitalisation. The great attraction here is the Mainland's energy-driven economic growth combined with Hong Kong's experience in handling Mainland-related investments.
South African firms wishing to raise capital in Hong Kong can launch IPOs or secondary listings or issue depository receipts.
In June last year, the HKEx updated the Listing Rules for mineral and exploration companies. The aim here is to provide more clarity and align our Listing Rules with international requirements, such as those adopted here in South Africa as well as in Canada and Australia.
I hope that it will also encourage resource companies from South Africa to consider taking advantage of the capital-raising opportunities in Hong Kong.
Recent listings include resource companies from Russia, Mongolia and Kazakhstan as well as Swiss-based company Glencore, which is the world's largest commodities trading firm.
Last December, Brazilian mining giant Vale SA became the first company to issue Hong Kong depository receipts.
Beyond the resource sector, there are also opportunities for South African brands to gain more exposure in Asia by listing on our stock market. Prada of Italy, L'Occitane from France and US firm Samsonite are among the firms listing in Hong Kong in the past 18 months.
Attractive valuations and the trusted Hong Kong "stamp of approval" help listed firms reach investors in the Mainland and across our region.
In 2009 and 2010, Hong Kong led the world in terms of total IPO funds raised. Last year, total IPO funds raised exceeded US$57 billion. So, we must be doing something right!
Given the uncertain economic situation in developed markets in the West, investors are increasingly looking to emerging economies for maximum growth potential.
In October this year, the HKEx joined a new alliance of exchanges in the BRICS economies, including the Johannesburg Stock Exchange.
This is a joint initiative to cross-list our respective benchmark equity index derivatives. We also intend to develop products to track these BRICS exchanges. This will give investors more confidence and opportunity to invest in our dynamic markets.
Ladies and gentlemen, I have mentioned some of the ways that South Africa and Hong Kong can deepen our business and financial links.
HSBC, with its Asian roots, local expertise and global reach, is an important bridge linking South Africa and Hong Kong and bringing together investors throughout our respective regions.
I also realise that this weekend is an important one for HSBC here in South Africa - and not only because there are just a handful of shopping days to Christmas.
The South Africa Rugby Sevens is taking place in Port Elizabeth at the weekend. The tournament is the third stop on the HSBC World Sevens Series. The world-famous Hong Kong Sevens will be the sixth leg of the World Series at the end of March next year.
As Hong Kong is not playing in P.E. (Port Elizabeth) this weekend, I wish the host nation a successful South Africa Sevens.
I also invite you to come and visit us in Hong Kong very soon. Like Cape Town, Hong Kong is also a port city. We don't have the V&A Waterfront but we do have a spectacular cityscape built up along our most precious natural asset, Victoria Harbour. In fact, the harbour gives our city its name. Hong Kong in Cantonese is Heung Kong, which means Fragrant Harbour. So please do come and experience the sweet smell of success Heung Kong-style.
Thank you very much.
Ends/Thursday, December 8, 2011
Issued at HKT 20:15
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