************************************************************
Following is the speech by the Chief Executive, Mr Donald Tsang, at the dinner hosted by Standard Chartered Bank in Santiago, Chile, on April 12, Santiago time:
Distinguished guests, ladies and gentlemen,
Buenas tardes (Good afternoon). I am delighted to be here in Santiago.
First of all, I'd like to thank Standard Chartered for organising this event and thank you all for your warm welcome.
Standard Chartered has a long and distinguished history in Hong Kong, dating back more than 150 years. When the bank first set up shop in Hong Kong in 1859, our city was little more than a sleepy fishing village with big ideas.
Today Hong Kong is a leading international business and financial centre in Asia - and Standard Chartered has been with us every step of the way.
Hong Kong is among the top 10 international banking centres in the world. We have a critical mass of international banks of around 70 of the world's largest 100 banks that operate in our city, with Standard Chartered being one of them.
Financial services is a highly competitive industry in Hong Kong and elsewhere. The industry accounts for more than 15 per cent (15.4 per cent) of our city's GDP.
Competition for business in our region has become especially keen since the recent global financial crisis. Over the past few years, we have seen the global economy's focal point shift away from traditional markets in the West towards emerging economies in Asia and also here in South America.
One of the best ways to take advantage of this trend is to foster closer links among our emerging economies. Greater understanding and stronger ties between us will also help avoid some of the pitfalls that contributed to the global financial crisis in the first place.
Hong Kong's key advantages are threefold.
First, we have a prime location on the doorstep of Mainland China. As you may know, the Mainland recently overtook Japan to become the world's second largest economy, so we are definitely in the right place at the right time.
Second, Hong Kong is consistently ranked as the world's freest economy by the Fraser Institute in Canada and the US-based Heritage Foundation. No doubt this will carry weight with our friends here in Chile. The latest Heritage Foundation report, which was announced in Hong Kong in January, ranks Chile as the freest economy in Central and South America.
Our third advantage is the principle of "One Country, Two Systems". Under "One Country, Two Systems", Hong Kong enjoys both the "China advantage" and the "Global advantage". This win-win scenario has helped propel our economic and financial development.
Banking services, asset management, capital raising, insurance and the internationalisation of the Mainland currency, the Renminbi, are among our key focus areas in the financial services sphere. These are all made possible because of the underpinning that we have, which is not available in Mainland China. That underpinning includes a level playing field for business, a convertible currency, an independent judiciary, and a sense of fair play for everyone. And on top of that all, a very clean administration. Then we have a free flow of information. What is more, the Government is never being arrogant. Our way is humble, and we have to be humble. We are taken to court almost every day, and we often lose, by the way. Not that it reflects our inability or incapacity in any way, but it just reflects the litigious society that we have. And our fair play is an important asset that we have in the value system of the Hong Kong people.
Although Hong Kong felt the full impact of the 2008 financial tsunami, our sound banking system with well-capitalised lending institutions helped us weather the storm. Our strong banking infrastructure has been crucial in maintaining stability and confidence during uncertain times.
Hong Kong is ahead of the game in implementing the latest Basel Accords in terms of new capital requirements and liquidity standards. We plan to implement Basel III on January 1st next year. This will help to make our banking sector even more robust and competitive and enhance stability in our financial markets and overall economy.
Under "One Country, Two Systems", Hong Kong people continue to run Hong Kong in much the same way as we always have done, with a high degree of autonomy.
We have free flows of information, ideas and capital as well as a highly transparent regulatory regime. Our low and simple tax system means that companies pay no more than 16.5 per cent profits tax, which, I note, is just slightly lower than Chile's competitive corporate tax rate. (Chile corporate tax rate: 17 per cent in 2011, 18.5 per cent in 2012, 17 per cent in 2013.)
In Hong Kong, salaries tax is capped at 15 per cent. There are no withholding taxes, no VAT or GST, no capital gains tax and no death duties, and only income sourced in Hong Kong is taxable in Hong Kong.
We also maintain our own common law legal system, which is separate from the Mainland's legal system, and underpinned by an independent judiciary.
With low taxes and a highly open economy, Hong Kong is the preferred platform to carry out both China-related activities globally and also global operations in the Greater China market.
The Central Government in Beijing has thrown its full support behind Hong Kong's role as China's global financial centre. We are fully engaged in what is potentially the most far-reaching financial trend today - that is, the liberalisation of the Chinese currency, the Renminbi.
Maybe there is a little story I wish to tell you. The China trade, three years ago, was almost entirely denominated in US dollars. There was a huge trade but everything was done in US dollars. But three years ago, something changed. Trading partners began to suggest, and China suggested, that we should do it in Renminbi in order to avoid unnecessary exchange rate risks. Nowadays, about 9.5 per cent of the entire trade of China is denominated in Renminbi. And all that 9.5 per cent almost entirely is cleared and settled in Hong Kong. But what is the value of that? Three years ago, we cleared and settled round about RMB1.9 billion. Last year, in 2011, we cleared RMB1.9 trillion. That is, in another words, within a period of two years, it has grown 1,000 times. And there is no hiccup. The Central Bank in China, People's Bank in China, was happy about what we are doing, the clearing system was good, and meanwhile we have developed derivative products in Hong Kong.
We also invited international firms to raise their Renminbi demand in Hong Kong. Some foreign firms may not find it easy to raise Renminbi in the Mainland banking system, so they come to Hong Kong. That included, for instance last year, the Caterpillar and the McDonald's of this world, the Vale of Brazil and L'Occitane in France and Prada in Italy and RUSAL in Russia. They come to Hong Kong either for listing purposes or for raising Renminbi bonds. And this will allow them to take the money they raised legitimately back into China for doing whatever they want to do there. In other words, we provide a through service. Say if a Chilean company who wants to do business - they have the technology or product they want to sell in China - what they could do is try to get the resources, liquidity, Renminbi in Hong Kong, and take the product to China, probably to join up with a partner in Hong Kong, and we are good partners for them.
Hong Kong is the number one investor in the whole of the China for the last 30 years. We are the number one external investor in each and every province in China. In other words, our commercial coverage almost relates to all the commercial disciplines, whatever you do, whether it is manufacturing, whether it is infrastructure, we have got the connections there. So we really believe my mission coming over here is to ask businessmen in Chile to think bigger. Of course the distance is far - we are about 20 or 25 hours of flying time between ourselves here and China - but then the market is there. The market is there. So far we haven't got one single Chilean bank in Hong Kong, and we have no listing of Chilean firms in Hong Kong, and we have no Chilean firms raising their capital in Hong Kong. You are missing the trick, the next wave of the global economic growth will happen in Asia, particularly in China. It is important, for trading, for yourself - your largest trading partner is China. You must leverage on that position, do something else: not only selling copper, selling other things as well, which you are good at. I believe there is something in it for you and we are there at your service.
Since the onset of the financial crisis in 2008, there have been calls for a more balanced international monetary system to complement the US dollar. As the second largest economy and the single largest exporter in the world, Mainland China is keen to expand offshore Renminbi business.
With our free capital flows and deep pool of international talent, Hong Kong is an ideal testing ground for our nation's financial reforms.
To promote the cross-boundary use of Renminbi between Hong Kong and the Mainland, we have established extensive links with the Mainland's onshore market through three bridges. These are: trade settlement, direct investment and portfolio investment.
This is a national strategy supported by the Central Government in Beijing. Last year, the Central Government announced a package of measures to propel Hong Kong's development as an offshore Renminbi business centre. These measures enhance each of the three bridges I have just mentioned.
They include expanding the Renminbi trade settlement scheme to cover the whole of Mainland China. For the first time, Chilean companies and firms around the world are able to settle their Mainland trade in each and every Mainland province using Renminbi.
Chilean companies settling their Mainland trade in Renminbi can reduce exchange rate risks and attract Mainland partners who prefer to settle their trade in Renminbi. Hong Kong is well placed to provide the Renminbi trade settlement service. In fact, the value of Renminbi trade settlement conducted through Hong Kong's banks has grown from RMB1.9 billion in 2009 to RMB1.9 trillion in 2011, i.e. an increase of over 1,000 times in just two years' time, representing over 90 per cent of all global trade settlements in Renminbi.
Another initiative is to introduce a Renminbi Qualified Foreign Institutional Investors (RQFII) scheme for investing in Mainland securities markets. There are also pilot arrangements for foreign banks to increase liquidity of their Mainland subsidiaries using Renminbi, and to expand Renminbi bond issuance in Hong Kong.
All these represent important opportunities for Hong Kong's financial services sector and for our partners around the world. It is also an incentive for our lenders to expand their range of Renminbi financial products. These include investment funds, insurance products and risk management instruments. The first Renminbi Real Estate Investment Trust was listed on the Hong Kong Stock Exchange a year ago, and the first Renminbi-denominated gold ETF (exchange-traded fund) was listed in February this year.
The development of offshore Renminbi business is not limited to Hong Kong. We encourage financial institutions elsewhere, including here in Chile, to use Hong Kong as a platform to develop their own Renminbi portfolios.
I should also mention that Hong Kong has a Renminbi Real Time Gross Settlement system capable of handling large quantities of Renminbi payments safely and efficiently.
So, while Hong Kong is a relatively small place with a population of around 7 million people, we have learned to box above our weight as an international business centre and financial hub in the Asian time zone.
Our stock market is the sixth largest in the world and second largest in Asia by market capitalisation. The market cap is around US$2.5 trillion (see Note). Listed companies are able to tap into wealthy investors in Mainland China and around Asia and raise the profile of their brands across our region.
In each of the past three years, Hong Kong has led the world in terms of funds raised through initial public offerings, or IPOs. We have also attracted more foreign firms to list in Hong Kong. These include companies from France, Italy, the US, Russia and Kazakhstan.
In 2010, Brazilian mining giant Vale SA became the first foreign company to issue Hong Kong depository receipts.
I encourage Chile's resources sector to consider the potential of a Hong Kong listing. Remember that our nation is a major consumer of mining commodities while Chile is a major exporter. It is a promising combination.
Ladies and gentlemen, my overriding message today is that we welcome more Chilean investors to take advantage of Hong Kong's position as a global financial centre in the Asian time zone and as China's international financial centre.
New financial developments are coming thick and fast. I am pleased to have this chance to update you on some of the latest initiatives. I look forward to learning more about ways to strengthen Hong Kong's links with Chile's vibrant and diverse economy.
Thank you for this opportunity to meet with you today and I wish Standard Chartered continued success here in Chile, in Hong Kong and around the world.
Muchas gracias (Thank you)!
Note: Figures at end January 2012.
Ends/Friday, April 13, 2012
Issued at HKT 19:50
NNNN
