*****************************************************
Following is the speech by the Financial Secretary, Mr John C Tsang, at a business luncheon organised by the Hong Kong Economic and Trade Office in Singapore and the Hong Kong Trade Development Council in Bangkok, Thailand, today (April 27):
Distinguished guests, ladies and gentlemen,
Sa-wat dee khap (Hello in Thai).
It is my great pleasure to be here in Bangkok.
Thank you for your warm welcome.
It is easy to see why your beautiful country is a top destination for Hong Kong visitors. Great food, fantastic scenery and warm hospitality are the hallmarks of Thailand.
The many friends of Thailand in Hong Kong and around the world were shocked and saddened by the terrible floods here last year. We were also impressed by the way the Thai people responded to the disaster and got the country, and especially its capital city, back on track.
I am pleased to see that Bangkok is at its best once again and that your economy is doing well this year. No doubt, Hong Kong people will be eager to spend their holidays on your beaches and in your shops, your restaurants and your spas again this year.
While tourism is a key industry for both Thailand and Hong Kong, the focus of my talk today is on an equally important and fast-evolving topic, Hong Kong's role as a global asset management centre and fund-raising hub.
I shall talk about some of the latest developments in this area and discuss ways that they can benefit Thailand's companies doing business in Hong Kong, in Mainland China and around our region.
Hong Kong and Thailand have evolved very differently, but we are united by our prominent roles in the region and by the friendship of our two communities.
This year marks the 15th anniversary of Hong Kong's reunification with Mainland China. There is, of course, much to celebrate. Perhaps most important for us is that the principle of "One Country, Two Systems", continues to underpin our city's success. Under the principle, we continue to enjoy a high degree of autonomy with Hong Kong people running Hong Kong in much the same way as we have always done – with passion, with entrepreneurial flair and with a "can do" spirit.
We continue to enjoy free flows of information and ideas in an unfettered media environment. We maintain our own financial system, separate from that of the Mainland's system. We have free flow of capital. We have a highly transparent regulatory regime. And we have a low and simple tax system. In Hong Kong, companies pay no more than 16.5 per cent profits tax. Salaries tax is capped at 15 per cent. There are no withholding taxes, no VAT, no GST, no capital gains tax and no death duties. Only income sourced in Hong Kong is taxable in Hong Kong. Even wine causes zero duties in Hong Kong.
All this, along with our mature common law legal system, independent judiciary and clean and efficient civil service, has enabled Hong Kong to flourish as an asset management and fund raising centre.
Thailand is already familiar with Hong Kong's advantages as a great place to do business.
Despite the floods last year, the value of our bilateral trade exceeded HK$120 billion or about 470 billion baht, a seven per cent increase year-on-year. Also in 2011, Thailand was Hong Kong's ninth largest trading partner and our eleventh largest market for our exporters. At the same time, Hong Kong was Thailand's seventh largest trading partner and fourth largest export market.
Thailand is also ahead of the curve in terms of using Hong Kong as a springboard to reach markets in Mainland China. Last year, almost 17 per cent (16.7 per cent) of Thailand's trade with the Mainland was routed through Hong Kong.
This brings me to a very important development, Hong Kong's emergence as a platform for offshore business using the Mainland currency, the Renminbi. This is particularly significant given the uncertainty of financial markets in other parts of the world, most notably in Europe and the US.
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 liberalise its currency and expand offshore Renminbi business. With Hong Kong's free capital flows and deep pool of international talent, our city is an ideal testing ground for our nation's financial reforms. This is more than wishful thinking, it is an essential part of our nation's development blueprint, the 12th Five-Year Plan. The Plan was announced in Beijing last year and fully supports Hong Kong's development as the nation's global financial centre and offshore Renminbi business centre.
Offshore Renminbi business is a fast-moving area that has really taken off in the past couple of years. Today, Thai companies, and businesses around the world, can settle their trade with Mainland partners using Renminbi. Investors can issue Renminbi bonds and expand their Renminbi portfolios through Hong Kong.
All this would have been unthinkable just a few years ago.
Renminbi banking, bonds and trade settlement are the three pillars of our offshore Renminbi business.
Last August, the central government expanded its Renminbi trade settlement scheme to include each and every province in the Mainland.
In 2011, the value of Renminbi trade settlement conducted through Hong Kong's banks reached 1.9 trillion Renminbi, or about 9.3 trillion baht. That amounts to 92 per cent of total Renminbi trade settlement last year. Hong Kong's tried and trusted settlement services can enable Thai companies to settle their Mainland trade in Renminbi safely and efficiently. This would help reduce exchange rate risks and costs, and attract Mainland partners who prefer to settle their trade using Renminbi.
The growing volume of trade settlement in Hong Kong has expanded the pool of Renminbi liquidity in our financial system. This trend is expected to significantly increase Hong Kong's share of the global banking industry and status as China's global financial centre.
At the end of January, total Renminbi deposits in Hong Kong were around 576 billion Renminbi, or over 2.8 trillion baht. This ample liquidity provides a sound foundation on which to develop new financial products for firms to raise capital. In 2007, Hong Kong became the first and only place outside the Mainland to have a Renminbi bond market.
Since then, companies around the world have issued Renminbi bonds in Hong Kong to finance their Mainland operations. These include leading global brands, like McDonald's, Caterpillar, VW and Unilever just to name a few. International institutions, such as the World Bank and the Asian Development Bank, have also issued Renminbi bonds in Hong Kong while the central government in Beijing has issued Renminbi sovereign bonds on three separate occasions. This is a huge vote of confidence in our city's financial expertise.
Up to the end of February, a total of 134 Renminbi bond issues had been offered. The total issuance size is almost 200 billion Renminbi (RMB197.9b). Last year alone there were 91 bond issuances with a total value exceeding 107 billion Renminbi (534 billion baht).
All this represents important opportunities for Hong Kong's financial services sector and for our partners in Thailand and around the world. It is also an incentive for our lenders to expand their range of Renminbi financial products, such as investment funds, insurance products and risk management instruments. The first RMB-denominated Real Estate Investment Trust, the RMB REIT, was listed on the Hong Kong stock exchange last year, and a RMB-denominated gold ETF was listed in February this year.
Another initiative is the introduction of a RMB 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.
The development of offshore Renminbi business is not limited to our city. We encourage financial institutions elsewhere, including here in Bangkok, to use Hong Kong as a platform to develop their own Renminbi portfolios.
I should also mention that Hong Kong has an RMB Real Time Gross Settlement (RTGS) system capable of handling large quantities of Renminbi payments safely and efficiently.
Beyond Renminbi business, Hong Kong has great potential to develop its overall asset management business.
Our stock market is the sixth largest in the world and second largest in Asia by market capitalisation. Market cap is around US$2.5 trillion. 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 IPOs. Last year, total IPO funds raised in Hong Kong amounted to US$33 billion. We have also attracted more foreign firms to list in Hong Kong, including companies from France, Italy, the US, Russia and Kazakhstan.
I encourage top Thai brands to consider the potential of a Hong Kong listing, which comes with competitive valuations, international listing standards and the ability to reach potential consumers and investors in Mainland China and beyond.
Ladies and gentlemen, my overriding message today is that we welcome more Thai 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.
Financial services is a highly competitive industry in Hong Kong and elsewhere. The industry accounts for more than 15 per cent of our city's GDP. Last December, the World Economic Forum ranked Hong Kong first in its Financial Development Index. We are quite proud of this because it takes us above the US and the UK as the first Asian financial centre to top this ranking.
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 centre of gravity shift away from traditional markets in the West towards emerging economies in Asia.
One of the best ways to take advantage of this trend is to foster even closer financial links between Thailand and Hong Kong. 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.
Earlier I mentioned Hong Kong's three key advantages, and please allow me to repeat them in order to summarise for everyone here.
First, we have a prime location on the doorstep of Mainland China, the world's second largest economy. So, we are in the right place at the right time.
Second, with low taxes, a high degree of transparency and free flows of capital, ideas and information, Hong Kong is consistently ranked as the world's freest economy. We have been ranked number one for the past 18 years by both the Fraser Institute in Canada and the US-based Heritage Foundation.
Our third key advantage is the principle of "One Country, Two Systems", which keeps our economy open, free and competitive.
I hope that our friends here in Thailand will take full advantage of Hong Kong to promote their brands, raise capital and break into the lucrative Mainland domestic markets.
Thank you very much, and I hope that we shall see you in Hong Kong very soon.
Ends/Friday, April 27, 2012
Issued at HKT 16:18
NNNN
