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Following is the speech by the Financial Secretary, Mr John C Tsang, at the AVCJ Private Equity & Venture Forum Investment Summit 2012 today (November 15):
Distinguished guests, ladies and gentlemen,
Good morning.
I am indeed delighted to join you all this morning. I also wish to thank the Asian Venture Capital Journal (AVCJ) for inviting me to speak today.
General economic and financial conditions
On the macro side, the situation in the global financial markets changes on a daily, if not hourly, basis. Despite the improved sentiment after further monetary support measures from the US Federal Reserve and the European Central Bank, the global financial markets are expected to remain volatile and vulnerable to the evolving situation in the major economies, in particular the Euro zone. Although the local financial system and markets have generally been orderly, we surely have to stay vigilant to the latest market developments.
As we all know, the shifting of global economic gravity towards the East is generating ample business and investment opportunities in Asia. While most of the regional economies, including the Mainland, have seen moderate growth in recent quarters amid the lull in Europe and the US, they are still generally expected to stay relatively resilient and render an important stabilising force to the global economy.
The International Monetary Fund has projected real GDP growth in developing Asia in 2012 and 2013 to be 6.7 per cent and 7.2 per cent respectively. In particular, the Mainland is expected to sustain appreciable growth at 7.8 per cent this year and 8.2 per cent next year. Hong Kong, leveraging on our institutional strengths and world-class financial infrastructure, is in the best position to reap benefits from a vibrant Asia. (Note: Figures from the latest World Economic Outlook released by the International Monetary Fund on October 9.)
Asset management industry in HK
Situated at the heart of Asia and as the gateway to Mainland China, Hong Kong has established itself as an ideal platform for overseas fund managers to access the Asian markets. The combined fund management business of Hong Kong amounted to a sum close to US$1.2 trillion as at the end of 2011, to which non-Hong Kong investors contributed more than 60 per cent.
Private equity in Asia and Hong Kong
Private equity is an important part of our asset management business because it provides long-term equity funding to various companies. With considerable experience in other ventures, private equity firms serve as useful sounding boards for the companies in many strategic and management areas.
Total capital under management (CUM) in private equity in Asia has been rising steadily in recent years. Market data shows that the total CUM in private equity in Asia reached US$411 billion as at end-June 2012, which exceeded the US$376 billion as at end-2011 by some 9 per cent.
Hong Kong accounts for a significant proportion of the private equity in Asia. In terms of total private equity funds raised in the first half of 2012, Hong Kong was ranked second, accounting for some 12 per cent of the Asian total.
Given the importance of Hong Kong to the private equity world, it is not surprising that many private equity firms choose Hong Kong to be their home. As at end-June 2012, there were 367 private equity firms in Hong Kong and some 88 per cent chose Hong Kong as their Asia regional headquarters.
Ongoing financial liberalisation by Mainland authorities will attract more overseas private equity capital into the Mainland. Talents and resources from Hong Kong can be leveraged, and Mainland enterprises will also use Hong Kong private equity managers to seek more private equity opportunities overseas.
Hong Kong - a gateway to Asia and the Mainland
The 12th Five-Year Plan for Mainland China explicitly supports the development of Hong Kong into an international asset management centre.
The Central Government has kept up with its commitment to develop Hong Kong's offshore Renminbi (RMB) business. The Central Government announced in June 2012 a series of measures to support the further development of offshore RMB business in Hong Kong, underscoring once again the important role played by Hong Kong in promoting the cross-border use of RMB and helping consolidate Hong Kong's status as a global centre for offshore RMB trade settlement, financing and asset management.
The measures cover a number of aspects, including issuing further RMB sovereign bonds in Hong Kong; arranging for Mainland banks and enterprises to issue further RMB bonds in Hong Kong; further increasing the investment quotas, enlarging the range of participating entities, enriching the product variety and relaxing the investment restrictions in relation to the RMB Qualified Foreign Institutional Investors scheme, the so-called RQFII scheme; etc.
Hong Kong's Stock Exchange
An important milestone for any private equity business is the IPO of a successfully nurtured business. Determining factors on where the business should be listed include maturity of the market, the depth of liquidity, the regulatory landscape and the quality of advice available in that market.
Hong Kong has been one of the most active markets for IPOs in the world. Newly listed companies, including overseas companies which have Greater China-related businesses, have been attracted by our market's liquidity, attractive valuations and ties to investors in Asia. IPOs this year have been slow, but I understand that there is a queue waiting to be listed as soon as the market turns on a bit.
Hong Kong Exchanges and Clearing Limited (HKEx) is continuously working to ensure our listing platform stays competitive. To streamline the listing process for overseas companies and make our listing regime more attractive to them, HKEx is reviewing requirements for overseas companies, including those seeking secondary listings in Hong Kong. More guidance will be provided to market participants in this respect.
In the past few years, we saw many firsts in the "nationalities" of the companies that are coming to list in Hong Kong. We had the listing of UC Rusal, a Russian company, followed by L'Occitane, a French company, and then Vale, a Brazilian Company, in 2010. In 2011, we welcomed the first Swiss company, Glencore International, which is the world's largest commodities trading company; the first Kazakhstani company, Kazakhmys PLC, which is Kazakhstan's largest copper producer; Prada from Italy; and Samsonite International SA from the US. Recent new listings from overseas in 2012 include Sunshine Oilsands Limited from Canada and Dynam Japan Holdings Company Limited from Japan.
The Government's role in promoting the private equity sector in Hong Kong
We are committed to enhancing the competitiveness of Hong Kong's asset management industry.
Hong Kong has a favourable and simple tax system for your business. We have no capital gains tax and dividend income is not subject to tax either.
We have also been busy expanding our network of comprehensive avoidance of double taxation agreements (CDTAs) with our major trading partners, with a view to minimising the incidence of double taxation and enhancing Hong Kong's position as an international business and financial centre. As at the end of August 2012, we had signed CDTAs with 25 jurisdictions. The latest one, No. 26, is Canada. Prime Minister Harper came to Hong Kong the past Sunday to witness the signing together with our Chief Executive. We are continuing our outreach, and we are now in negotiations with another handful of jurisdictions.
On the promotional front, we launched a global promotional campaign on Hong Kong as China's global financial centre in 2011, and have visited London, New York, Zurich, Geneva and Luxembourg and others. Roadshows are currently being conducted now in Switzerland as we speak, while the sixth Asian Financial Forum would be held in Hong Kong in January 2013. And I hope you would be able to join us then.
Concluding remarks
Ladies and gentlemen, Hong Kong will continue our efforts to create a business-friendly and conducive environment for venture capitalists. May I invite you to join us in seizing the massive opportunities that we are now enjoying in Asia, and particularly in Mainland China as well as here in Hong Kong.
Thank you very much and have a good day.
Ends/Thursday, November 15, 2012
Issued at HKT 13:11
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