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Following is the speech by the Permanent Secretary for Financial Services and the Treasury (Financial Services), Miss Au King-chi, at the Global Venture Capital Congress 2013 hosted by the Hong Kong Venture Capital and Private Equity Association today (November 8):
Mr (Terry) McGuire, Conrad (Tsang), Johnny (Chan), distinguished guests, ladies and gentlemen,
Good morning, and a warm welcome to those of you who have travelled across the miles to Hong Kong. You have made the right choice to host the Global Venture Capital Congress here, the first time in Asia, where you can hear first-hand the asset management opportunities in the East, and what this city may offer as China's global financial centre.
Overview of the asset management industry in Hong Kong
Hong Kong takes pride in our highly open market, robust regulatory regime and infrastructure support, rule of law, professional talents, and free flow of information and capital. We are the gateway to China, and provide an open and efficient platform to bring international liquidity and investment opportunities together. Our financial services industry has seen remarkable growth over the years. Since 1997, when we returned to China, and with a few financial market crises in between,
* our stock market capitalisation has increased almost seven times to US$2.8 trillion;
* the number of listed companies on our stock exchange has been more than doubled to 1,547;
* the number of authorised unit trusts and mutual funds has grown by 25 per cent to 1,842;
* the number of securities intermediaries has increased almost three times to 39,236; and
* the combined fund management business has reached a record high of US$1.6 trillion at the end of 2012, putting us on top of the league in Asia.
Despite uncertainties in the global markets, Mainland China remains a key driving force of economic growth and attracts funds for investment from everywhere. In parallel, more and more wealth is created in the region and people are looking for investment options beyond Asia. Hong Kong becomes the natural hub to manage the region's increasing wealth. In addition to the presence of leading international asset management houses, we are also hosting the largest concentration of Chinese securities and fund management companies outside Mainland China, and serve as a stepping stone for them to go international. All these provide the right ingredients for Hong Kong to grow our asset management business.
Venture capital and private equity in Hong Kong
Private equity is a key component of our asset management business. As at September 2013, the total capital under management in our private equity funds reached US$94 billion, representing one-fifth of Asia's total, and we raised US$9 billion of private equity funds during the first three quarters of 2013, accounting for almost 30 per cent of the regional total. We accommodate most of Asia's top venture capital firms, which are experienced in supporting every funding stage ranging from start-up to IPOs. We are also regional headquarters to most private equity firms, which invest heavily in Mainland China, Japan and Korea.
Government policy initiatives
To capitalise on these strengths and meet the challenges ahead, the Hong Kong Government has spared no effort to sharpen our competitive edge on asset management.
Let me share with you some examples of our recent policy initiatives.
First, open-ended investment company.
We recognise the growing popularity among the fund industry to use open-ended investment companies as a vehicle for setting up investment funds. We are formulating legislative proposals for the regulatory framework to pave ways for the introduction of these companies in Hong Kong. This new market choice would help attract more funds to use Hong Kong as their investment platform.
Second, Islamic finance platform.
To capitalise on the growth of Islamic finance, and at the same time to diversify our domestic market, we have been developing an Islamic finance platform. Encouraging breakthroughs have been achieved, including the listing of sukuk on our stock exchange, and the launch of Islamic financial products ranging from Islamic funds, loan syndication and indices to banking windows. This summer, we have amended our tax laws to further facilitate the issuance of sukuk. Going forward, we plan to issue sukuk under the Government Bond Programme to further promote the development of the bond market and Islamic Finance in Hong Kong.
Third, trust law reform.
Another market-friendly initiative we have recently implemented is the modernisation of our trust law. The modernised law will enhance the competitiveness of our trust services industry and attract settlors to set up trusts in Hong Kong. Specifically, it will enable the establishment of perpetual trusts in Hong Kong, which are not available in most major common law jurisdictions. It will also improve the certainty of transfer of movable assets to Hong Kong trusts against foreign forced heirship rules.
Fourth, profits tax exemption.
To attract more private equity funds to domicile in Hong Kong, we are going to extend the profits tax exemption for offshore funds to include transactions in private companies which are incorporated or registered outside Hong Kong and do not hold any Hong Kong properties nor carry out any business in Hong Kong.
Promoting offshore Renminbi business
The reference to our policy initiatives to promote asset management would be incomplete without mentioning the latest development in our offshore Renminbi business, which has picked up speed since the introduction of cross-border Renminbi trade settlement in 2009. According to industry estimates, about 16 per cent of China's external trade is settled through Renminbi, of which 80 per cent is done through Hong Kong. Our Renminbi liquidity pool exceeded RMB900 billion at the end of September 2013. It is large enough to support a diverse range of offshore activities to meet the needs of individuals, enterprises and financial institutions for consumption, investment and capital requirement from around the world.
With clear policy support from the Central Government in Beijing, Hong Kong has developed into an offshore Renminbi business centre and serves as the testing ground for the liberalisation of Renminbi. Through cross-border trade settlement, direct investment and portfolio investment, we are linking up the offshore and onshore Renminbi markets, and promoting the healthy circulation of Renminbi funds.
We are the major source of foreign direct investment in Mainland China, accounting for 59 per cent of total realised foreign direct investment in 2012. The liberalisation of the use of Renminbi for direct investment in 2011 paved the way for Hong Kong to become the largest Renminbi funding centre for multinational companies to raise funds to finance their investment in Mainland China.
Measures such as QFII and RQFII also facilitate foreign institutional investors to invest in Mainland China. Again Hong Kong excels in the new roles so derived by being the largest hub for QFII managers from overseas who are seeking to invest on the Mainland, and also the largest RQFII hub.
At the same time, we have been actively exploring with the Mainland authorities on arrangement for the mutual recognition and cross-border offering of funds between Hong Kong and the Mainland. This was formally recognised in Supplement X to the Mainland and Hong Kong Closer Economic Partnership Arrangement announced by the Central Government in August 2013. The idea being pondered is that qualified funds domiciled in, and operating from, Hong Kong would enjoy the status of "recognised Hong Kong funds" on the Mainland, and qualified Mainland funds would enjoy the status of "recognised Mainland funds" in Hong Kong. These recognised funds could then obtain authorisation on the basis of a streamlined process and be sold directly in the other's market. We welcome the fund industry to position themselves to tap the market potential in future.
Ladies and gentlemen, my brief presentation of the asset management opportunities in Hong Kong serves as an invitation to each of you to make the best use of our platform for fund raising and investments. By doing so, you will not only help contribute to our success story, but be a part of it and enjoy the immense and long-lasting benefits of this partnership.
In closing, I wish the Congress every success and you all a very pleasant stay in Hong Kong. Thank you.
Ends/Friday, November 8, 2013
Issued at HKT 12:57
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