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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Boston Economic Club in Boston yesterday (October 8, Eastern Standard Time):
Dr (Marc) Miles, ladies and gentlemen,
Good afternoon.
I am delighted to be back in Boston, a city in which I spent many good years, studying in Cambridge, raising a family in West Roxbury, and working very hard to get my finances in some order.
I am actually doing pretty much the same now. Only my attention has shifted somewhat, having gone from budgeting for a small family to budgeting for a bigger family, Hong Kong - the 17-year-old Special Administrative Region of China. The differences are not that big, just a lot more zeros. I am still concerned about income, expenditure and savings. And I can tell you, even though the circumstances are different, neither has been easy.
It is, by the way, 14 years since a Hong Kong Government official spoke at the Boston Economic Club. In June 2000, Donald Tsang, the then Financial Secretary, later Chief Secretary and Chief Executive of Hong Kong, addressed this prestigious institution. Some things have changed since then; some haven't. And I am pleased to be here today to update you on some of Hong Kong's latest developments.
Hong Kong has been an active international financial centre in the Asian time zone. We have business relations with virtually all the economies on this planet. Around 70 of the world's largest 100 banks operate in Hong Kong. We rank first and third respectively in the World Economic Forum's Financial Development Index and the City of London's Global Financial Centres Index. We maintain a highly open and internationalised market, and our regulatory regime is aligned with major markets around the world.
As the international financial centre in the region, it goes without saying that Hong Kong is also the major provider of financial services to businesses in the Chinese market across the boundary. Ever since China initiated its own programme of economic reform and opening up to the world some 30 years ago, this symbiotic relationship has continued to strengthen.
Being a well-established global financial centre, Hong Kong has a unique role to play in contributing to our nation's financial reforms. We serve as the laboratory for China's new reform measures, and we function as the firewall to shield its nascent financial market from volatility in the international arena. These relationships are under constant refinement and enhancement, against the background of the Mainland's fast-changing financial landscape with the implementation of a series of reform measures.
China enjoys the unique advantages of having two systems, and in this case, two financial systems, within one country, and Hong Kong enjoys the first-mover advantage, building ahead of others the necessary financial infrastructure and establishing the essential business connections. This is a mutually beneficial relationship that has enabled both economies to grow and prosper.
This afternoon, I would like to touch on three areas in which Hong Kong contributes to China's economic development: the internationalisation of the Renminbi, asset management and dispute resolution.
Renminbi Business
First, let me update you on Hong Kong's role as the world's premier offshore Renminbi centre in promoting the use of the Renminbi regionally and internationally. From the promotion of personal banking services to trade settlement and financing, and the marketing of innovative investment products, Hong Kong assumes a critical role in the internationalisation process of the Renminbi.
Last year, banks in Hong Kong handled trade settlement between China and other economies to the tune of RMB3.8 trillion - 10 times more than the level in 2010. At the end of July, the Renminbi liquidity pool in Hong Kong amounted to more than RMB1.1 trillion - 3.5 times more than the level at the end of 2010. Banks in Hong Kong now handle more than 70 per cent of global Renminbi payments.
The Renminbi Qualified Foreign Institutional Investor scheme, the RQFII scheme, introduced in 2011, has also grown, soaring from an initial quota of RMB20 billion to RMB200 billion in November 2012. To date, the scheme's total investment quota has reached RMB270 billion.
The first batch of Renminbi-denominated sovereign bonds in Hong Kong was issued by the Mainland Ministry of Finance in 2009. We have successfully placed RMB5 billion worth of such bonds for overseas central banks. By offering a tenor of up to 30 years, we have been able to develop as well a benchmark yield curve for Renminbi bonds in Hong Kong. This helps in the pricing of other Renminbi-denominated products.
I must also mention the Shanghai-Hong Kong Stock Connect, announced in April this year by the Premier of the Central People's Government and expected to be up and running soon. This groundbreaking initiative will open up access between the Hong Kong and Shanghai stock markets. Eligible Mainland investors will be able to invest directly in Hong Kong's stock market, while Hong Kong and international investors will be able to do the same in Shanghai's stock market. This is an important step in the opening up of the Mainland's capital market and a milestone for financial co-operation between us. We are also confident that the initiative will further increase the liquidity of Hong Kong's offshore Renminbi market.
Asset Management
And now to asset management. Robust economic growth in Asia, particularly in the Mainland of China, has generated huge savings and wealth accumulation in the region. There are some 760,000 high-net-worth individuals in the Mainland today, according to the latest Capgemini survey. And they are generating unprecedented demands on Hong Kong's asset management industry. Those assets, by the way, amounted to more than US$2 trillion at the end of last year, an increase of 27 per cent over 2012 totals.
Those are exciting numbers in terms of assets under management for the financial services industry worldwide, and we are working to sharpen our competitive edge even further. Recent policy initiatives include:
(a) amending the trust law so that settlors are able to establish perpetual trusts in Hong Kong. That's not possible in other major common law jurisdictions;
(b) proposing a new, open-ended fund structure to expand Hong Kong's range of investment vehicles;
(c) extending the profits tax exemption for offshore funds to private equity funds; and
(d) extending the stamp duty concession to cover exchange-traded funds, the ETFs.
We are bullish on bonds, too. Last month, we successfully issued our inaugural Islamic bond offering to broaden our bond market. It marked the first US dollar-denominated sukuk originated by a triple A-rated government in the global Islamic financial market. The offering was allocated to more than 120 global institutional investors, over 10 per cent of that to the US. The issue, I should add, recorded an over-subscription of 4.7 times. That sounds like a viable and popular fundraising option to me, and I have no doubt that more will follow.
Dispute Resolution
Third, a word about Hong Kong's long-standing role as the hub for dispute-resolution services in the Asia-Pacific region. You would be interested to know that Hong Kong's arbitral awards are enforceable in more than 140 jurisdictions.
China's increasing participation in international business is creating a growing demand for high-end legal and dispute-resolution services. And Hong Kong, being a trustworthy middleman with strong common law traditions, has much to contribute to meet this growing demand. Indeed, many foreign and Mainland companies are choosing Hong Kong laws to govern their contracts and Hong Kong arbitrators and courts to adjudicate their disputes, given our advantages in the handling of Mainland-related arbitration cases.
In 2012, the China International Economic and Trade Arbitration Commission established its first arbitration centre outside the Mainland in Hong Kong. This has strengthened our position as the region's leading arbitration centre. It has also reinforced Hong Kong's advantage in dealing with Mainland-related cases. And we shall certainly continue to promote those advantages.
Ladies and gentlemen, perhaps I should also update you on the recent protests in Hong Kong that have resulted in serious confrontations. The protests are concerned with the Chief Executive election in 2017. The community's view is divided on this big issue. The Government will do our best to bridge the divided community at this difficult time and build consensus that would enable us to take a giant step forward towards the achievement of universal suffrage in 2017 for the election of our next Chief Executive.
We do not underestimate the difficulty in this immense task. We have not seen such serious confrontations for half a century. A few people were injured but luckily nobody suffered serious harm. No broken windows, no scratches on vehicles, no arson, no looting - quite typical of such actions in Hong Kong. Both the Police and protesters have been highly restrained, displaying the common core values that all Hong Kong people subscribe to.
Ladies and gentlemen, allow me to end by returning to the beginning. I had noted, at the outset, that some things had changed since Donald Tsang spoke in this august institution 14 years ago, when he was Financial Secretary of Hong Kong. And I hope, as the current Financial Secretary, I have been able to provide you with a summary of some of those changes. I also mentioned that some things in Hong Kong have remained the same. And resolutely so.
Perhaps the best way of illustrating that is to repeat what Donald noted almost a decade and a half earlier.
Donald asked rhetorically, "Why will Hong Kong remain a global financial centre?"
"The answer to that is easy," he said. "We have preserved all our traditional strengths: the rule of law; an independent judiciary; a level playing field for doing business; the free and unfettered flow of information, including a free and robust media; a clean administration not tainted by crony capitalism; a fully convertible currency; and the freedoms of the individual equal to those you have here."
Ladies and gentlemen, this statement still applies today, and I can simply ditto that. These are Hong Kong's enduring advantages, and we are continuing to fortify these strengths so that they can help take us, successfully, into the future. Thank you.
Ends/Thursday, October 9, 2014
Issued at HKT 15:09
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