********************************************************
Following is the speech by the Financial Secretary, Mr John C Tsang, at the Asia Society Seminar in New York today (October 5, Eastern Standard Time):
Mr (Tom) Nagorski, distinguished guests, ladies and gentlemen,
Good evening.
I would like, first of all, to thank the Asia Society for hosting tonight's event. It's wonderful to be back here in New York, in October. My favourite time of the year. The Yankees and the Mets are still playing. A subway series is still possible. Of course, here in New York City, the capital of everything, anything is still possible.
Including an interest rate hike, but on that score, perhaps even New York would need some help from the Fed.
In any case, the imminent rate hike is probably as emotionally charged to investors in different financial markets around the world as a Yankees-Mets World Series. Perhaps even more fraught with uncertainty. And, I can tell you, no one in the financial game is fond of that U-word.
Still, as the US interest rate lift-off draws closer, policy divergence among major central banks is bound to deepen. And that can trigger, yes, even more uncertainty. The result? Continuing fund-flow reversals and unusually large asset-price adjustments, possibly even destabilisation of the global economy. Another crisis? Unlikely, I think, but I would not rule anything out.
Some emerging-market economies have encountered visible currency depreciation and capital outflow in the past few months. Those with weaker fundamentals face increasing down-drag on their economies. The major concern, in short, is that uncertainty increases the downside risks in an already weak global economy. That seems intuitively obvious.
As a small and open economy, Hong Kong is subject inevitably to the influence of these external factors. Apart from the impending US interest-rate hike that has already cast a less-than-entertaining shadow on the local asset market, the slower than expected recovery of economies in the Eurozone and Japan, a slowdown of growth in emerging-market economies, such as Brazil and Russia, as well as geopolitical tensions in too many areas, notably the conflicts in Ukraine and the migrant crisis in Europe, will certainly have an impact on our economy.
In the first half of 2015, the Hong Kong economy expanded modestly, growing at 2.6 per cent as against our average growth rate of 3.9 per cent in the past 10 years. Among other things, slow global growth continues to weigh on our exports. Merchandise exports fell in recent months, in tandem with the poor export performance across Asia - a reflection of subdued global demand.
Services exports, meanwhile, were up 1 per cent in real terms, thanks to the soaring exports of financial and related business services due to the bullish cross-border financial and fund-raising activities.
Overall, I am forecasting the growth of the Hong Kong economy to be somewhere in the 2 to 3 per cent range for the full year of 2015. Over the medium term, I believe we shall be entering the era of "new normal", where more advanced economies like Hong Kong will maintain a fairly low level of growth. I expect Hong Kong's real GDP will be growing by about 3.5 per cent a year in the medium term from 2016 to 2019.
While the Hong Kong economy will have its fair share of ups and downs, I'm confident that our robust economic fundamentals and our resilient financial system, as well as our superb business environment, would enable us to cope with whatever kind of pitch, probably a curve ball, that the Fed and the global economy would throw over the home base.
Hong Kong has strong economic fundamentals that are underpinned by a sustained current-account surplus, strong fiscal and foreign exchange reserves, and a huge international investment position: some three times our GDP in 2014.
In spite of the recent volatilities and major fluctuations in the financial markets, our robust market infrastructure and regulatory regime ensured that the Hong Kong market was trading and operating in an orderly and smooth fashion. The currency and interest rate markets remain stable. The banking system has no liquidity issue.
As an international financial centre, we have been attracting, and will continue to do so, a world of business and investment.
Last year, Hong Kong's stock market ranked second, globally, in terms of funds raised in initial public offerings, just behind the United States. At the end of August this year, more than 1,800 companies were listed, including Mainland and overseas companies. More will follow. The Hong Kong Exchanges and Clearing Limited has streamlined its listing process for overseas companies, accepting more overseas jurisdictions as places of incorporation.
Nearly 7,600 overseas and Mainland companies have set up in Hong Kong. They like, I guess, the Hong Kong advantage, including, I think, in particular, our low and uncomplicated tax regime. That, by the way, should soon become even more attractive for multinationals. In the next legislative session that will start in a week or so, we plan to introduce a Bill allowing interest deductions for corporate treasury centres; it would also reduce profits' tax for specified treasury activities by half.
Our independent judiciary and unwavering adherence to the rule of law is another regional advantage, as is our multicultural, multi-talented pool of services professionals.
No less reassuring is Hong Kong's free flow of information and capital - and the freedom to run a business without fear or favour. That, I should add, is no mission statement. It's an everyday reality in Hong Kong. And you don't have to take my word for it.
In January, the Washington-based Heritage Foundation named Hong Kong the world's freest economy - for the 21st year in a row. And, just last month, Hong Kong topped the Vancouver-based Fraser Institute's annual "Economic Freedom of the World" report. Hong Kong has done so, by the way, every year since the Institute's first Economic Freedom report came out, back in 1996.
Hong Kong is also rising rapidly as a premier asset management centre in the Asian region. Last year, our combined fund-management business hit a record high of more than US$2.2 trillion.
The Mutual Recognition of Funds initiative between Mainland China and Hong Kong, launched in July, means that Mainland and Hong Kong funds will be offered directly to retail investors in each other's markets. The initial sets of applications are being scrutinised by the two respective regulatory agencies, and the implementation is expected to begin sometime in the near future.
In short, it's a breakthrough, promising expanded investment for both sides. In the long run, it will surely sharpen Hong Kong's competitive edge as a premier international asset management centre.
It will also help promote the internationalisation of the Renminbi, reinforcing Hong Kong's position as the world's pre-eminent offshore Renminbi centre.
No doubts there. At the end of August, Renminbi deposits and certificates of deposit in Hong Kong amounted to approximately 1 trillion yuan.
The Renminbi is now the world's fifth largest payment currency. Hong Kong, I'm pleased to tell you, manages about 70 per cent of global Renminbi payment.
With all the positive signs that I have just mentioned, I am confident that Hong Kong will continue to thrive as our economy becomes more integrated with that of Mainland China, and by taking advantage of the growing economic strength of Asia as a whole.
As President Xi Jinping said when he visited the United States last month, while China's economy is currently facing downward pressure, it would stay on a steady course and operate within a proper range.
China's economy grew by 7 per cent in the first half of the year. This has not come by easily given the complex and volatile situation in the world economy. The overall growth target of about 7 per cent for China in 2015 is broadly similar to forecasts made by the IMF, as well as private-sector analysts. This level is somewhat lower than the double digit growth rates in the past three decades, but I believe most of the advanced economies would happily settle for just half of that level of growth.
While the pressure of growth deceleration seems to have built up of late, any risk of a hard landing in Mainland China remains pretty low. Indeed, IMF Managing Director Christine Lagarde emphasised that the Mainland has the necessary policy tools and financial buffers to manage this economic transition. I second that sentiment. I believe that Mainland authorities do have ample policy room to address their current challenges.
And, in the longer term, the Mainland's continuing economic reform should unleash fresh growth potential. Successful structural reform will result in a more balanced and sustainable economy - one fuelled by a resilient growth trajectory. That, in turn, can only benefit Hong Kong's long-term development.
You can see the future in Hong Kong all the way from New York. To learn more about that, I cordially invite you to join the annual Asian Financial Forum (AFF), the region's signature financial event held in Hong Kong since 2007. The AFF will bring you up to date on every aspect of the Asian region's economies, and how it impacts on you, your capital and your business.
Last January, some 2,600 financial, business and government leaders took part in the two-day financial summit - and they came from all over the world including prominent speakers from the US. I hope to see you, in Hong Kong, from January 18 to 19, for AFF 2016.
My thanks again to the Asia Society for organising this evening's event, and for its continuing interest in Hong Kong.
Allow me, as well, to offer early congratulations to the Asia Society, which celebrates its 60th anniversary next year: 60 years of bringing Asia and the United States closer together - in policy and economics, to be sure. But also in education, culture and the arts.
As for sports, well, I'm not sure where that fits into the Asia Society and its broad and brilliant reach. But allow me to quote - or, perhaps, misquote - the legendary New York Yankees Hall of Famer, Yogi Berra, who died recently after a long and celebrated life. Said Yogi: "The future ain't what it used to be."
When it comes to the Asia Society, some six decades into the game of global education and enlightenment, it's clearly just beginning.
Modesty restrains me from saying the same about Hong Kong and our economic future. But you know what I mean.
Thank you.
Ends/Tuesday, October 6, 2015
Issued at HKT 08:27
NNNN
