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Ladies and gentlemen,

It gives me great pleasure to attend the presentation of the Business Administration Paper 2000 of the Hong Kong Federation of Business Students today.

In the world of investment, the mentioning of 'emerging market' always brings with it a strong sense of excitement and opportunities. Today in Hong Kong, we have just witnessed the emergence of a new market - the market of the Mandatory Provident Fund.

Many people will agree that the arrival of the MPF will generate a far-reaching impact on the landscape and ecology of Hong Kong's financial industry. The impact will perhaps be particularly pronounced on investment funds, to the extent that it could bring about a facelift of the retail unit trust and mutual fund market in the long run. This impact can be aptly quantified by a single statistic: as of now, close to two million Hong Kong people have enrolled in MPF schemes and have therefore begun investing in investment funds. This is approximately five times the number who have been investing in unit trusts and mutual funds, according to an estimate by the Hong Kong Investment Funds Association last September.

In order to fully appreciate the challenges and opportunities created by the MPF as an emerging market, it is important that we view the MPF in a proper perspective. The MPF is, first and foremost, a social programme. Indeed, it is probably the largest single social programme that has ever been contemplated in the history of Hong Kong.

The MPF has one and only one aim. This aim is to construct one of the vital building blocks of Hong Kong as a caring community, i.e. the provision of retirement protection for the entire 3 million-plus workforce.

The idea of a population-wide retirement protection system was first mooted in Hong Kong in the 1960's. During the past 30 years, our society has evolved dramatically. And times have changed. The population as a whole has aged rapidly. Meanwhile, raising children to look after our old age has become a fading tradition. If there has been any hope for the problem to be solved through a voluntary approach, it has proved to be unrealistic. Only about one third of our workforce was enjoying some voluntary form of retirement protection, meaning that the majority was left entirely on its own. Today, senior citizens aged 65 and above account for 11 per cent of the population. In less than 30 year, this proportion will be more than doubled to 20 per cent. If we had not put in place an effective system of self-support, by then, every two taxpayers will have to shoulder the burden of supporting the living expenses of one retired person.

Thus the MPF system came into being on 1 December last year. We are gratified to see that about 75 per cent of employers and 85 per cent of employees are now registered with the system. By any standard, this is a very successful beginning. Considering the magnitude and scale of the system, it has been a most daunting task to get it off the ground. The MPFA, the SAR Government and the MPF industry have worked extremely hard to make this happen. I should, however, reserve the highest credit for the employees and employers of Hong Kong. By virtue of their participation, they need say nothing more about their team spirit and sense of civic responsibility.

The road to arriving at the present MPF system has been anything but a straight-forward one, as one might reasonably expect for the arduous process of formulating a social programme of this magnitude. The final choice, however, should not surprise any person who believes in the fine tradition and virtue of Hong Kong's free market economy. The choice was for a privately managed fund system that would avail itself of the best that Hong Kong's financial market has to offer. Indeed, the financial community has an extremely important role to play.

I mentioned earlier that the MPF has, in a single stroke, increased the number of fund-investing individuals to five times than it was last year. Let me also put it in dollars terms. We estimate conservatively that if we add up all the contributions in the first year, the MPF market will see a cash inflow of 10 billion dollars, which is equivalent to about 90 per cent of the total net sales of all investment funds in Hong Kong last year. The cash inflow will rise annually to an estimated 60 billion dollars in 30 years' time. The enormous long-term potential of the MPF as an emerging market is self-evident.

Whilst the MPF offers great opportunities, it also poses new challenges. Perhaps the biggest challenge of all lies in a fundamental change of the market structure of asset management and fund investment. Traditionally, the decision to invest in a particular fund is made by institutional clients such as corporations, government bodies, NGOs, charities and insurance companies. In the MPF market, however, the decision is made by individual members of MPF schemes. And there are two million of them. Clearly, it is inevitable that the market will see a gradual shift from an institutional base to a retail base in the years to come.

The emergence of such a large retail market will have important implications for the fund industry, particularly in investor education. Given the fact that only 7.8 per cent of Hong Kong's adult population has any experience of investing in a unit trust or mutual fund, investor education will have a very long way to go. Most of the two million MPF scheme members are buying investment funds for the first time in their lives. It will not be sufficient for an MPF service provider or its investment fund company to just provide a quality service. They must also help their retail clients understand the tenets of a quality service. I would therefore call upon the entire MPF industry to give serious thoughts to the way forward in promoting investor education in the long run. You can rest assured that the MPFA will do all it can to work together with the industry on this important task.

In fact, the MPFA has decided to make investor education one of its high priority tasks this year. Apart from stepping up with its public education effort through the mass media, the MPFA has recently set up an Out-reach MPF Task Force to make proactive contact with the man-in-the-street, so to speak, who may be in need of information, advice and assistance. The Task Force has swung into action, with the help of the Home Affairs Department, in all 18 local districts since the beginning of last month. For the convenience of individual members of the public, the task force has extended its working hours into the evening so that members of the public can seek its help after getting off daily work. Also, in conjunction with local district groups, workers unions and trade associations, we have reached out to a wide cross-section of the community, and to offer solutions, face-to-face, to any of their MPF problems. I am happy to see that initial results have shown that the task force has received a popular response from the public.

The MPF is a virgin field and therefore offers infinite room for imaginative ideas, be it for investor education, marketing and product development. In this respect, I am very much encouraged to see that the Hong Kong Federation of Business Students, through the designating of the MPF as the theme of its Business Administration Paper 2000, has fully taken in the challenges and opportunities. This is more than illustrated by the excellent work of the students whose work has not only demonstrated their insight and analytical ability but, more importantly, their innovative thinking to come up with business solutions.

On behalf of the MPFA, I offer my warmest congratulations to all of you for the high standard and creative results exemplified in your work. I sincerely wish you all a successful career in the financial and business community. Your success will be vital to the success of the MPF system.

Thank you very much.

End/Saturday, March 10, 2001

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