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Following is a speech "The Roadmap for Hong Kong's Financial Industry" by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Distinguished Speakers Series co-organised by the University of Western Ontario Alumni Association, Queen's Business Club Hong Kong and University of Waterloo today (December 6):
Distinguished Guests, Ladies and Gentlemen,
Good evening. It is my pleasure to speak to you today at the Closing Series of the Distinguished Speakers Series 2005. This is a very special time of the year. Apart from the festive seasons which we all look forward to, next week the sixth WTO Ministerial Conference will be held in Hong Kong. Being Asia's world city, Hong Kong is definitely one of the most vibrant and metropolitan places in the world founded on strong economic fundamentals, the best institutional support, and economic performance with a very positive outlook. The latest economic data has highlighted a strong expansion in the economy, with the third quarter GDP leaping by 8.2% in real terms year-on-year, and a highly robust growth of 7.3% attained in the first three quarters of 2005.
The financial services sector
Financial Services is one of the pillar industries in Hong Kong which contributes about 13% to the GDP and employs over 5% of the working population. The Government attaches great importance to the development of the financial sectors to ensure Hong Kong stays at the forefront of the global and regional financial markets. Hong Kong's stock market is now the ninth largest in the world and second largest in Asia. Total market capitalisation reached HK$7,600 billion as of end October, 2005. Hong Kong is also the world's 15th and Asia's third largest international banking centre, and the world's sixth largest foreign exchange market in terms of turnover.
Hong Kong does possess all the necessary conditions for developing vibrant financial markets. Free flow of capital and information, open financial markets, efficient and transparent regulatory regimes, world-class market infrastructure including a sound banking system, a simple and low tax regime, high corporate governance standards and the presence of international financial intermediaries, etc, just to name a few. While we may all be very familiar with these strengths of Hong Kong, we should not take these for granted, but should do whatever we can to safeguard and improve them.
We are mindful that the financial markets nowadays are extremely globalised and virtually see no geographical boundaries for the movement of capital. Intense competition exists between major financial centres for issuers and investors on both a regional and global scale. Staying where we are may simply risk falling behind. To maintain Hong Kong's position as an international financial centre, we must constantly review and upgrade our market and position ourselves to take the best advantage of our strengths to tap into the regional and global markets.
Three strategic development directions
I have identified three strategic directions which, I believe, would greatly strengthen Hong Kong's position as an international financial centre. They are closely related to the role we have been playing in facilitating the financial intermediation process on the Mainland.
Premier capital formation centre for the Mainland
First, we want to continue to further develop Hong Kong as a premier capital formation centre for the Mainland. Hence my first wish is that more and more Mainland enterprises would use our stock market to raise funds from the international investing community.
Hong Kong's capability in capital formation, particularly for Mainland enterprises, is well-proven. In terms of the total funds raised, we ranked fourth globally in 2004 and in the first 10 months of 2005. As of end October, 2005, 322 Mainland enterprises were listed on our stock exchange, accounting for about 30% of the total number of listed companies in Hong Kong, and their trading accounts for 45% of total market turnover.
Taking advantage of Hong Kong's large, deep and liquid equity market and sophisticated financial intermediaries who know the Mainland market well, many Mainland enterprises have chosen Hong Kong over other financial markets in raising funds from the international investing community. For instance, the recent listing of the China Construction Bank in Hong Kong, which is the world's largest IPO in the past four years, chose the Hong Kong market alone for raising US$8 billion. The continued restructuring of the state-owned enterprises and the flourishing of private enterprises will continue to generate substantial financing needs for the business activities of Mainland enterprises.
The high quality of our market is the cornerstone of investor confidence. Our listing rules and corporate governance requirements are on a par with international standards. In order to further enhance our market quality, we will introduce legislative amendments to give statutory backing to major listing requirements within the current legislative session. We have also introduced a bill to establish a Financial Reporting Council which will be an independent statutory body to carry out investigations into suspected irregularities concerning auditors of listed corporations, and to inquire into suspected non-compliance with financial reporting standards. Separately, the Securities and Futures Commission (SFC) has conducted a public consultation on the regulatory regime specific for sponsors, and is in the process of reviewing market responses. SFC will continue its dialogue with the industry with a view to improving the regulation of sponsors.
A regional bond centre
Second, I believe Hong Kong is very well positioned to develop into a major bond centre for the region. Our bond market has grown substantially in recent years. For the past 10 years, the total outstanding amount of the Hong Kong dollar debt market has increased by more than 300%, and the amount as a percentage of GDP has also increased from 14% to 47.1%.
Our open capital markets and efficient financial infrastructure have attracted a large international issuer and investor base for debt securities in Hong Kong. For instance, overseas borrowers are the largest debtors in the Hong Kong dollar debt market, accounting for more than one-third of the outstanding debt. The successful launch of two government bond programmes in 2004 with high subscription rates from the region and other places such as Europe and the US have also demonstrated Hong Kong's favourable environment for large scale issuance of debt instruments.
Our bond market is also another major channel through which Mainland enterprises can raise funds. As of end November, more than 20 Mainland enterprises have already issued and listed their bonds in Hong Kong, raising about US$8,500 million, with about 60% of which was raised in the past 18 months. In addition, I understand from a major credit rating agency that the number of Mainland enterprises seeking credit ratings has soared recently, indicating a trend of readiness to raise funds from the international capital markets. This is a very significant development. My vision is that more Mainland enterprises can make use of our bond market to raise funds from Hong Kong and international investors, and that our market would serve as a major bond centre for the region.
We will continue to promote our bond market through regulatory reforms and upgrading of the infrastructure. For example, the SFC is consulting the public on further reforms to modernise the regime governing the public offering of shares and debentures.
A major asset management centre
Third, I believe we have great potential to become a major asset management centre in the world. Statistics from the industry have revealed that the wealth of high-net-worth individuals all over the world reached US$30.8 trillion in 2004, with US$7.2 trillion from Asia Pacific, and is projected to grow by 6.5% per annum in the next five years. There are also many pension scheme assets held by government, banks, fund managers and insurance companies in the region. With over US$700 billion in foreign reserves, the Mainland is no doubt one of the largest investors in the region. In addition, the high rate of personal savings in Asia, particularly in the Mainland which is over 40% of GDP, have also created a great potential demand for asset management services in Hong Kong. In view of the gradual liberalisation of the Mainland's capital markets and its growing need for sophisticated asset management services, I have confidence that Hong Kong will be used as a premier platform for the wealth and assets seeking investment opportunities from outside the Mainland.
To boost our competitive edge in this regard, we enacted legislative amendments to abolish estate duty in Hong Kong, which will formally commence on February 11, 2006, with retrospective effect from July 15, 2005. With this implemented, I believe that more local and overseas investors will be encouraged to hold assets in Hong Kong, thus creating more opportunities for our fund management industry. Meanwhile, we have proposed to exempt offshore funds from profits tax. The proposal is being considered by our legislature. We will continue with our efforts to make Hong Kong an even more attractive asset management centre for investors around the world.
Concluding remarks
Ladies and gentlemen, I believe Hong Kong is in a unique advantageous position to gain from such enormous opportunities from the Mainland. Apart from the fundamental strengths of our markets I mentioned earlier, our proximity to the Mainland, same language and cultural background, close and long-standing trading and economic relationship with Mainland are all the advantages we enjoy. The implementation of CEPA, the landmark free trade deal between Mainland and Hong Kong, and the launch of RMB business in Hong Kong further strengthen our economic ties with the Mainland and enhance our attractiveness as the prime financial services hub for the Mainland. I believe Hong Kong's continued success as an international financial centre hinges very much on how we continue to function as a premier platform for capital formation and investment for the Mainland in pursuit of the three strategic directions.
Lastly, let me conclude by wishing this event every success, and all of you a wonderful holiday season and happy new year.
Ends/Tuesday, December 6, 2005
Issued at HKT 20:51
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