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Speech by FS at 4th Asia Private Equity Forum (English only)(with photo/video)

     Following is the speech delivered by the Financial Secretary, Mr John C Tsang, at the 4th Asia Private Equity Forum today (January 15):

Thank you Conrad, David, distinguished guests, ladies and gentlemen,

     Good morning.

     It's indeed my great pleasure to join you all again at the Asia Private Equity Forum. Congratulations first of all to the Hong Kong Venture Capital and Private Equity Association on organising this event. Also a very warm welcome to all of you, our visitors from far and near.

     Some of you may have attended the Asian Financial Forum during the past two days under the theme, Asia: Powering World Growth. Allow me to continue this conversation with a twist, and let's call it: Asia: Powering New Ideas for Growth, or more specifically, Asian Finance Powering New Ideas.

     But first of all to the movies. In the latest Bond film, Skyfall, a less-than-impressed OO7 tells his young Quartermaster ("Q") that "youth is no guarantee of innovation".

     Perhaps, in a different world, the late Georges Doriot would have seen eye-to-eye with the fictional James Bond. After all, both men were in the security business, Bond with MI6 in the movies and General Doriot in the military. Both men embraced new ideas. However, while James Bond had a "Licence to Kill", Georges Doriot eventually joined the US Military in the Office of the Quartermaster General. In other words, he was a real-life "Q" before earning the reputation as the "father of Venture Capital".

     Georges Doriot once said, and I quote: "A team made up of the younger generation, with courage and inventiveness, together with older men of wisdom and experience, should bring success." End quote.

     Asia indeed has a long history of producing courageous and inventive young people. Through successive generations, we also have men and women of wisdom and experience. Now, following decades of rapid development in the post-financial crisis era, Asia also has the financial resources and the world's attention as the hotspot for private equity funds and venture capital.

     With this in mind, I would like to talk about the importance of creative capital for Hong Kong and Asia in powering world growth.

     In March last year, Forbes magazine ranked Hong Kong as the Number One "Top Tech Capital to Watch". The report said, and I quote: "With a community of innovative and ambitious entrepreneurs on one side and a population of internationally travelled, wealthy tycoons on the other, Hong Kong could be a powder keg of a techonomy waiting to explode." End quote. The report listed Washington DC second, Tel Aviv third and London fourth. I should also mention that the report excluded renowned tech centres, such as New York and Silicon Valley from its research.

     Successfully re-creating Silicon Valley in a different part of the world is a dream of many ambitious cities. However, this is easier said than done. Cities have tried and, in most cases, only partly succeeded, if at all. Perhaps the most important lesson is that we should take elements of Silicon Valley, as well as other successful creative hubs, and adapt them to fit the strengths of each unique city.

     Hong Kong is ranked alongside London and New York as the top global financial centres. Our hard and soft infrastructure are among the most advanced in the world. We have a prime location in the heart of Asia, and we are located on the doorstep of the world's second largest economy, the Mainland of China. Yet, to paraphrase James Bond: "All this is no guarantee of innovation."

     Private equity and venture capital funds have the experience and resources to identify and to develop new, good and potentially great ideas. As well as providing capital investment, these funds can lend much needed advice and guidance that ultimately helps to nurture the start-up culture in Hong Kong.

     We deeply appreciate the Association's work in promoting the value of creativity and innovation among its members and developing the venture capital and private equity industry since the 1980s.

     The Hong Kong Government places strong emphasis on developing a mindset of innovation and research in the business and academic communities. As an international business and financial centre, Hong Kong has evolved naturally as a platform for technology clusters as well as networking.

     In recent years, there has been a healthy increase in the number of technology start-ups participating in the Hong Kong Science and Technology Parks Incubation Programme. In fact the number of incubatees has almost doubled from 70 in 2008 to about 138 as of September last year.

     SMEs can also apply for government funding under the Small Entrepreneur Research Assistance Programme. Since 2008, 105 applications have been received and approved with a total funding of more than HK$155 million.

     One government-funded project at the Chinese University of Hong Kong helped a handful of talented engineers to develop a Chinese electronic news company. In the space of a decade, it has now become a leading Chinese news information service provider with about 700 staff and operations in the Mainland.

     Allow me to give you a few more examples of what happens when youthful inventiveness, strong management and creative capital come together in Hong Kong.

     Our competitiveness as a logistics centre has benefited from a new e-lock based system. The system has been adopted by our Customs and Excise Department to monitor transshipment containers more effectively and more efficiently with fewer cargo inspections required.

     Innovations in health care include a wearable electronic monitor for Alzheimer patients based on the RFID technology. It was developed by a coalition of three local R&D centres. Also, a local software firm, Ximplar, together with Chinese University, has developed enhanced hearing software that is customised to the individual user's requirement. Another company, CAREASE, has developed an Integrated Wetness Care System to assist nursing the elderly. And Rehab-Robotics teamed up with the Hong Kong Polytechnic University to develop the Hand of Hope, a device that helps patients regain hand mobility through muscle re-learning.

     What these and other projects have in common is that they either benefited from the Hong Kong Science Park's Incubation Programme or received funding from the Government's Innovation and Technology Fund, or both.

     What is really exciting and what we need to develop further is the number of start-ups in Hong Kong. To promote start-ups, our inward investment agency, Invest Hong Kong staged its first global start-up contest last year called the 2013 StartmeupHK Venture Programme. More than 380 ventures from 39 countries and cities applied. In the end, entries from New Zealand, the US and Hong Kong won Grand Prizes.

     The aim of the event was to raise awareness of Hong Kong's potential for start-ups and nurture a start-up culture in the local community. There is no shortage of good ideas in Hong Kong, whether they come from home or abroad, from business or academia.

     And because Hong Kong is so closely connected with the Mainland, there are plenty of opportunities to develop new ideas, to test new ideas in a diverse and multi-cultural marketplace, and to attract funding from wealthy individuals or corporate investors in Hong Kong, in the Mainland as well as across Asia.

     Over the past decade, the total size of assets under management in Hong Kong has risen from about US$400 billion in 2003 to US$1.6 trillion in 2012. Over 60 per cent of the assets are sourced from overseas investors. There are more than 370 private equity firms in Hong Kong with capital under management of about US$100 billion as of September 2013.

     Our stock market is the second largest in Asia with market capitalisation of over US$3 trillion. More than 1,500 companies are now listed in Hong Kong.

     Hong Kong is also an international banking centre with over 260 banking institutions from 35 different jurisdictions. Assets held by banks exceeded US$2 trillion at the end of last year.

     In terms of renminbi business, Hong Kong is the testing ground and launching platform for the Central Government's currency liberalisation initiative. As such, our city is the largest hub for QFII managers from overseas. More than 150 of the 240 firms which have obtained the QFII qualification have offices in Hong Kong.

     We also have a growing community of institutional investors, such as pension and endowment funds, sovereign wealth funds as well as the private wealth of individuals, establishing a foothold in Hong Kong.

     Going forward, financial market developments in Asia will be driven by three key factors: first, rapid wealth creation in this region and demand for high-quality financial services; second, the increase in portfolio allocation into Asia by global investors; and the third trend is the financial liberalisation of the Mainland, including the wider use of the renminbi as an international reserve currency.

     Hong Kong is a key stakeholder in each one of these three trends.

     The Government and our regulators also work hard to strengthen Hong Kong's competitive edge in an increasingly competitive environment.

     In my Budget last year, I proposed extending the profits tax exemption for offshore funds so that private equity funds registered outside Hong Kong can enjoy tax exemption. This will attract more private equity funds to domicile in Hong Kong. My colleagues are working on the legislative proposals to provide a clear and certain tax environment for the industry. We hope to see the exemption implemented in good time.

     Another legislative proposal will help pave the way for the introduction of the open-ended investment company, the OEIC, as a vehicle for setting up investment funds in Hong Kong.

     Also, last year, we introduced two important legislative amendments that will further develop Hong Kong as a platform for international finance.

     These include modernising our Trust Law to strengthen the competitiveness of our trust services industry and attract settlers to set up trusts in Hong Kong.

     We also amended our tax laws to give Islamic bonds, or sukuk, equal tax treatment to conventional bonds. We plan to introduce further legislative amendments to enable the issuance of sukuk under the Government Bond Programme. This will help develop Hong Kong's bond market and expand our platform for Islamic finance.

     We shall continue to build on Hong Kong's fundamental strengths as an international financial centre. These include our highly open market, effective rule of law supported by an independent judiciary, low and simple tax system, rich pool of professional talent, advanced infrastructure support and free flows of capital, talent and information.

     Ladies and gentlemen, for Asia to power global growth, we also need to harness the power of innovation in Hong Kong and in our region. For this, we need your help. Venture capitalists and equity fund managers have the experience to identify the best ideas as well as the skills and resources to manage the development of these ideas from drawing board to reality.

     Please don't think of Hong Kong as the "Silicon Valley of Asia". We are not. Although Hong Kong has some characteristics that can be found in Silicon Valley, we also have the characteristics of great cities such as New York, London, Shanghai and many others. That is part and parcel of Hong Kong's charm and dynamism as a cosmopolitan city in Asia. But there can only be one Hong Kong and, with your help, we have an exciting future ahead of us.

     After all, it was Georges Doriot who said, "Never go into venture capital if you want a peaceful life."

     I hope that you will join us for what promises to be an action-packed ride into the Year of the Horse and beyond. Perhaps we shall see you again in one of our pitching fora.

     Thank you very much, and have a good day.

Ends/Wednesday, January 15, 2014
Issued at HKT 14:43


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