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Development of Industries
54. Hong Kong's economic accomplishment is the fruit of the concerted efforts of the community and Government over the years. Government is committed to maintaining a favourable business environment for enterprises to flourish. We liaise actively with other governments to open up more markets for enterprises, and address the specific needs of individual sectors by introducing measures to help them stand up to intense international competition.
Innovation and Technology Industry
55. To tie in with economic restructuring, even knowledge-based and high value-added industries need to progress with the times. Pursuing innovation and making good use of technology will not only facilitate development of industries, but also help raise the productivity of all sectors.
56. Government aims to provide an enabling environment and proper financial support for universities, research and development (R&D) organisations and industry to conduct research and commercialise their innovations. In 2012, Hong Kong's total R&D expenditure amounted to around $15 billion, of which more than half came from the public sector. We shall accelerate technology transfer of upstream R&D results to translate more innovations into commercialised midstream and downstream R&D products or services.
57. The Innovation and Technology Fund (ITF) has been supporting applied R&D and is constantly being refined to nurture an environment conducive to innovation and technology in Hong Kong. Established 15 years ago, the ITF has funded more than 3 600 projects with about $8 billion. To further enhance the application and commercialisation of R&D results, we shall introduce two new measures –
(a) setting up an Enterprise Support Scheme (ESS) to replace the Small Entrepreneur Research Assistance Programme. The ESS will provide funding support for R&D activities of private sector companies, irrespective of size, with the funding ceiling for each project raised from $6 million to $10 million. While the recipient company must bear at least half of the cost, it may retain all the intellectual property rights of the project; and
(b) extending the scope of funding to development work and system integration, industrial design, compliance testing and clinical trials. This will render stronger support to downstream R&D and commercialisation activities, allowing full exploitation of the technological edge of local industries.
58. These two measures are intended to further boost R&D investments and commercialisation activities among private companies at home and attract those from abroad to bring their R&D departments to our city, hence creating a more diversified ecology for innovation and technology.
59. I am happy to see the mushrooming of start-ups in Hong Kong over the last few years. Although no new business could guarantee success, a more favourable environment will certainly help translate more new ideas into business opportunities.
60. Government will create a better ecological environment for technology start-ups in collaboration with local R&D institutions and universities. The ITF will provide an annual funding of up to $24 million to the six designated universities to provide seed money for R&D projects that they recommend, encouraging their students and teachers to start downstream R&D businesses and commercialise their R&D results.
61. The Hong Kong Science and Technology Parks Corporation, Cyberport and Hong Kong Design Centre will continue to provide various incubation programmes and support services for the start-ups, such as shared workspace, business knowledge training, business liaison and interflow, and investment matching activities. All these aim to help start-ups tide over the difficulties encountered in the initial stage of their business and grow further. The "StartmeupHK" portal of Invest Hong Kong provides start-ups with an information and exchange platform. To cater for innovation and technology start-ups in particular, Government will soon launch an interactive portal to pool stakeholders in the start-up ecosystem to promote their inventions and innovations to attract funding.
62. The Chief Executive, in his Policy Address, proposed to set up an Innovation and Technology Bureau as a centralised body to co-ordinate and promote innovation and technology policy. The proposal is widely supported by the industry, and I look forward to its early implementation.
Pillar Industries
63. The four pillar industries recorded a cumulative growth of 84 per cent over the past 10 years up to 2012, exceeding the overall economic growth for the same period. They currently employ over 1.7 million people, or almost half of the total labour force, and contribute close to 60 per cent of GDP. They are the linchpin of Hong Kong's economy.
Trading and Logistics Industry
64. Hong Kong is the ninth largest trading entity in the world with a sophisticated trading and logistics industry. In 2013, visible trade, including re-exports, domestic exports and imports of goods, amounted to over $8.2 trillion, approaching four times of GDP.
Market Access
65. We have strived to open up new markets for Hong Kong's enterprises by fostering closer ties at G2G level, and protect the interests of business people through trade agreements. The 10 member states of the Association of Southeast Asian Nations (ASEAN), which enjoy rapid economic growth, are Hong Kong's second largest trading partner in terms of goods and fourth largest in terms of services. We shall vigorously pursue the upcoming negotiations of a free trade agreement with ASEAN.
66. We have signed 17 Investment Promotion and Protection Agreements so far. The negotiations with Bahrain and Myanmar were concluded last year, and those with Russia and Chile will proceed this year.
67. We shall continue to help Hong Kong enterprises develop once again the traditional European and American markets, which are on their way to recovery. The relevant Hong Kong Economic and Trade Offices and the Hong Kong Trade Development Council (HKTDC) have organised large-scale promotional events, arranged exchange visits and explore other means to promote bilateral trade and investment, and encouraged European and American enterprises to capitalise on Hong Kong's position as the gateway to the Asia-Pacific market. All these activities seek to secure the best opportunities for the Hong Kong business sector.
68. Hong Kong has always been a staunch supporter of the multilateral trading system. At the end of last year, the World Trade Organization (WTO) held the Ninth WTO Ministerial Conference in Bali, Indonesia, and reached the first-ever multilateral trade agreement since its establishment. As Chairman of the Sixth Ministerial Conference, I am deeply encouraged. This trade agreement will rationalise the import/export and customs formalities and procedures of over 150 WTO members. It will help reduce costs and bring economic benefits worth around US$1 trillion. Hong Kong's importers and exporters as well as the logistics industry will stand to benefit directly while enterprises in general can also achieve cost savings in customs clearance when exporting their products.
High Value-added Logistics Services
69. Faced with competition from neighbouring regions, Hong Kong's trading and logistics industry has been developing towards the provision of high value-added services in recent years in such areas as inventory management, regional distribution and global supply chain management. Airfreight throughput kept scaling new heights. Despite its tiny one-per cent share in total trade volume, air cargo accounts for over one-third of our total trade in value terms.
70. To dovetail with the latest developments of the airfreight logistics industry, the AA is planning and developing relevant sites on the Airport Island. Hong Kong has registered the world's largest international air cargo throughput for years, and the AA keeps upgrading the airport's facilities. A new air cargo terminal was fully commissioned last October, and the midfield development project scheduled for completion in 2015 will provide a new passenger concourse with an additional 20 aircraft parking stands and other ancillary facilities.
71. Over the past three years, we have released three logistics sites with a total floor area of 280 000 square metres at Tsing Yi. We are conducting technical assessments for the 10 hectares of land reserved at Tuen Mun West to ascertain its feasibility for developing into modern logistics facilities.
72. Scattered throughout the New Territories, many "brownfield sites" are being used for port backup, container vehicle parking and open storage purposes, etc. Although such services are in demand, the potential of these sites has not been maximised. I have asked relevant policy bureaux and departments to explore feasible improvement measures, including accommodating some of these operations in suitable multi-storey buildings. We are proactively studying the consolidation of the existing backup sites for the port and logistics industry around Kwai Chung and Tsing Yi Container Terminals, to facilitate the development of the logistics industry and enhance the efficiency of the Hong Kong Port, and at the same time, better utilise the valuable land resources.
Financial Services
73. The financial services industry contributes 15.9 per cent of Hong Kong's GDP. Its per capita value added, at $1.4 million, is the highest among all pillar industries. The financial services industry helps spur the development of Hong Kong's economy as a whole as it not only benefits its 230 000-strong direct workforce, but also indirectly creates plenty of employment opportunities in related sectors, such as legal, accounting and IT services, and support the operation of other industries.
Offshore Renminbi Business Centre
74. Hong Kong is the world's largest offshore Renminbi (RMB) business centre. At the end of last year, RMB deposits and outstanding RMB certificates of deposits totalled more than RMB 1 trillion, accounting for 70 per cent of the offshore pool of RMB liquidity. RMB trade settlement conducted through Hong Kong banks last year exceeded RMB 3.8 trillion, with a year-on-year increase of 45 per cent. The average daily turnover on Hong Kong's RMB RTGS system has posted a remarkable increase of nearly 100 fold from RMB 5 billion in 2010 to RMB 500 billion at end-2013. In the past few years, the RMB transactions conducted between local and overseas banks have increased substantially. The amounts due to and due from overseas banks have each increased significantly by more than eight times, from less than RMB 20 billion at end-2010 to some RMB 160 billion.
75. The RMB Qualified Foreign Institutional Investors (RQFII) Scheme was further expanded last year, bringing the total investment quota to RMB 270 billion, exceeding the aggregate quota of all other offshore RMB centres. The RQFII Scheme facilitates the launch of more innovative and diversified RMB investment products in Hong Kong to promote two-way flow of RMB funds between the Mainland and Hong Kong.
76. The Ministry of Finance issued sovereign bonds in Hong Kong twice last year, totalling RMB 23 billion, and offered for the first time sovereign bonds of 30-year tenor. This demonstrates the regularisation of the issuance of RMB sovereign bonds in Hong Kong by the Central Government.
77. The proposals in the Mainland's blueprint for the deepening of reforms include further opening up the financial industry and the capital markets both domestically and externally. We shall continue to support our country's accelerated drive to realise capital account convertibility and internationalisation of the RMB by acting as a bridge between our nation and the rest of the world, and serving as a platform for Mainland funds and enterprises to reach out to the international market.
78. The world's financial centres are developing offshore RMB business. Hong Kong, with its first-mover advantage, is well-positioned to provide RMB services to overseas financial institutions at the wholesale level. At the same time, we should strengthen our existing services, including RMB trade financing, RMB-denominated financial products and cross-border reinsurance, direct cross-border investment from the Mainland, asset management and fund development. Consensus has been reached between the Securities and Futures Commission and relevant Mainland authorities on the mutual recognition of funds. On implementation, this arrangement will further promote the diversification of fund products in the Mainland and Hong Kong.
Asset Management
79. Hong Kong's wealth and asset management business has been growing exponentially, ranking top in Asia. At end-2012, there were 45 banks operating private wealth management business in Hong Kong. The assets under management of these banks and other fund managers recorded year-on-year growth of 40 per cent, reaching a record high of $12.6 trillion.
80. In last year's Budget, I proposed to allow private equity funds also to enjoy tax exemption for offshore funds to attract them to expand their business in Hong Kong. We have completed an industry consultation and shall take forward the legislative work as soon as possible. As for my proposal on introducing an open-ended fund company structure to attract more funds to establish in Hong Kong, relevant regulatory frameworks have been drawn up and consultation will begin next month.
81. In 2010, I extended the stamp duty concession to cover exchange traded funds (ETFs) that track indices comprising not more than 40 per cent of Hong Kong stocks. The number of ETFs listed in Hong Kong has since seen a substantial increase from 69 at end-2010 to 116 at the end of last year. The daily average turnover of ETFs also increased from $2.4 billion to $3.7 billion, making Hong Kong one of the largest ETF markets in the Asia-Pacific region. I propose to waive the stamp duty for the trading of all ETFs, so that the trading cost of ETFs with a higher percentage of Hong Kong stocks in their portfolios can be reduced as well. This will help promote the development, management and trading of ETFs in Hong Kong.
82. Hong Kong is a popular platform for multinational enterprises to manage their global or regional treasury functions. To draw more of these functions to Hong Kong and to enhance our strengths in financial and professional services, I have asked the Financial Services and the Treasury Bureau (FSTB) to set up a task force in collaboration with the HKMA. The task force will review the requirements under the Inland Revenue Ordinance for interest deductions in the taxation of corporate treasury activities, and clarify the criteria for such deductions. It will come up with concrete proposals within one year.
Local Bonds
83. Compared with RMB business and asset management, the development of Hong Kong's bond market has a slower start. One reason is that the Hong Kong-US dollar peg prompts enterprises to raise funds in the more mature and more-liquid US bond market. Another is that the sound fiscal health of Government precludes the need for raising funds through bond issuance. Nevertheless, developing the local bond market is important for consolidating Hong Kong's status as an international financial centre.
84. We introduced the Government Bond Programme (GBP) in 2009 to expand the base of investors. We have implemented measures under the GBP to allow market makers to acquire institutional bonds with varying maturities more easily. This will give institutional investors further flexibility and promote the development of the secondary bond market. Separately, we have introduced the relevant bill to enable the issuance of Islamic bonds under the GBP, in order to encourage more issuers to raise funds through the financial market of Hong Kong.
85. In view of the enthusiastic public response to inflation-linked retail bonds (iBond) issued by Government and the prevailing low interest rates of the Hong Kong dollar, I propose another iBond issue of up to $10 billion with a maturity of three years. This issue will target Hong Kong residents. Interest will be paid to bond holders once every six months at a rate linked to the inflation rates of the last half-year period. The HKMA will announce the details in due course.
(To be continued)
Ends/Wednesday, February 26, 2014
Issued at HKT 11:42
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