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Speech by FS at Lipper Fund Awards Hong Kong 2014 presentation ceremony (English only) (with photos/video)

     Following is the speech delivered by the Financial Secretary, Mr John C Tsang, at the presentation ceremony of the Lipper Fund Awards Hong Kong 2014 today (March 21):

Alice (Kwok), Michael (Tsang), Xav (Feng), distinguished guests, ladies and gentlemen,

     Good afternoon.

     I am indeed delighted to join you all for this award ceremony. I would like first of all to welcome all the participants of the Lipper Fund Awards 2014, and congratulate this year's award winners.

     This event I am told is sometimes described as the Oscars of the fund industry. It is a regular highlight, similar to the Academy Awards held in Southern California earlier this month. You may recall that one of the big winners at the Oscars this year was a film called "Gravity". Some of you may have even seen it. For the film's leading actors, Sandra Bullock and George Clooney, the sky really was the limit. And I believe that this is a similar case for Hong Kong's financial services industry.

     Last month, I delivered the 2014-15 Budget, my seventh. And suppose for a moment, that the Budget were a film script, and the title would have been something like "Strengthening Hong Kong's Competitiveness". Admittedly, this title is not really sexy or catchy as some of this year's nominated films, such as "Gravity", "12 Years a Slave" or "The Wolf of Wall Street". But do bear with me. My Budget this year is about strengthening Hong Kong's competitiveness, including a major plot of developing our financial services industry and also a subplot of promoting the asset management industry.

     So far, so good! And I see some of you smiling, so it must be okay.

     From the angle of Hong Kong's competitiveness, asset management has a leading role to play. Value-added per person engaged in the asset management business in 2012 was some HK$1.8 million. That exceeds corresponding figures for the other major industries, including trade and logistics, professional services and tourism. It is even higher than the corresponding figure for the entire financial services industry, which is the highest among our four pillar industries, in fact over 30 per cent higher.

     According to the annual survey conducted by the Securities and Futures Commission (SFC), Hong Kong's combined fund management business, comprising asset management, consultancy, private banking, and real estate investment trusts, amounted to some $12.6 trillion at end-2012. That places Hong Kong at the very top of the league table in Asia. At end-2013, there were some 2,000 unit trusts and mutual funds authorised by SFC, representing a 4 per cent increase over 2012.

     The robust economic growth in Asia in recent years, particularly in the Mainland, has generated vast savings and wealth accumulation in the region. Actually, the savings rates in Hong Kong and the Mainland are 28 per cent and 51 per cent respectively. This is quite phenomenal, and the number of high net worth individuals in the Asia Pacific region has reached 3.7 million people in 2012. That is according to the latest Capgemini survey, representing a year-on-year increase of some 10 per cent.

     Significantly for us, one in every five high net worth individuals in the region is based either in Hong Kong or in China. With the Central Government's ongoing financial liberalisation, Hong Kong plays an increasingly important role in connecting Mainland investors to investment opportunities around the world.

     This has contributed to the rapid development of the asset management industry in Hong Kong. And we shall certainly continue to make the most of our unique position as China's global financial centre.

     A strong driver of Hong Kong's asset management business is the development of offshore RMB business. Last month marked the 10th anniversary since Hong Kong started offering the first offshore RMB banking service to customers.

     We have come a long way since then. Today, Hong Kong is the global hub for offshore RMB business, and the Chinese currency is on track to becoming an international reserve currency.

     RMB deposits and outstanding RMB certificates of deposit in Hong Kong now exceed RMB1 trillion. This represents about 70 per cent of the total offshore pool of RMB liquidity. It is large enough to support a diverse range of offshore RMB business activities in order to meet the needs of individuals, enterprises as well as financial institutions.

     With policy support from the Central Government, Hong Kong has developed into the world's largest offshore RMB business centre and serves as the testing ground for further currency liberalisation. Through cross-border trade settlement, direct investment as well as portfolio investment, Hong Kong is the main linkage point between offshore and onshore RMB markets, as well as with other offshore markets, thereby facilitating the healthy circulation of RMB funds.

     The RMB Qualified Foreign Institutional Investors, or the RQFII scheme, which was further expanded last year, facilitates the launching of more innovative and diversified RMB investment products in Hong Kong. At end-2013, there were 26 SFC-authorised RQFII unlisted funds with an aggregate net asset value of RMB13 billion. There were also 11 SFC-authorised RQFII A-share ETFs adopting a dual counter trading arrangement with an aggregate net asset value of RMB37 billion.

     The scheme continues to promote the development of a broader range of RMB investment offerings in Hong Kong and reinforces our city's role as the leading offshore RMB centre. Going forward, consensus has been reached between the SFC and relevant Mainland authorities on the mutual recognition of funds. This would help stimulate development of the asset management industry through the further diversification of RMB-denominated fund products.

     The Government, in collaboration with the industry as well as stakeholders, is committed to strengthening the competitiveness of Hong Kong's financial services. And 2013 was a groundbreaking year for the asset management sector, and I shall provide you with a quick snapshot of what actually transpired.

     On Islamic finance, we amended our tax laws in July last year to provide a comparable taxation framework for Islamic bonds or sukuk vis-a-vis conventional bonds. This will help enhance the competitiveness of Hong Kong in the development of a Shariah-compliant market. We also plan to issue sukuk under the Government Bond Programme once the necessary legislative amendments are completed.

     Last December, new measures took effect to attract more settlors to set up trusts in Hong Kong. For example, settlors are now able to establish perpetual trusts in Hong Kong, which is a measure currently not available in most other major common law jurisdictions.

     With support from the Hong Kong Monetary Authority and the industry, the Private Wealth Management Association was established in September last year. The Association has been working with the industry to launch an enhanced competency framework for private wealth management practitioners later on this year.

     Hong Kong's financial services industry is developing well, but of course there is no room for complacency, particularly in view of the highly competitive international financial environment.

     We have not lost sight of the fact that a relatively small proportion, actually only about 24 per cent, of the unit trust and mutual funds authorised by the SFC are domiciled in Hong Kong. Asset management services form a high value-added service supply chain with other professional services, including legal services, accounting as well as corporate consulting. Hong Kong-domiciled funds help foster the development of talents on fund product design and origination, drive demand for related professional services, and create high value-added jobs. We can certainly do more to increase the number of funds domiciled in Hong Kong, and increase the demand along the supply chain of services.

     To further diversify our fund management platform and legal infrastructure, we plan to introduce new policy initiatives. Just yesterday (March 20), we launched a public consultation on proposals to introduce a new open-ended fund company (OFC) framework to expand Hong Kong's legal structure for investment fund vehicles.

     Currently, an open-ended investment fund may be established in the form of a unit trust, but not in corporate form due to various restrictions on capital reduction under the Companies Ordinance. In my Budget last year, I proposed that Hong Kong should provide the relevant legal and regulatory frameworks for OFCs - some people actually call that the OEICs (open-ended investment companies). We hope that this additional market choice would attract more funds to use Hong Kong as their investment platform.

     The public consultation seeks views on a proposed framework under which OFCs can be a public or private fund structured in corporate form with limited liability and variable share capital. The OFC will have the flexibility to vary its share capital in order to meet shareholder redemption requests, and may distribute share capital subject to solvency as well as disclosure requirements.

     Under the proposed OFC regime, the legal framework for the establishment and regulation of OFCs will be provided for under the Securities and Futures Ordinance. As an investment fund vehicle, the day-to-day management and investment functions of the OFC have to be delegated to an investment manager licensed or registered with the SFC.

     Our proposal aims to strike a balance between facilitating market development and maintaining Hong Kong's competitiveness on the one hand, while, at the same time, ensuring market integrity and adequate investor protection.

     Please do take some time to respond to our public consultation. Your feedback will enable us to formulate an OFC regime that best suits the needs of the industry here in Hong Kong.

     We also aim to develop Hong Kong into a regional hub for exchange traded funds, or ETFs, by boosting the city's appeal as a place for the development, management and trading of ETFs. In my Budget, I proposed waiving the stamp duty for the trading of all ETFs. This will be an incentive for ETF issuers to launch ETF products in Hong Kong, especially those that track markets in the Asian time zone.

     To attract more private equity funds to domicile in Hong Kong, we shall extend the profits tax exemption for offshore funds to include transactions in private companies which are incorporated or registered outside Hong Kong and do not hold any Hong Kong properties nor carry out any business in Hong Kong. This will allow private equity funds to enjoy the same exemption currently available to other offshore funds.

     Over the years, Hong Kong has built up a deep and broad pool of local and overseas financial talent. We must maintain our reputation for highly skilled professionals to ensure the sustainable development of our financial services industry.

     I have asked K C (Chan), the Secretary for Financial Services and the Treasury, to consult with the industry and identify ways to promote and to support talent training. Asset management is one of the key study areas. The Bureau will liaise with the industry on measures to promote sustained development and expansion of the sector through appropriate strategies to nurture financial talent. We also welcome your views on this subject.

     Ladies and gentlemen, I hope that you agree that the sky really is the limit for Hong Kong's financial services industry. Currently, financial services contribute about 16 per cent of Hong Kong's GDP. The industry directly employs a cast of some 230 000 people which makes up about 6 per cent of our working population. As you can see, there is a considerable room for the industry to grow.

     I have just outlined for you some of the ways that Government is working to boost the competitiveness of the financial services industry and asset management industry. We count on your support, and invite you to join us on a quest to explore new financial frontiers.

     Once again, congratulations to the winners of this year's Lipper Fund Awards Hong Kong.

     In true Oscars fashion, I would like to thank everyone, including my parents of course, who has contributed to strengthening Hong Kong's competitiveness as a financial centre in Asia. We look forward to working with you to further develop the fund industry in Hong Kong, and I hope to see you all back here again next year.

     Thank you very much and have a great day.

Ends/Friday, March 21, 2014
Issued at HKT 17:03


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