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Following is the speech by the Chief Executive, Mr C Y Leung, at the Hong Kong dinner session – "Hong Kong's Opportunities and Challenges in the Process of Renminbi Internationalization" of the Boao Forum for Asia Annual Conference 2014 in Hainan today (April 10):
Governor Zhou (People's Bank of China Governor, Mr Zhou Xiaochuan), Chairman Xiao (China Securities Regulatory Commission Chairman, Mr Xiao Gang), distinguished guests, ladies and gentlemen,
Good evening.
A very warm welcome to all of you. I am particularly grateful that at our invitation, Governor Zhou and Chairman Xiao took time out of their very busy schedules to come out to Boao and are joining our dinner tonight.
Currency has always been a hot topic in Hong Kong. Go back 30 years, when the Chinese and British governments negotiated on the future of Hong Kong, the single most important question on the minds of businessmen and the people in the street was, "What currency will be used after 1997 – the Hong Kong dollar or the Renminbi?"
The negotiations between the two governments concluded with the Joint Declaration, which says, amongst other things, that "The Hong Kong dollar will continue to circulate and remain freely convertible". The Basic Law, which was promulgated six years later, makes the same stipulation. "The Hong Kong Dollar, as the legal tender in the Hong Kong Special Administrative Region, shall continue to circulate."
But more than a few people were not convinced. How can one country have more than one currency, particularly as the two currencies have different issuance systems?
The co-existence of the Hong Kong dollar alongside the Renminbi is now part of our daily life. The two kinds of banknotes co-exist in the wallets of the hundreds of thousands of travellers who cross the boundary between Hong Kong and the Mainland everyday. The two currencies also co-exist in the accounts of the numerous businesses based in Hong Kong. This is perhaps the most vivid illustration of "One Country, Two Systems" in action.
Of course we want to do more than just having both the Hong Kong dollar and the Renminbi in our wallets. And we have done a lot more than this. To us, the Renminbi is not just a currency. It has become a business, a big business, and a business that has a huge potential. To us, the Renminbi business has also illustrated how Hong Kong can put the principle of "One Country, Two Systems" to the best use. We are uniquely placed to generate the double benefits of both "One Country" and "Two Systems". And the benefits flow not just to one side. The benefits flow to the country as a whole as much as they flow to Hong Kong.
The business is known as the offshore Renminbi business.
The principle of "One Country, Two Systems" allows Hong Kong to maintain its own financial system. Our fully convertible currency and free flows of capital are central to Hong Kong's role as a testing ground for the liberalisation and the internationalisation of the Renminbi.
China is now the world's second largest economy, with GDP of US$9.2 trillion in 2013. It overtook the United States in 2013 as the largest trading nation, with merchandise trade totalling US$4.2 trillion. China is also the world's largest holder of foreign currency reserves, with US$3.8 trillion. With China's economy continuing to expand at an enviable rate of around 7 per cent, there is little wonder that all eyes are on the rise of the Renminbi as an international currency.
In mid-March, the People's Bank of China announced the doubling of the trading band for the Renminbi from 1 per cent to 2 per cent around the central parity rate, which is widely welcomed as a significant move to usher in the further liberalisation and internationalisation of the Renminbi.
Hong Kong is the premier offshore centre for Renminbi business, not least through its pioneering role in the development of offshore Renminbi business over the past decade. On this, the 10th anniversary since offshore Renminbi banking was launched in Hong Kong, allow me to share with you Hong Kong's contributions to the internationalisation of the Renminbi.
Back in February 2004, Hong Kong became the first offshore location to provide Renminbi banking services primarily to personal customers. Later on, banking services were expanded and offered in full to the commercial sector as well. By the end of February 2014, the aggregate amount of Renminbi deposits and certificates of deposits in Hong Kong reached RMB1,128 billion, representing the largest pool of offshore Renminbi liquidity in the world. The continued growth of Renminbi liquidity in Hong Kong and elsewhere has been the fundamental driving force behind further innovations in the offshore market, meeting the needs of individuals, enterprises and financial institutions for consumption, investment and capital requirements from around the world.
Apart from banking services, we extended the offshore business to cover our function as a Renminbi fund-raising and settlement centre. The first offshore Renminbi bond issuance took place in Hong Kong in 2007, followed by offshore Renminbi trade settlement in 2009. By the end of March 2014, 381 such "dim sum" bonds have been issued, with a balance of RMB350 billion outstanding. Through the process, the Renminbi is establishing itself as a funding currency in the offshore market, with interest rates determined entirely by market forces. Renminbi trade settlement transactions handled by banks in Hong Kong reached RMB3,841 billion for the whole of 2013, a 46 per cent increase over 2012.
For cross-border investment, the Renminbi Qualified Foreign Institutional Investor (RQFII) Scheme was introduced in 2011, placing the Renminbi firmly on the map of investment currencies. The RQFII Scheme was expanded further in March 2013, bringing the total investment quota to RMB270 billion. Financial institutions that are registered and with major operations in Hong Kong can apply for RQFII status, while investment restrictions of RQFII funds have been relaxed so that institutions can design the proportion to invest in equity and debt markets in accordance with market conditions. This has facilitated the development of more diversified Renminbi investment products. Subsequently, such RQFII quotas have also been offered to Taiwan, Singapore, London and Paris.
As a first mover in offshore Renminbi business, Hong Kong is happy to see the development of Renminbi business in different parts of the world. This represents more opportunities for Hong Kong to further develop its leading role in the internationalisation of the Renminbi and further sharpen our city's competitiveness as a financial super-connector linking our country and the rest of the world.
Earlier today, as you heard, Premier Li Keqiang announced the establishment of a Shanghai-Hong Kong stock exchanges connectivity mechanism with an aim to promote two-way opening-up and healthy development of the capital market on the Mainland and in Hong Kong. We are grateful to the Central Government's confidence in our financial system and its support to our development as the nation's global financial centre. The launching of the Shanghai-Hong Kong Stock Connect will not only help strengthen the two securities markets, but will also have long-term and strategic significance. It will reinforce and enhance Hong Kong's position as the premier international financial centre and offshore Renminbi business centre. The China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission are working closely on the preparatory work.
In January last year, the Hong Kong SAR Government established the Financial Services Development Council, so that the financial services sector could advise the Government on what to do and how best to do it. The Council has to date submitted eight research reports. These reports highlight the many opportunities that await Hong Kong – China's global financial centre.
On this note, I am pleased that, in its annual assessment on Hong Kong just released yesterday, the International Monetary Fund, IMF, has once again confirmed that Hong Kong has sound banking and financial systems, which are robustly regulated and supervised at the global forefront in many areas and resilient to likely shocks.
Looking ahead, the IMF believes that the successful transformation of China's economy, even if it means slower growth in the near term, would offer significant benefits to Hong Kong over the medium and longer term. I am confident that, as our country moves ahead with further reforms and opening up, Hong Kong will continue to play a unique and indispensable role in the process, while at the same time entrenching our position as an international financial centre.
Ladies and gentlemen, we had the imagination, the innovation and the determination to successfully maintain our separate currency and a separate financial system. Going forward, we shall apply the same imagination, innovation and determination in the development of Hong Kong as a global financial centre.
Finally, I would like to thank you all for your support of Hong Kong's remarkable development as an international business and financial hub in Asia serving the needs of both China and the rest of the world.
Thank you and have a great evening.
Ends/Thursday, April 10, 2014
Issued at HKT 21:36
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