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Following is the speech delivered by the Financial Secretary, Mr John C Tsang, at London Metal Exchange (LME) Week Asia 2014 at the Hong Kong Convention and Exhibition Centre this morning (April 24):
Charles (Li), Garry (Jones), distinguished guests, ladies and gentlemen,
Good morning.
It's indeed a great pleasure for me to join LME Week Asia. First of all, a warm welcome to Hong Kong to all our guests from the Mainland and also from around the world.
Also, congratulations to Charles and his team at HKEx (Hong Kong Exchanges and Clearing Limited) on staging this remarkable event here in Hong Kong for the second year in a row. The participation of so many leaders in the commodities industry is, indeed, most encouraging for us.
The theme of LME Week Asia is "global connectivity". Few places in the world actually are better connected than Hong Kong. This is especially the case for our financial markets.
Earlier this month, at the Boao Forum held in beautiful Hainan Island, the Central Government announced its support of a tie-up between the Hong Kong and Shanghai stock exchanges. Under the scheme, Hong Kong and overseas investors will be able to buy directly Shanghai-listed shares for the first time, and Mainland investors will be able to buy Hong Kong listed shares. The scheme benefits both places. This is just the latest example of Hong Kong's role in connecting the Mainland's financial markets to the global markets.
Also this month, the IMF (International Monetary Fund) endorsed Hong Kong's financial policy strategies and risk management initiatives. The IMF expressed support for our Linked Exchange Rate System as well as our strategies for managing the impact of the global financial crisis.
Since the acquisition of LME by HKEx in 2012, Hong Kong has become an important platform for the trading markets of international commodities. LME is where prices of metals are discovered and where international trades in futures, in options and swaps are made.
The derivative contracts offered by LME provide global market players with important tools for offsetting price risk in the physical market and locking in a price for the same commodity in the derivative market.
I am delighted that LME is stepping up its presence here in Asia. Last year, LME's Asian Helpdesk opened in Hong Kong to provide full technology support for users throughout the Asian trading day. LME has also enhanced its Asian Benchmark pricing to become more accessible to the Mainland and other parts of Asia.
The huge demand in the Mainland for commodities and resources, combined with the liberalisation of the Renminbi (RMB), presents new opportunities for Hong Kong.
As China's global financial centre, Hong Kong remains at the forefront of offshore RMB business. We have a highly liquid market for RMB-denominated financial derivatives among a range of RMB investment offerings. Hong Kong accounts for about 70 per cent of global offshore RMB transactions, and we have the largest and most active pool of offshore RMB funds.
In June last year, our Treasury Markets Association launched the CNH Hong Kong Interbank Offered Rate fixing. It facilitates the pricing of various offshore RMB interest rate derivatives and RMB loan facilities.
We shall continue to upgrade our RMB financial infrastructure to meet the evolving need and growing demand of the market.
Another important development in the derivative market in Hong Kong is the launch of HKEx's clearing house for OTC (over-the-counter) derivatives. OTC Clear was launched last November. According to BIS, the Bank for International Settlements, Hong Kong ranks sixth in the global foreign exchange market, including transactions in the OTC interest rate derivative market.
OTC clearing remains a relatively new market for Hong Kong. Mandatory clearing of standardised OTC derivative transactions through central counterparties is one of the reform initiatives of the G20. The aim is to increase transparency and minimise systemic risks of OTC clearing. Last month, we enacted the primary legislation for the reform of the OTC derivative market. Our regulators will conduct a public consultation on the detailed rules in phases, and will continue their close dialogue with the industry.
Here in Hong Kong, there is great long-term potential for OTC Clear to compete for RMB-denominated OTC derivative products.
Commodity investment is an increasingly important component of asset management. A sharp increase in the popularity of commodity investment in the past decade has triggered an unprecedented inflow of institutional funds into commodity futures. According to Thompson Reuters in London, asset management investment in the global commodities market has increased from 1 per cent in 2003 to 20 per cent in 2013. In Hong Kong, given the increase in offshore RMB liquidity, our city could follow a similar path to that of London in terms of commodity investment.
Allow me to briefly mention also some of our initiatives to foster Hong Kong's development as the premier asset management centre in the Asia Pacific region.
We aim to develop Hong Kong into a regional hub for exchange traded funds (ETFs). In my Budget in February this year, I proposed to waive the stamp duty for all the trading of all ETFs, making Hong Kong a more attractive place for the development, for the management as well as trading of ETFs.
We are also preparing legislative proposals to facilitate the introduction in Hong Kong of open-ended fund companies. This new market choice will help attract more funds to use Hong Kong as their investment platform. A public consultation on the proposal is under way.
We also want to attract more private equity funds to domicile in Hong Kong. We plan to 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.
And finally, to develop our trust industry, settlors are now able to establish perpetual trusts in Hong Kong. This measure is currently not available in most other major common law jurisdictions.
Ladies and gentlemen, I have just mentioned some of the opportunities for global investors to tap into our risk management, our asset management and capital formation platforms in Hong Kong.
Hong Kong is an international financial centre in the Asian time zone. We also serve as the financial connector linking the Mainland with the rest of the world. Given the development of emerging economies in Asia, in particular Mainland China, commodity trading is an increasingly important element of the financial trading mix in our region.
LME is an essential part of our financial architecture. LME strengthens Hong Kong's global financial connectivity and opens up new opportunities for our development as a regional asset management hub.
No doubt, LME Week Asia will help shed more light on the opportunities for Hong Kong in connecting Mainland China to global commodities markets and in providing a risk management platform for investors worldwide.
So once again, congratulations to HKEx on organising this event, and I wish you all a fascinating and fruitful LME Week Asia and our visitors an enjoyable stay in Hong Kong. And, just remember, one more thing is: do shop a lot.
Thank you very much.
Ends/Thursday, April 24, 2014
Issued at HKT 11:13
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