**********************************************************
Following is the speech by the Chief Executive, Mr C Y Leung, at the opening session of the Asian Financial Forum 2015 at the Hong Kong Convention and Exhibition Centre this morning (January 19):
Jack (Jack So, Chairman of the Hong Kong Trade Development Council), distinguished guests, ladies and gentlemen,
Good morning.
Welcome to the Asian Financial Forum. And, to many of you here from around the world, welcome to Hong Kong.
I'm happy to see another packed Forum this year. The theme of this year's Forum is "Asia: Sustainable Development in a World of Change." Sustainability is a hard-earned quality - one that Hong Kong has long been blessed with. It comes with ability to focus on the core strengths and the willingness to face changes to compete and, through open competition, to adapt to changes and evolve. When it comes to changes, few countries have undergone the scale and depth of changes that China has in the past 35 years. Few cities have the ringside seat that Hong Kong has been given by history to witness these changes in close quarters.
Indeed, beginning about three decades ago, we, Hong Kong, became an important player and, in many cases, leader in the remarkable transformation in the country. Hong Kong was there on day one to help establish the financial and real estate markets. And then there was this milestone year, 1997, for Hong Kong itself. I was the Secretary General of the Basic Law Consultative Committee when the Basic Law was being drafted between 1988 and 1990. In the neighbourhood of Hong Kong, the most frequently asked question was about the Hong Kong dollar: "What money will we use when we buy our first breakfast on 1st July, 1997?" I said, "Hong Kong dollar". The people said, "You are too young to answer this question."
When the Japanese took over Hong Kong during the Second World War and then when the People's of Republic was established in 1949, the first thing to change was the flag and the second the currency. "It will be the Renminbi for Hong Kong," the people said. It may be useful to recall that the Renminbi was not as popular as it is today. Nonetheless, when the Basic Law was finally promulgated in 1990, Article 111 states, "The Hong Kong dollar, as the legal tender in the Hong Kong Special Administrative Region, shall continue to circulate."
The return of Hong Kong to China was at one time a cause for concern, but we kept the Hong Kong system, we kept the Hong Kong dollar as the currency, adapted, moved on, and turned a challenge into a remarkable advantage. Hong Kong enjoys the combined advantage of "One Country" and "Two Systems". When you are in Hong Kong, you are in China, but you are not in just any other city in China. We have something special to offer that other Chinese cities don't. The convertibility of the Hong Kong dollar as a separate currency in the country has given Hong Kong a core strength in realising its potential as a "super-connector" in trade and in financial services as China launched one far-reaching reform after another. This core strength has helped both Hong Kong and the country as a whole.
Hong Kong's "super-connector" role between the Mainland and the rest of the world is clearly reflected in the launch of the Shanghai-Hong Kong Stock Connect in November last year. Thanks to Stock Connect, institutional and retail investors in Hong Kong, and from around the world, can invest directly in eligible Mainland A-shares, all denominated in Renminbi. It also consolidates Hong Kong's position in the internationalisation of the Renminbi, while opening up opportunities for Mainland investors, who can now trade in Hong Kong stocks.
Stock Connect promotes the gradual opening of the Mainland's capital account and provides a fresh channel for international investors looking to profit from the Mainland's burgeoning economy. It also encourages co-operation between the stock markets in Hong Kong and Shanghai, expanding their sources of investment and boosting their competitiveness. And Hong Kong's "super-connector" role is bound to strengthen further, as the Mainland's economic reforms continue to deepen.
Our fundamental strengths and combined "One Country" and "Two Systems" advantages have altogether helped our economy weather economic storms and sustain our city's prosperity and development.
In fact, Hong Kong's dominant position as a conduit for Mainland opportunities comes not through exclusivity but by demonstrating distinct advantages in both our knowledge of the Mainland market and our internationalised approach to practices and participants.
We also derive our strength from being an open and welcoming society. Hong Kong is an open and welcoming society not only because of the attitude of the people in the streets. You find it in our systems and policies. We share the opportunities that we have and the privileges that we enjoy in ways that are nationality-neutral.
The best illustration was the Closer Economic Partnership Arrangement, or CEPA, the principal agreement for which was signed in 2004, and its subsequent annual expansion. CEPA gives everyone in Hong Kong - and I mean everyone in Hong Kong - goods tariff-free access to Mainland China, and designated service sectors enjoy preferential access beyond China's World Trade Organization commitments.
We are also sharing the support that the country gives Hong Kong under its Five-Year Plans. In 2011, China's 12th Five-Year Plan highlighted Hong Kong's role in the development strategy of our country. We were positioned officially as an international financial, trade and shipping centre, an offshore Renminbi business hub and an international asset management centre. We have started the process with the Central Authorities in Beijing to incorporate more in the next Five-Year Plan.
These continuing transformations over the years have sustained Hong Kong's development and our prosperity. They were, of course, grounded on Hong Kong's free-market institutions, the rule of law, and a sound regulatory framework. Our location at the heart of Asia and the gateway to Mainland China has helped make Hong Kong the place for capturing opportunities arising in the global shift from West to East.
In 1993, Tsingtao Brewery became the first H-share listed on the Hong Kong stock market. The choice of listing venues for Mainland enterprises has expanded considerably since then, yet our bourse remains the prime destination for Chinese enterprises seeking listing outside the Mainland. Indeed, since 1993, US$190 billion in IPO funds have been raised in Hong Kong by China-related enterprises, including both H-shares and red chips.
Among the US$29 billion in IPO funds raised last year in Hong Kong, some 85 per cent were from Mainland enterprises. By the end of 2014, companies from the Mainland accounted for 60 per cent of our market's total capitalisation of US$3.2 trillion. That total, by the way, was the second-largest in Asia and the sixth-biggest globally.
In the same vein, we are confident that Hong Kong will remain the leading offshore Renminbi centre, despite the growing number of financial centres trading in the Renminbi. There is also huge potential from overseas companies eager to explore the option of settling their China trade in Renminbi rather than, say, the US dollar. If they settle in Renminbi, there will be no need to swap their currencies into, say, US dollars, then into Renminbi, and vice versa. This, of course, will reduce their exchange risks significantly.
Hong Kong, in fact, helps banks from all over the world conduct Renminbi transactions. In November last year, more than 220 banks participated in Hong Kong's Renminbi clearing platform, of which 199 were branches and subsidiaries of foreign banks and overseas banks in Mainland China.
But it is the "Two Systems" that makes us stand out from other financial centres in Asia or China. And it is the "One Country" aspect that allows Hong Kong to serve as China's offshore Renminbi hub rather than financial centres outside China. Of course, our market infrastructure must be top-rate - and it is. But market participants must also have room to innovate. We will continue to enrich our product offering, which now includes bonds, shares, exchange-traded and unlisted funds and insurance policies, to cater to the demand for Renminbi investment.
Hong Kong's strength as an international financial and business centre is also evident in our direct investment liabilities and assets, which were about five times our GDP at end-2013. Mainland China again featured prominently, both as a source and a destination for our external direct investment. In return, Hong Kong has long been the gateway for the Mainland's direct investment, accounting for about 60 per cent of the flow in both directions.
In the first half of 2014, about 32 per cent of foreign direct investment into Mainland China, and about 18 per cent of outward direct investment from the Mainland, was conducted in Renminbi. Hong Kong is especially well positioned to enable this cross-border flow, given our position as the gateway for investment to and from the Mainland, as well as our pre-eminent role as the world's most efficient offshore Renminbi business hub.
We must capitalise on our dual identity as a major international financial centre and the nation's leading global financial centre. There is clearly room to diversify our financial services. And the Government is studying the Financial Services Development Council's recommendations on how best to realise Hong Kong's advantages and promote diversification.
Looking at the big picture, we take note of the fact that significant changes have taken place since the global financial crisis in 2008. The changes were vividly seen, and felt, with extraordinary policy tools including quantitative easing to lessen the pain.
Here in Asia, the picture is quite different. More economic dividends are expected from the Mainland's ongoing reforms. And many of our emerging neighbours are likely to see further growth. Such trends will continue to bring massive opportunity for Asian business. That's why this Forum's "Asian sustainability" theme is so timely.
Ladies and gentlemen, in the global economy, where technology, demography and capital flow are ever-changing, economic development is a challenge for any government. We in Hong Kong will continue to enhance our physical infrastructure, invest heavily in education for our young people, and streamline efforts to attract and retain entrepreneurs and talent from around the world. We will also build even stronger ties with our economic partners in Asia and enhance our resilience against external turbulence.
There is much more we can do, if we take full advantage of the promise of Asia. If we can pursue sustainable development, we can then pursue policies that will benefit the welfare of our people throughout the region, and by extension the people throughout the world. And that will be good for everyone.
In this, I look forward to receiving brilliant, and brilliantly workable, ideas from our distinguished speakers over the next two days.
I wish you all a rewarding Forum and the best of business in 2015. Thank you, and thank you very much.
Ends/Monday, January 19, 2015
Issued at HKT 13:24
NNNN