Budget Speech by the Financial Secretary (5)

Business and Professional Services

87. Business and professional services generate many quality employment opportunities for Hong Kong.  Our accounting, legal, architectural and engineering sectors are highly competitive.  Their professional services are on a par with international standards and the systems adopted dovetail with those in the advanced regions.  These sectors have earned the trust of Mainland and overseas enterprises.


88. Since the introduction of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) in 2003, ten Supplements to CEPA have been concluded between the Mainland and Hong Kong to expand market liberalisation and further facilitate trade and investment.  CEPA has presented tremendous development opportunities to Hong Kong's service suppliers and professionals.  Up till now we have issued 3 000 Certificates of Hong Kong Service Supplier and thousands of Hong Kong residents have set up individually-owned stores in the Mainland in accordance with the preferential treatment under CEPA.

89. At the end of last year, I signed a new agreement with the Ministry of Commerce to promote liberalisation of trade in services between Hong Kong and Guangdong.  After the agreement comes into effect, Guangdong will open up 153 services trade sub-sectors to Hong Kong service suppliers, accounting for 95.6 per cent of all trade sub-sectors under the WTO's classification system.  I hope the Mainland will further deepen the liberalisation measures on this basis and extend them nationwide, thereby achieving basic liberalisation of trade in services between the entire Mainland and Hong Kong by the end of this year.

Intellectual Property Trading

90. As an international business centre, Hong Kong is well placed to become a premier IP trading hub providing high value-added IP services in the region.  I shall earmark $23 million in the coming three years for offering IP consultation, manpower training and other services to SMEs.  As regards tax deduction for capital expenditure incurred on the purchase of IP rights, I shall consider extending the scope to cover more types of IP rights as appropriate.

Financial Services

91. The Financial Sector Assessment Programme report released by the International Monetary Fund last May acknowledged that Hong Kong's financial sector is one of the largest and most developed in the world.  The report also affirmed the resilience of Hong Kong's financial system, and commended our high standard of supervision, comprehensive risk management, and active macro-prudential policies.  Government, together with relevant regulators, will strive to keep our regulatory regime up to international standards.

92. As an international financial centre, Hong Kong will step up its efforts in combating cross-border tax evasion in accordance with the latest global standard.  In response to the Organisation for Economic Co-operation and Development, we have pledged to adopt the new standard, pursuant to which financial institutions are required to report to the Inland Revenue Department specified financial account information on a regular basis, so that Hong Kong can exchange such information with other jurisdictions by end-2018.  We shall consult the industry in the second quarter of this year and introduce the relevant amendment bill in 2016.

Shanghai-Hong Kong Stock Connect and Offshore Renminbi Business

93. The Shanghai-Hong Kong Stock Connect has been operating smoothly since its launch in November last year.  For the capital markets of the two places to move towards full mutual access, we shall review the experience of the implementation of this project, and discuss with the relevant authorities of the Central Government the launch of the Shenzhen-Hong Kong Stock Connect and enhancement of the Shanghai-Hong Kong Stock Connect.  We shall also work with the industry to stage roadshows in the Mainland to promote Hong Kong's securities market to Mainland investors.

94. While we strengthen our connection with the Mainland market, we are also expanding our RMB business links with the rest of the world.  Hong Kong is the world's largest centre for offshore RMB banking, financing and asset management, providing services for RMB transactions around the world.
95. Last year, RMB trade settlement conducted through Hong Kong banks amounted to RMB 6.3 trillion, with a 60 per cent year-on-year increase, while RMB bond issuance amounted to RMB 200 billion, with a 70 per cent year-on-year increase.  In the fourth quarter of 2014, the average daily turnover on Hong Kong's RMB Real Time Gross Settlement (RTGS) system amounted to RMB 850 billion, representing an 80 per cent increase over the same period a year earlier.

96. We shall continue to actively develop Hong Kong's capacity to serve as a global hub for offshore RMB business, providing new opportunities for the financial sectors both in the Mainland and Hong Kong.  To this end, we shall work with the Mainland authorities to further increase our investment quota for the RMB Qualified Foreign Institutional Investors (RQFII) Scheme and strive for early implementation of the arrangement for mutual recognition of funds.

Asset Management

97. Hong Kong's wealth and asset management business has been growing exponentially.  At end-2013, the combined fund management business recorded a year-on-year growth of 27 per cent, exceeding $16 trillion in total.

98. In last year's Budget, I proposed to waive the stamp duty for the transfer of all exchange traded funds (ETF).  The relevant amendment ordinance was passed by the Legislative Council (LegCo) and the stamp duty waiver took effect on the 13th of this month.  We plan to table a bill in LegCo later to allow private equity funds to enjoy profits tax exemption available to offshore funds.  Furthermore, we are formulating legislative proposals to provide the legal framework for introducing an open-ended fund company structure.
99. To attract multinational and Mainland enterprises to establish corporate treasury centres in Hong Kong to perform treasury services for their group companies, we shall amend the Inland Revenue Ordinance to allow, under specified conditions, interest deductions under profits tax for corporate treasury centres and reducing profits tax for specified treasury activities by 50 per cent.  The relevant bill will be introduced in the 2015-16 legislative session.

Bond Market

100. Government issued its first sukuk last year.  The US$1 billion issuance marked the world's first US dollar-denominated sukuk originated by a government with the highest credit rating, setting a significant pricing benchmark for the market.  Drawing a strong demand from investors, the sukuk issuance won a number of awards.  The successful offering highlighted that the relevant legal framework in Hong Kong has been widely accepted by international investors.  Government will consider actively a further sukuk issuance when market conditions are favourable, in a bid to attract more issuers and investors into the local market.

101. The inflation-linked retail bonds (iBond) introduced in 2011 have been well received by the public and helped promote the retail bond market.  I shall launch an iBond issue of up to $10 billion with a maturity of three years.  Following the existing practice, the issuance will target Hong Kong residents, and interest will be paid to bond holders every six months at a rate linked to the inflation rates of the last half-year period.  The Hong Kong Monetary Authority (HKMA) will announce the details in due course.

(To be continued.)

Ends/Wednesday, February 25, 2015
Issued at HKT 11:48