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Speech by FS at Joint Business Community Budget Speech Luncheon (English only) (with photos/video)

     Following is the speech by the Financial Secretary, Mr John C Tsang, at the Joint Business Community 2015-16 Budget Speech Luncheon at the Hong Kong Convention and Exhibition Centre today (March 19):

Y.K. (Pang) , Charles (Yeung) , Daniel (Cheng) , Eddy (Li) , Peter (Spirig) , chairmen and presidents of chambers and associations, consuls general, distinguished guests, friends of the Business Community, ladies and gentlemen,

     Good afternoon.

     My thanks, first of all, to all the Chambers and Associations for your continuing support, and also for this welcome opportunity for me to share with you today a few of my thoughts about the budget, about business, about Hong Kong. But, before I do so, allow me to say a few words about the weather. I believe this is the customary thing that people do at important gatherings like this.

     I note from the news that while picturesque New England, in the northeastern United States, where I once lived for quite a few years, is still covered in snow, we in Hong Kong are beginning to enjoy the new season of warm, humid and foggy days.  

     Yes, that means spring is in the air. If I remember something of the poetry that I loved so much as a teenager, it reminds me that, in spring, and I quote, "a young man's fancy lightly turns to thoughts of love". Perhaps in Victorian times, but not now and not in Hong Kong because we are not really hopeless romantics. We are always so busy, we are always so hurried that we hardly ever have time to see, never mind smell, the roses on the way to our work.

     But judging by the fine turnout today - and the community response to my budget so far - it seems that most people, young, old and those in-between, are pretty much focused on more practical matters. So apologies to Lord Tennyson.

     And with that in mind, allow me to make three observations today. First, 2015 does not look like a sunshine sprint to the year-end finish line. Rather, this year, like last year, will likely have its share of storm clouds and rainy-day challenges, and perhaps even more so.

     The US economy has shown encouraging signs, but there are still quite a numbers of question marks. Certainly, there is much speculation over the timing and pace of the Fed rate rise. And Janet Yellenˇ¦s statement last night did not make the position any clearer than before. She was rather  emphatic in clarifying that removing the word ˇ§patientˇ¨ did not mean that the Fed had now become impatient. So we should await the outcome of the next meeting and continue to discuss whether or not the rise in interest rates will indeed slow US recovery and impact on the rest of the world.

     There are also concerns about the recovery progress, or more precisely, the lack of recovery progress, of the economies of Europe and Japan. Indeed, they may well be falling into the black hole of a deflation. Taken together, the conflicting monetary policies of these advanced economies make liquidity flows much less predictable, and the business environment much more uncertain.

     The recent rise in terrorist attacks, and the persistent geopolitical tensions in various corners of the world, add to global doubt. And while the plummeting oil prices should in general lower costs and enhance consumption - benefiting, in particular, net energy importers like Hong Kong and the Mainland - persistently low oil prices may well blunt the economies of oil-exporting nations. And that can only further undermine global financial stability.

     The Mainland's economy, compared to other large economies, is relatively speaking rather healthy, but it, too, faces downward pressures this year. Indeed, Premier Li said earlier this month that economic difficulties this year, and I quote, "may be even more formidable than in 2014". Speaking at the third session of the National People's Congress in Beijing, the Premier called slower growth the "new normal" for China.

     On the currency side, the Hong Kong dollar, in step with the US dollar, is, of late, appreciating against the currencies of our trading partners. The strength of our currency indeed has its benefits like shopping in Japan or buying vineyards in France, but it also affects the competitiveness of our services and goods exports, as well as our attraction for tourists.

     Taking this complex web of factors into consideration, I forecast that our economy will grow somewhere from one per cent to three per cent in 2015, which is considerably lower than the annual average of 3.9 per cent over the last decade. The two-point spread is a clear indication of continuing uncertainties, reflecting the volatility both here and abroad.

     In response to this rather extraordinary situation, I have adopted an expansionary fiscal strategy, providing specific concessionary measures this year to stimulate consumption, stabilise our economy and preserve employment. I have, in fact, increased the total government expenditure by 11 per cent this year - yes, a double-digit growth, which is quite a rare occurrence in today's fiscal world - with heavy outlay in the various social areas, and extra cash in the hands of Hong Kong people to help increase domestic consumption.

     Actually, since the financial tsunami began in 2008, we have been experiencing a sustained period of abnormal economic conditions. We have been proactively taking precautionary as well as remedial measures to safeguard our economic prospects. We were fortunate enough to have the fiscal strength and financial flexibility in the past few years to sustain enhanced growth in our expenditure in order to stablise our economy, stimulate growth and protect employment. In fact, since I became Financial Secretary in 2007, our total expenditure has grown by some 90 per cent, our unemployment rate has remained at a low level of around 3.3 per cent, and our fiscal reserve has grown by some 75 per cent to a sum over $850 billion.

     The abnormal economic conditions are expected to continue for some time to come. Instability, volatility and risks will continue to be the order of the day. The business community of Hong Kong are not strangers to these situations, having struggled with various crisis in the past decades. We have always managed in the past to take full advantage of these precarious moments because we all know well that when there are risks, there are also opportunities. And I invite you now to explore and exploit these opportunities with me.

     Among the most promising prospects are the "One Belt, One Road" initiative, personally spearheaded by President Xi. The "Silk Road Economic Belt" and the "21st Century Maritime Silk Road" span vast regions of Asia, the Middle East, Europe and Africa. The Silk Road Economic Belt links China with Europe via Central and Western Asia, while the Maritime Silk Road connects the Mainland with Southeast Asia, Africa and Europe. And together, they offer a unique co-operation network with staggering potential for the participating economies.

     Earlier this month, Foreign Minister Wang Yi said that the planned Belt and Road initiative would create a business "symphony", one performed in harmony with the economies concerned. That's, indeed, music to my ears. And I assume, yours as well.

     Many economies included in the "One Belt, One Road" strategy are developing economies with great growth potential. They are eager to expand trade, attract investment and upgrade their infrastructure. Hong Kong is perfectly positioned to contribute to and benefit from their aspirations. Because we have the experience, we have the capital, and we have the industries notably our pillar industries that can cater to their every need.

     The Government will take the lead in enhancing economic co-operation with these countries, and I hope that the Chambers will help me identify areas that require specific G2G involvement. I hope, too, that you will give considered thought to how we can best realise the opportunities in these areas.

     I shall be visiting some of these economies in the near future to enhance governmental ties and mutual understanding. And I hope that some of you will be able to join me on these expeditions. We shall pursue negotiations with these countries on bilateral trade and investment agreements. The goal is to create more favourable conditions for you our businessmen to invest in and gain access to these markets.

     Among these countries, the ASEAN economies, for example, will certainly be part of this integrated future. They are, of course, already central to Hong Kong business. Central, I am sure, to many of you here. With a combined population of more than 600 million people - some 100 million more than the European Union - ASEAN has much to offer, including a young workforce, a fast-growing middle class, developable land, and a pronounced need for business services and infrastructure.

     Last year, ASEAN was Hong Kong's second-largest trading partner, behind only the Mainland, and ahead of the European Union. Our bilateral investment is also very strong. ASEAN was our seventh-largest source of inward direct investment at the end of 2013; while Hong Kong was ASEAN's sixth-largest source.

     And I expect the strong trade and investment numbers will continue to rise when we complete the free trade agreement between Hong Kong and ASEAN's 10 member states. The third round of FTA negotiations took place last week (March 10-12) here in Hong Kong. The FTA, when concluded, promises even more co-operation, more business, for you - and for all concerned.

     To take full advantage of the available opportunities, however, it is essential that Government continues to upgrade our infrastructure, soft and hard, in support of a new economy, and our industries continue to shift to higher value-added products and services, adjusting as appropriate to new business models of operation.

     For example, many of our trade and logistics companies now focus more on high-value air cargo rather than sea cargo for the movement of more proprietary products and just-in-time deliveries. You may be interested to know that air cargo now makes up less than two per cent of Hong Kong's total freight by volume, but accounts for some 40 per cent by value.

     Some of the leaders in our garment industry are growing their own brands and grooming their own designers to enhance the value of their products, while leaving the lower value-added manufacturing to factories outside Hong Kong.

     We in government are doing our part as well to help you move up the value chain, to help you explore, and profit from, fresh opportunities and markets.

     And that means more than building closer G2G ties with our trading partners. We are, for example, planning for a three-runway system for our airport to enhance our passenger and cargo handling capacities. This is an essential piece of basic infrastructure that should go beyond the flighty bickerings that we have heard in the past few days. We are making efforts to attract more high-spending visitors to come to Hong Kong, including planning for a new convention centre, expanding Ocean Park and Disneyland, and encouraging more cruise lines to chart a course to our new terminal. We are also providing tax incentives and regulatory facilitation to bring more asset management business, corporate treasury activities and captive reinsurance undertakings to Hong Kong.

     Of course, we also need to ensure that we have enough talent to sustain, and to expand, our reach as well as our ambition. We need to ensure that we have the expertise in place to build the future that we all want. Meeting the needs of our industries is our immediate objective. And that is why we have put so much emphasis on human resource training.

     The partnership between the business community and government here in Hong Kong is a strong one, one that has grown over the years and tested by numerous distractions, but we have stood by each other throughout, constantly reinforcing the primary importance of the market and the business principles that have made us what we are today. During the current turbulent period that we are facing, we are continuing to work hand in hand in upgrading and adding value to our business locally and in exploring and opening up new markets around the world. This is my second observation.

     Hong Kong has long nurtured the entrepreneurial spirit of our people. And indeed, our city has never ceased to be a hotbed for business creation and innovation. And the good news is, we are continuing to see new businesses starting up here every day. I see a new generation of passionate and confident young people commercialising their own inventions and innovations. Many overseas companies are also attracted to Hong Kong by our business-friendly environment, deepening economic integration with the Mainland, and also ties with markets around the world.

     Our rule of law, free flow of information and capital, minimal red tape, robust intellectual property protection system and simple tax regime are just a few of the advantages that make Hong Kong work for companies, local and foreign, large and small, as well as start-ups. And these little guys, the start-ups of today, are going to be the giants of tomorrow.

     Start-ups are disrupting existing business models. They are also presenting extraordinary opportunities for investors. Hong Kong-based technology start-ups championed by Science Park and Cyberport in recent years have attracted hundreds of millions of dollars in investment. Other start-ups, in communications, e-commerce and financial technology, have also won support from many international angel and venture capital investors.

     The Budget offers a number of initiatives to promote the financing and development of new enterprises. They include Science Park's corporate venture fund, which will invest in start-ups on a matching basis with private capital. The venture fund will fill the gaps in the challenging early start-up stage. I am prepared to expand this scheme, if it proves effective in encouraging private investment to take part in the development of innovation and technology in Hong Kong.

     Obviously, there is a certain amount of risk in investing in such new ventures, but there is also huge potential for growth. You may not be familiar with the technology or even with the new business models. But, in recent years, it is the forging of this new direction that has helped create some of the world's biggest companies, along with a new wave of business legends. And it will continue to do so. Aside from getting good-to-great returns on your investment, there are also intangible rewards in helping tomorrow's business leaders get their head start.

     And if you are less mindful about return on investment, how about offering our youth a world of diversified opportunities. How about sponsoring our creative industries, including film production and arts and cultural groups, so that they can showcase their creativity. How about investing in social enterprises, which balance economic and social objectives, engaging people who want to serve the community.

     Our community has begun to realise that it is rewarding and indeed noble to invest in Hong Kong people, young and old - helping them become more than what they can be. That is my third observation.

     I know that my three observations may reside beyond the confines of your comfort zone, but as we move towards a new normal, we also need to expand our limits. Yes, even to boldly go where no one has gone before. I know that probably betrays my age, but that may even sound better suited for late-night TV, but I would ask you to give some thought to this: in business, unlike space exploration, there is no "final frontier".

     So ladies and gentlemen, in this splendid spring time of the year, when flowers bloom and robins sing, I wish you all the best, in business and whatever other flights of fancy that you may wish to pursue.

     Thank you very much. Have a good day.

Ends/Thursday, March 19, 2015
Issued at HKT 17:01


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