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STH's speech at Airline Economics Growth Frontiers Conference (English only)
     Following is the speech by the Secretary for Transport and Housing, Mr Frank Chan Fan, at the Airline Economics Growth Frontiers Conference today (October 31):

Distinguished guests, ladies and gentlemen,
     Good morning. Welcome to Hong Kong, the world's freest economy pronounced by the Heritage Foundation for 23 consecutive years. It is our honour to host the Airline Economics Growth Frontiers Conference on aircraft leasing and aviation finance here in Hong Kong. We are delighted to have such a distinguished audience, and are even more excited to share with you new business opportunities on aircraft leasing in Hong Kong.
     Let me begin by giving you a quick snapshot on how Hong Kong is doing as an international aviation hub.

     Given our unique geographical location and the excellent connectivity of our airport, Hong Kong is within reach of all of Asia's major markets and half the world's population in just five hours of flying time. 
     The Hong Kong International Airport currently hosts more than 100 airlines. We have over 1 100 flights each day, connecting to some 220 international destinations. The Hong Kong International Airport has been the busiest cargo hub of the world for six consecutive years, and is also the third busiest international passenger airport. Last year, we welcomed over 70 million passengers and handled 4.5 million tonnes of cargo. In the first nine months of this year, we handled about 54 million passengers and 3.6 million tonnes of cargo, representing year-on-year growth of 2 per cent and 10 per cent respectively.
     To cope with the ever-increasing air traffic demand, we have embarked on a three-runway system project, comprising the third runway, a new concourse and other supporting facilities for our airport. When the three-runway system is fully commissioned by 2024, the Hong Kong International Airport's handling capacity will leapfrog to 100 million passengers and 9 million tonnes of cargo a year.
     In the meantime, our Airport Authority has ceaselessly invested in various expansion projects and upgrading works, and service enhancement under the current two-runway system. Apart from upgrading our airport, we are also committed to growing and diversifying Hong Kong's aviation services, such as aircraft leasing and related businesses in Hong Kong.
     According to the Market Outlook published by Boeing, over the next two decades, global aviation passengers are expected to increase at about 5 per cent per annum and passengers in the Asia-Pacific region at about 6 per cent per annum. The numbers of new aircraft to be delivered worldwide and in the Asia-Pacific region are estimated at about 41 000 and 16 000 respectively. 
      Market intelligence reveals that the proportion of new aircraft being financed by leasing is already over 30 per cent. Such a proportion is expected to grow further to about 40 per cent by 2020. Globally, demand for financing aircraft purchase is forecast to increase steadily at a compound annual growth rate of about 7 per cent, with over US$120 billion in financial requirement in 2016.
     When we talk about market growth, it would not be complete without mentioning China. China has become one of the most dynamic, up-and-coming travel markets in the world, with rapid growth in the aviation industry and aircraft demand to expand its domestic and international network. Between 2012 and 2032, Mainland China airlines would need about 6 000 new aircraft, or over 40 per cent of the forecast delivery to the Asia-Pacific region, or some US$780 billion in terms of value.  
     To capture the immense opportunities ahead, in July this year, we started to provide a dedicated tax regime for aircraft leasing in Hong Kong. 
     Hong Kong's regime has two key features. First and foremost: the tax rate. We cut the profits tax rate by half, down from 16.5 per cent to 8.25 per cent, for qualifying profits of eligible aircraft lessors and aircraft leasing managers. And second: the taxable amount. Only 20 per cent of the rentals derived from qualifying aircraft leasing activities will be chargeable to profits tax after deducting allowable expenses.
     As a result, the effective tax rate for aircraft leasing activities in Hong Kong will be down to about 4 per cent. Leveraging the ample liquidity in our banking system, dynamic debt and capital market as well as a large pool of investor capital, Hong Kong is probably the best marketplace for aircraft leasing business.

     Our proximity to the Mainland of China and strong business ties with Mainland counterparts constitute added advantages. Hong Kong as a Special Administrative Region of China enjoys policy support from the Central Government. We have the Closer Economic Partnership Arrangement that fosters trade and investment between the Mainland and Hong Kong. Also, the withholding tax rate between Hong Kong and the Mainland has been lowered since December 2015 to 5 per cent. As far as I know, it is the lowest among all existing aircraft leasing hubs. But more importantly, our conviction on the rule of law and our commitment to ensuring a level playing field for all is the best guarantee for doing business in Hong Kong with peace of mind.

     We are excited about how the aircraft leasing business has started to flourish since the introduction of the regime. The China Aircraft Leasing Group Holdings Limited, the largest aircraft operating lessor in China, is one of the first companies which decided to complete an aircraft transaction through the Hong Kong leasing platform. Furthermore, ICBC Financial Leasing Company Limited is in active discussion with several airlines about using Hong Kong lessors for aircraft leasing.
     Ladies and gentlemen, I am sure you want to know more about our very unique offer. To facilitate your consideration, Mr Stephen Phillips, Director-General of Investment Promotion, Hong Kong, will make a presentation immediately after me and my colleague from the Inland Revenue Department will be here tomorrow to share with you the fine details. You are also welcome to drop by our counter where our representatives would be most happy to address your concern.
     It is a great pleasure for me to share with you the latest development of this new initiative of Hong Kong. With hope and prosperity ahead of us, we look forward to having you as a member of the world's freest economy. May I wish you all a fruitful conference and an enjoyable stay in Hong Kong.

     Thank you very much. 
Ends/Tuesday, October 31, 2017
Issued at HKT 12:40
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