Speech by CE at Bloomberg Invest Asia Summit (English only) (with photos/video)
Distinguished guests, ladies and gentlemen,
What a pleasure to be able to speak to so many influential institutional investors at the Bloomberg Invest Asia Summit. When the invitation from Bloomberg arrived, I told my colleagues, "What a wonderful opportunity to do some promotion for Hong Kong." As some of you are aware, I spent the last three days in the Boao Forum for Asia in Hainan. That is already my 19th trip out of Hong Kong to promote Hong Kong. In total, I spent about 55 days out of Hong Kong in my nine months of service as the Chief Executive. It works out to be about 20 per cent. The 20 per cent of time spent on promoting Hong Kong is extremely rewarding and valuable, because the Hong Kong story has to be told in loud and clear terms, especially to investors all over the world. So this morning is an extremely good opportunity for me to discharge that role of the Chief Executive.
Before I continue to talk about Hong Kong's investment environment, may I extend my warmest wishes to Bloomberg. You have just heard Mallika (Senior Editor, Asia Pacific, Bloomberg Live, Ms Mallika Kapur) telling you that this year it's the 25th anniversary of Bloomberg's presence in Hong Kong. Established in 1993, Bloomberg then had only an office of 30 people. Fion (Hong Kong Bureau Chief, Bloomberg LP, Ms Fion Li) just told me now it has grown to 750. Mallika was kind enough to say that at the same time over the 25 years, Hong Kong has also grown, but I can tell you that we have not grown by 25 times, not in terms of population, not in terms of gross domestic product, so Bloomberg has been doing extremely well in the last 25 years in Hong Kong. In fact Bloomberg is one of the 8 200 plus companies from overseas and the Mainland that have chosen Hong Kong as their regional headquarters, using Hong Kong to reach out to the rest of the world. So for the distinguished institutional investors sitting in this room, I hope that what I am going to tell you is not just investing in Hong Kong, but investing through Hong Kong, using Hong Kong as your regional headquarters to access not only the Mainland market, but the rest of Asia, and probably the world.
Now coming back to investment, I'll try to spend the next few minutes putting myself in your shoes. What will investors be looking for when they are trying to find a destination for investment or to set up a major office to look after their investment for their institutional investors, wealthy people and so on? I come round to think that there will be four factors. First is the core strength of this place. Second is connectivity. Third is the growth opportunities and finally it's a proactive government.
On the core strengths, this has been rehearsed time and again by myself and by my senior colleagues whenever we promote Hong Kong. Hong Kong prides itself on the rule of law underpinned by an independent judiciary. When I said an independent judiciary, they are not just empty words. If one looks at the Basic Law, the section with the largest number of provisions in the Basic Law is about the judicial system. All the details about Hong Kong's judiciary are laid down in this constitution, governing "One country, Two systems". Notably it's the design of the Court of Final Appeal. Just three weeks ago, I announced that I have accepted the recommendation to appoint two more illustrious and eminent lady judges. For the first time, a lady judge is going to sit on the Court of Final Appeal, making a total of 14 such illustrious, world-renowned judges from other common law jurisdictions sitting on the Court of Final Appeal. So I will ask myself if Hong Kong does not have an independent judiciary, if Hong Kong's judges or courts are, as alleged by some of the commentators, under the undue influence of China or the Government, how on earth would these illustrious judges be happy or willing to sit on the Court of Final Appeal? So I hope that that is a very good indicator of Hong Kong's independent judiciary.
Beyond the independence of judiciary, we also look to establish a legal and dispute resolution services hub in order to exemplify this very unique strength of Hong Kong, the rule of law. Of course for investors, you also look for a place where there is a very clear and strong market access, transparency and regulatory certainty. I don't need to go into all these. I'm sure some of the speakers or panellists later on will talk about Hong Kong's regulatory environment and the rule-based system that we are practicing in this place which of course make us one of the most important international financial centres in the world.
And then we have a clean and efficient government. Although from time to time, there are still complaints about our efficiency and about some bureaucratic rules and inertia, but I think by and large, we can claim that the HKSAR Government is both a clean and efficient government.
And then we have very strong public finances. Investors will worry if the government of the place is in great debt; then you would be worried about whether the rules will be changed overnight and so on. But the HKSAR Government is extremely blessed with very strong fiscal strength. By the end of the last financial year, our total fiscal reserve, that is not counting the Exchange Fund reserve, just the accumulated surpluses over the years, amounts to over $1,100 billion. And what does $1,100 billion mean? It means that even without any tax revenue, we can sustain the current Government for two full years. Of course, on top of that, we do have other assets and we have the Exchange Fund.
Then we'll come to something which will be very close to your heart, that is, the very low tax regime, simple and now more competitive. We used to say the Hong Kong tax system is simple and low. I have inserted this word "competitive" in this term of the Government. Because in order to stay ahead of the game in this highly globalised environment, we have to be competitive. Otherwise, we will be sort of "defeated" by other economies. So we now have a tax review policy unit going on to look at what more we can do in providing tax measures that are favourable for all sorts of activities. We have already introduced, from the beginning of this fiscal year, the two-tiered profits tax. So, when a flat rate of 16.5 per cent for profits tax is low enough by world standard, we now have a two-tiered profits tax, which charges half of 16.5, that is 8.25 per cent for the first $2 million profits of all enterprises. Of course, it will bring more benefits to the SMEs and the start-ups and the micro-companies, but generally, we don't discriminate. For big companies, the first $2 million profits will also be charged at the lower rate in this two-tiered profits tax system.
We will shortly be introducing a piece of legislation to introduce for the first time in Hong Kong's tax system what we call "super deductions". In other words, in order to incentivise corporations to spend on certain areas in their conduct of business, we give them extra profits tax deduction. And the first area so identified is R&D, because I have a strategy to push Hong Kong's innovation and technology development and we could not just rely on public funding for R&D. We want to have more investment by private corporations on research and development. So, this piece of legislation will introduce super deductions for corporations' R&D expenditure. Again, sort of two-tiered: for the first $2 million, it will be 300 per cent, and for anything above $2 million, it will be a 200 per cent deduction.
We have other things to come on the tax system, but that will be very targeted. For example, we already have some favourable and facilitating tax measures for attracting what we call the treasury functions to Hong Kong for aircraft leasing activities. And in the promotion of Hong Kong's bond market, the Financial Secretary has just announced in his Budget that we will provide a grant of up to $2.5 million per bond issuance in Hong Kong in order to attract more bond issuance to Hong Kong, especially green bonds. The Government will take the lead in the issue of green bonds and we have already introduced a Green Finance Certification Scheme so that corporations will feel more at ease to issue green bonds in Hong Kong.
Finally, in terms of our core strengths, there is one aspect that has not been highlighted enough, which I will do every time when I talk about Hong Kong's core strengths. That is our being one of the safest cities in the world. I am sure as an investor, especially an investor who wants to bring their young family to Hong Kong, you will be very concerned if this is not a safe city. Our crime rate, expressed in the number of crimes, big and small, per 100 000 population is only 758, which is a new low in the last 46 years, which is much, much lower than similar cosmopolitan cities like New York, London and Paris. Don't take it for granted. This safe-city reputation is the result of the very hard work of our disciplinary forces, especially many of our policemen and policewomen in the front line.
All these core strengths, when they are put together, earn us something. They are very well recognised by international agencies. For 24 years in a row, uninterrupted, Hong Kong has been ranked as the freest economy in the world by the US-based Heritage Foundation. And the last two years, we also won the top ranking of being the world's most competitive economy by the Swiss-based IMD. And I am happy to say, as I came back from the World Economic Forum (WEF) in Davos, in the last year or so the WEF ranking of Hong Kong's competitiveness has also risen from ranking number nine to now number six. Of course, I look forward to maintaining and improving these international rankings during my term.
Now, I come to the second aspect about connectivity. Because institutional investors like yourselves, many of you are multinational, so you need to travel extensively, meeting your investors and your counterparts in other parts of the world. Hong Kong is an extremely well-connected city. Our Hong Kong International Airport is now receiving over 72 million passengers every year, making us the world's number three in passenger volume. But we are the world's number one in terms of air cargo. We are going to see more and more high-end air cargo using Hong Kong. We have a Third Runway System now under construction, and when it is completed, we will be able to take in over 100 million passengers.
I said Hong Kong is well connected because you can travel to 220 destinations all over the world from our Hong Kong International Airport. That's why sometimes I look at reports from my government colleagues telling me a dignitary or head of state is coming to Hong Kong, they are coming to Hong Kong on transit, because they could not fly direct from home, so they have to use Hong Kong, which is an extremely efficient aviation hub in the world. This is on the aviation side.
On the land side, 2018 is an extremely exciting year for us in terms of enhanced connectivity. Within the next 12 months or so, Hong Kong will commission three major pieces of cross-boundary infrastructure. You have heard a lot about the bridge, especially in recent days, the Hong Kong- Zhuhai-Macao Bridge, which will significantly shorten the travelling time between Hong Kong and the western part of Guangdong from the current four hours to only 45 minutes between Lantau Island and the city of Zhuhai. And then we will be opening by end-September the Hong Kong section of the Guangdong-Shenzhen-Hong Kong high-speed rail, and the travelling time between the West Kowloon Station and Guangzhou is a mere 48 minutes. To Shenzhen, it is an even shorter distance. I was telling the Shenzhen party secretary that in the future coming to your office for a meeting will be quicker than going to the Kowloon office of the HKSAR Government. And then we will be opening the seventh land-based boundary control point in an area called Heung Yuen Wai in Hong Kong and Liantang on the Shenzhen side. This eastern boundary control point has not been well publicised enough because it is, up till now, an extremely smooth project. Good things in Hong Kong do not get reported! You heard a lot about the bridge, you heard a lot about the train, but how come there is this big piece of infrastructure that has not been mentioned? We are all expecting to open this in either the end of this year or early 2019 because every day now, this city has 600 000 passenger trips across the land-based border - this is discounting by ferry, by air. Just the six control points together are receiving over 600 000 passenger trips every day, making them the world's busiest control points.
Apart from physical connectivity by air, or by road, or by rail, digital connectivity is equally important. I hope you are satisfied with your speed of Wi-Fi and Internet access in Hong Kong, and it's uninterrupted. We still have a blueprint to turn Hong Kong into a smart city, to extensively increase the number of Wi-Fi hotspots in the public facilities and so on. And Hong Kong is also home to major data centres, that is Amazon, Google and so on.
Financial connectivity is something that is more or less exclusive to Hong Kong because of "One country, Two systems" and the very supportive policies from the Central Government. Since 2014 we almost have one major initiative every year. We launched the Shanghai-Hong Kong Stock Connect in 2014; 2015 is the Mutual Recognition of Funds; 2016 is the Shenzhen-Hong Kong Stock Connect; and last year, that is within the first week of my assuming office, we launched the Bond Connect. I expect, with what President Xi told the world yesterday at the Boao Forum for Asia, with the opening up, or the further opening up, of the financial services, Hong Kong will stand to benefit from this enhanced connectivity.
The third area is the growth opportunities. Where's the growth coming from in this very mature economy, Hong Kong? This Government has a strategy to consolidate our traditional strengths and also to look for new economic areas for growth. In terms of one of our strongest pillars, that is financial services, you have heard what the Hong Kong Exchange has done in recent months. They are really picking up the momentum with the support of the Securities and Futures Commission, with the completion of the consultation on the changes to the listing rules to accommodate new technology and new economy corporations, to put in place pre-revenue listing for biotechnology companies, and also to attract companies, especially Mainland companies which have listed abroad, to come back to Hong Kong for secondary listing. All the exciting development in the Hong Kong financial services will take place within this year.
We have not lost sight of the port. The port is still extremely important for Hong Kong although we are facing a lot of competition from Mainland ports. Our ranking has gone down from the world's number one to maybe the world's number five. But we are moving up at the high-end into maritime services. Whether it's in terms of maritime insurance, registration, licensing or arbitration, these will be the activities that my Government will promote insofar as the port logistics and maritime services are concerned.
The two areas that my Government has identified for a major push with government support, investment and public-private partnership will be innovation and technology as well as creative industries. On the former, I can give you a one-hour talk on innovation and technology. I just suggest you may wish to read my Policy Address delivered on 11 October last year, in which I have outlined an eight-pronged approach to promote innovation and technology development in Hong Kong, ranging from infrastructure, a second science park in the area called the Lok Ma Chau Loop, to attraction of talents, provision of tax incentives, and building up critical mass in Hong Kong's research capability by attracting more overseas, renowned, research and development institutions to Hong Kong. The recent very good gesture of my Financial Secretary to give us $50 billion in innovation and technology in his latest Budget is very much welcomed.
President Xi Jinping announced a series of measures at the Boao Forum for Asia yesterday. Of the four major initiatives, two will particularly be relevant to Hong Kong. One is further relaxation in financial services, especially in insurance, because in the last year or so, since my campaign days, I have heard a lot of complaints and requests from the insurance sector that it's quite difficult to access the Mainland market. So this very explicit announcement by President Xi should be very much welcomed. We are waiting for details and we will do more research and share it with the insurance and other financial sectors in Hong Kong.
The other is President Xi's pledge to provide a more attractive investment environment in the Mainland of China. But that doesn't mean that you can forego Hong Kong. I think Hong Kong will continue to be that conduit, providing the needed professional services for you to access the more favourable investment environment in the Mainland. I think whether in terms of broadening relaxation and providing a more favourable investment environment and also in strengthening the IP protection, all these aspects mentioned by President Xi give me the impression that my country is now very confident. As President Xi said, we are not looking for trade surpluses. We just want global peace and global business so that we could raise the people's standard of living.
Together with the two major national initiatives which Hong Kong will play a significant part in, that is the Belt and Road Initiative and the Guangdong-Hong Kong-Macao Bay Area, I feel that the growth opportunities in Hong Kong are just plenty. It is for us to seize these opportunities and to provide the necessary environment for institutional investors and also to provide more job opportunities for our young people.
On the Belt and Road, we have already signed an Arrangement with the National Development and Reform Commission and every year we now host, together with the Hong Kong Trade Development Council, an international Belt and Road Summit in Hong Kong. This year is the third edition which will take place on 28 June. If you have interest, please come to join this very exciting annual summit on the Belt and Road. Later this year, we will have another Belt and Road summit which is theme-based on tourism, that is, how we can promote tourism along the Belt and Road countries.
On the Bay Area development now we are enthusiastically waiting for the State Council to announce the approval of the Bay Area Development Plan, but even before that, I have been visiting cities in the Bay Area and having meetings with the Guangdong cities' officials to talk about collaboration.
Finally is the Government. I know that Hong Kong is very proud of a small-sized government, market economy. That will still be our guiding principle. But as I just mentioned, in the highly globalised and competitive environment, the Government has to be more proactive. We could not just lay back and wait for things to happen. So I can promise you and assure you that in this term of the HKSAR Government, myself and my colleagues will be very proactive. We will play well the traditional roles of being a public service provider and a regulator. In addition, we are very happy to play the role of a facilitator and a promotor. What do we mean by being a facilitator? There are sometimes very interesting projects that come our way, but these projects do not nicely fit into the bureaucratic compartments. So we need to be able to respond to these interesting projects and find a way forward. For that purpose I have created or transformed an office in the Government, previously called the Central Policy Unit, into what I called now PICO, the Policy Innovation and Co-ordination Office. The PICO will be happy to receive any project proposals, to provide the first-stop and hopefully the one-stop advisory services for investors who are happy or willing to take forward some unconventional projects in Hong Kong for the benefit of investors and for the benefit of Hong Kong's economy.
With that, I just want to thank you and Bloomberg again, for giving me this opportunity to do promotion and publicity free of charge. Thank you very much.
Ends/Wednesday, April 11, 2018
Issued at HKT 15:37
Issued at HKT 15:37
Audio / Video
CE attends Bloomberg Invest Asia Summit