Project Citizens Foundation
Project Citizens Forum - What Makes Hong Kong An International Financial Centre?
Speaker's speech (15.04.2016)
Mr. Tsang Chun-wah, John, GMB, JP
It is indeed my great pleasure to be here, to have this welcome opportunity to speak with you today.
Allow me to first commend the Project Citizens Foundation for your efforts in deepening public understanding of current affairs and social issues, for encouraging informed discussion as well as for nurturing evidence-based reasoning.
In today's ever-changing world - today's ever-changing Hong Kong - these are vital assets, at both the individual level as well as the community level.
And this forum's organiser has put the concept of citizenship squarely in the middle of its name. For good reasons, I reckon. It has been said that "citizenship", and all that it entails, is as old as the settled human community. The word implies a pact: a city or state promising to protect its people, while expecting allegiance in return. Mutual benefit, in short - for the good, the prosperity, of all.
Indeed, ancient Athens demanded that an oath be taken by those who wished to be citizens of the city-state. Among other things, would-be Athenians pledged to "revere and obey the city's laws", to "transmit this city not only, not less, but greater and more beautiful than it was transmitted to us".
More beautiful than they found it. A tall order, that, especially for a city as blessed as Hong Kong has been - for so long, and for so many. But this is what the Government, and for me, as the Financial Secretary, is trying to do: to leave the next generation a more beautiful Hong Kong with pervasive and sustained prosperity.
Hong Kong's strengths as an economy are clear and compelling. And you need not take my word for that. In February this year, the Washington-based Heritage Foundation named Hong Kong the world's freest economy - for 22 years in a row, citing, among other things, our "vibrant commercial interactions and entrepreneurial growth".
Hong Kong's success is built on the rule of law, as well as our persistent adherence in upholding economic freedom. That means a level playing field for business, wherever you come from, and an effective intellectual property protection regime. No less vital, of course, is our extensive business network, our sound financial infrastructure, robust regulatory regime, free flow of capital and free flow of information, a well-educated and resourceful workforce and an abundance of international talents. Our simple and low tax regime is another big plus for enterprises as well as investors worldwide.
Our favourable business environment and strengths as an international financial and commercial hub have been well appreciated and recognised. It is evident from the fact that Hong Kong ranked second in global foreign direct investment in 2015, according to the United Nations World Investment Report, with record amounts of inflows and outflows at US$103 billion and US$143 billion respectively. It is evident also from the fact that nearly 8,000 overseas and Mainland companies keep their offices here in Hong Kong. And more of them are coming here every year.
The success of these businesses and investments counts on the systems that we have put in place, counts on the high level of liquidity in our financial markets, and counts on our transparent regulations which are in line with international standards.
Many multinational corporations also pick Hong Kong for our diversified and world-class financial services, ranging from financing through to the issuance of bonds and loan syndication, investment services for mergers and acquisitions, as well as corporate treasury management services.
Of course, Hong Kong's development as an international financial centre has been further enhanced by the Mainland's economic reform in the past decades, and the latter's rapid, and often dramatic, growth into the world's second biggest economy.
During this period of phenomenal growth in the Mainland, expansion of the private sector in the Mainland and the opening up of the market to foreign investments have created massive opportunities for all sectors of Hong Kong, in particular the financial services sector, in assuming the unique role of being able to direct capital between China and the rest of the world.
Since the fast-growing Mainland enterprises see the need to raise more capital for further expansion and to "go-out" and invest in international markets, they turn to Hong Kong - and they turn to our stock exchange. And this is one of the reasons why Hong Kong topped the world last year in equity funds raised through IPOs.
The fast development of offshore Renminbi business in Hong Kong has further consolidated our position as an international financial centre of China, as well as of Asia. Starting from basic deposit-taking, currency exchange, remittance and credit-card services some 12 years ago, our offerings have now expanded to include listed and unlisted investment funds, insurance products, currency futures, real estate investment trusts, shares and derivative products and more.
Hong Kong currently boasts the largest offshore Renminbi liquidity pool, of some RMB1 trillion, and is the world's largest offshore market for Renminbi investment products. Last year, the daily turnover in our Renminbi Real Time Gross Settlement system reached RMB950 billion. Today, our banking system handles some three-quarters of cross-border Renminbi transactions in the world.
Some observers, including a few international credit rating agencies, argue that since much of our financial achievements are tied to the Mainland's economic development, Hong Kong will soon have to face the sobering consequences of the Mainland's economic slowdown.
I don't see it that way. As I have mentioned before, Hong Kong's singular role as China's international financial centre, and the close linkage between the economies of Hong Kong and the Mainland, would continue to present us with enormous opportunities. It isn't "China risk"; I call it "China opportunity".
HSBC staged an informative forum on China's economy last week. And as Stuart, who will be speaking to you a moment later, said at the forum, China has continued on its global path in the past year and its economy has become freer, has become more open and better connected.
Amid the weak global demand and the weak macro-economic environment, economies around the world will face substantial headwinds and downward pressure in 2016. The Mainland is no exception. But as I see it, the Mainland still has many policy levers that it can pull for the purpose of guiding the economy to continue moving forward on the right track.
Apart from the host of monetary measures that it can deploy, the Central Government is also adapting a more proactive fiscal policy, putting forward a larger deficit budget in 2016 than last year, with a view to supporting the enterprises and stabilising growth. The large fiscal reserves of the Mainland will provide ample room for further manoeuvre.
The Mainland has now become the second-largest economy in the world, and it is only reasonable that it will grow at a slower pace, following the double-digit spurt in the past 30 years or so. After all, a growth target of 6.5 to 7 per cent in 2016 is not exactly depressing news, in particular when many developed economies are still recovering slowly while others are struggling with recession.
Hong Kong will have its fair share of difficulty amid the weak global macro-economic environment, but I am confident that we can weather the storm. As the IMF has concluded in its Staff Report released in January this year, Hong Kong's sound economic fundamentals, our robust financial regulatory regime, resilient financial and banking sectors, as well as our strong fiscal position, will continue to enable the economy to embrace the challenges ahead.
Looking ahead, Hong Kong's success will continue to depend on how quickly, and how deftly, we respond to the changing demands and needs in serving our clients and customers from all over the world. And from our track record, I have no doubt that we can continue to be sensitive and responsive to outside opportunities, and maintain the healthy habit of moving a step, or two, ahead of the competition.
As the Mainland's economy continues to transform from investment-led growth to consumption-led growth, it will create demand for quality services, in finance and beyond. For our financial services industry, that means a transition from capital raising to investment and wealth management. It means, as well, moving to risk management and the gradual liberalisation of two-way capital flow in and out of the Mainland.
The launch of the Shanghai-Hong Kong Stock Connect in late 2014 and the introduction of the Mainland-Hong Kong Mutual Recognition of Funds Arrangement last year, have raised the mutual access between the Mainland and Hong Kong capital markets to another level.
There will also be an exciting future for our RMB business. The decision last year by the IMF to include Renminbi in its SDR basket of currencies has reaffirmed the status of the Renminbi as a significant commonly traded currency. With Renminbi becoming more widely accepted by international markets, the demand for Renminbi trade settlement, financing and fund management will increase. So will the business opportunities for banks and the financial services in Hong Kong.
Our asset-management sector will also continue to benefit from economic growth and wealth creation in the Mainland, as well as its increasing financial market liberalisation.
While there are many positive things that we can look forward to, we ask ourselves constantly what we need to do if we are to maintain our position as a major international financial centre for the days to come. After all, Hong Kong's economic strength lies not only in our close relationship with the Mainland, but also in our extensive commercial network with both developed as well as emerging economies. To me, there are three aspects: embracing new technology, finding new markets, and nurturing the right talents.
First of all, enhancing new technologies. Burgeoning technological advancement, particularly in information and communication technologies, has forged a more globalised economy with more interconnected markets as well as heightened competition.
Technology is quickly finding its way in finance. The application and development of Fintech has created a whole new world of possibilities for banks, for insurance companies and for other traditional financial institutions as well as telecommunication companies, e-commerce enterprises and start-ups. Some studies have predicted that global investment in Fintech will surge from US$12 billion in 2014 to more than US$46 billion in 2020.
In my Budget this year, I announced a range of measures to develop Fintech in Hong Kong, to boost Fintech R&D as well as to attract Fintech start-ups to come to Hong Kong. A dedicated team will be established under Invest Hong Kong to assist start-ups, investors and R&D institutions looking to establish a presence here in our city.
We shall be rolling out programmes at Cyberport in nurturing talent, enhancing communication with financial institutions and the Fintech community, and driving the development of technology with financial services potential, from cyber security to blockchain.
The point of it all is to ensure that, in the pervasive digital age that is transforming our world and everything else in it, Hong Kong remains a major international financial centre.
Secondly, finding new markets. Emerging markets now play a much more important and influential role as the global economic centre of gravity shifts towards the East. Our financial services providers need to expand their ties with the rest of the world and expand the scope of services for these diversified markets.
And further opportunities will emerge alongside the Belt and Road initiative. And I know that our financial services industry has all it takes to benefit fully from this.
Our multi-currency capital markets will prove attractive to enterprises looking to finance infrastructure projects.
I have asked the Hong Kong Monetary Authority to set up an office to facilitate infrastructure project financing, pooling together the efforts of investors, banks and the financial services sector. Working collectively, they can offer comprehensive financial services for any number and any type of infrastructure projects anywhere in the world.
We are also discussing with relevant authorities Hong Kong's involvement in the Asian Infrastructure Investment Bank (AIIB), the key financial institution supporting infrastructural development along the Belt and Road. As President Jin of the AIIB said last week here in Hong Kong, the AIIB will soon consider the applications from Hong Kong and other economies to join the Bank. I am sure the AIIB will be looking to take good advantage of our expertise in capital market financing, asset management and dispute resolution services.
Finally, nurturing the right talents. Human capital is the fundamental driver of a knowledge economy like ours. Indeed, we have a financial services workforce of a quarter of a million people. That accounts for over 6 per cent of the city's workforce and contributes nearly 17 per cent of our GDP as Mr Tsim has just mentioned.
We need, of course, to continue to develop talent - people with the right skill set. In this regard, the industry has been doing its part, investing considerable resources into grooming the next generation of financial professionals.
As for Government, we are establishing a HK$100 million, three-year programme to enhance professional training. Responding to industry feedback, it will focus first on the insurance and asset and wealth management sectors, beginning in the second half of this year.
Ladies and gentlemen, we owe our financial centre prowess to many factors, from our close links with the Mainland and the rest of the world, to our endless adaptability and the continuous refinement of our system and product offerings.
We owe it, as well, to our human resources. The financial services industry is not there just for the 1 per cent. We have for sure high-flying investment bankers and private bankers who belong to that elite group anywhere in the world. But we also count on insurance underwriters, compliance professionals and fund administrators, all of whom take pride in doing their jobs well.
Their success is our success. A dynamic financial services industry expands opportunities for just about every other industry and sector in Hong Kong. World-class financial services attract Mainland and overseas companies to our city.
That means good money, and good jobs, for our workforce. Opportunities for the entire community.
Yes, the good citizens contributing to the building of our society reward us all. We shall do all we can to ensure that our generation leaves Hong Kong more beautiful, and more bountiful, for the enjoyment of generations to come.
Thank you very much.