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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Asia Private Equity Forum 2012 at the Hong Kong Convention and Exhibition Centre this morning (January 18):
Distinguished Guests, Ladies and Gentlemen,
Good morning everyone.
First of all, congratulations to the Hong Kong Venture Capital and Private Equity Association (HKVCA) on organising this Forum for the second year.
I think that some of you might have taken part in the Asian Financial Forum that ended yesterday, and I hope that you enjoyed the stimulating discussions.
These events bring Hong Kong's role as a global financial centre into sharp focus.
Private equity is an important component of Hong Kong's asset management business. Our region has become a magnet for venture capital investment, largely on the back of developments in Mainland China.
Total capital under management in private equity in Asia has been rising steadily in recent years. It reached some US$360 billion in 2011, a 22 per cent increase over a year earlier.
Last year, Hong Kong ranked second for capital under management in the region, accounting for 19 per cent of the total. Together, Hong Kong and Mainland China manage over half of the total private equity in Asia.
It will come as no surprise to you to learn that many of the region's top venture capital firms have a presence here. Hong Kong is home to around 375 private equity firms. Over 250 of these companies have their regional headquarters in our city.
We are also attracting more financial talent from around the world. General partners, fund-of-funds managers, fund administrators, consultants, and other service providers all give quality support to the private equity industry.
All this is conducive to the continued growth and development of the industry in Hong Kong.
Importantly, Hong Kong is an ideal launching pad for private equity funds seeking opportunities in Mainland China.
We have an open and internationalised market. Our regulatory regime is aligned with major overseas markets. In Hong Kong, the rule of law is supported by an independent judiciary. We apply the Common Law, and we have a growing sector in arbitration as well. We also have a low and simple tax regime, a rich pool of professional talent and robust infrastructure support. Free flows of information and capital add to our city's competitiveness.
This competitiveness was underscored by Hong Kong's top ranking in the World Economic Forum Financial Development Report 2011. Hong Kong overtook the US and the U.K. to become the first Asian market to achieve this top ranking.
Earlier this month, the US-based Heritage Foundation rated our economy as the freest in the world for the 18th straight year.
As China's global financial centre, Hong Kong enjoys the best of both worlds. We are deeply connected to the Mainland﷿s financial architecture. At the same time, Hong Kong's international characteristics enable us to manage financial activities all around the world.
The great advantage for private equity funds is that they can access the Mainland markets by locating potential projects and investments in Hong Kong.
Renminbi financial products have become a hot topic in the past couple of years. Hong Kong has unparalleled experience and understanding of offshore Renminbi business as well as a growing pool of Renminbi liquidity.
During his visit to Hong Kong last August, Vice Premier Li Keqiang, announced a range of initiatives to promote our city's Renminbi business activities.
These include allowing investments in the Mainland equity market through the RMB Qualified Foreign Institutional Investor scheme or RQFII for short. The Vice Premier also announced the establishment of an exchange-traded fund, an ETF, with underlying Hong Kong stocks in the Mainland. Another initiative is to allow non-financial Mainland enterprises to issue Renminbi-denominated bonds.
These measures not only propel Hong Kong's development as the leading offshore Renminbi centre, they also promote our asset management industry.
We welcome private equity funds to set up in Hong Kong, and launch innovative Renminbi financial products such as Renminbi funds. This will increase the depth of the Renminbi financial market and reinforce our status as China's global financial centre.
The Government is committed to enhancing the competitiveness of Hong Kong's asset management industry, including the private equity sector.
The Hong Kong Monetary Authority (HKMA) is responsible for, among other things, the management of the Exchange Fund. To support risk management and yield-enhancement, it is seeking to diversify our investment environment.
The HKMA has gradually and prudently gained exposure to emerging-market securities, private equity funds and overseas real estate properties. This is in addition to other conventional asset classes.
We view our exposure to private equity as a long-term strategy. At the same time, the HKMA remains vigilant in monitoring its investment exposure. It is ready to further adjust its investment strategies as and when appropriate.
A catalyst for new ideas and innovations is the Hong Kong Science and Technology Parks Corporation. This is a statutory body which assists technology start-ups to secure the all-important "smart money".
In 2010, the Corporation, together with the HKVCA and some local universities, established the Hong Kong Business Angel Network. The Network assists technology start-ups in obtaining investment funding. It holds regular investment-matching gatherings where start-ups can present their brilliant ideas to "angels" and venture capitalists. In the past two years, the Network attracted some HK$50 million of angel and venture capital investment in quality technology start-ups. It is a humble start, and I hope that it will grow in future.
Investors can also reap rewards from the healthy appetite for IPOs. The Hong Kong stock market, with its liquidity, attractive valuations and access to Asian investors, is a popular route for private equity-backed exits.
Hong Kong has retained its world number one status for IPO funds raised in 2011, with more than 100 newly listed companies raising some US$36 billion in Hong Kong.
Another feature has been the growing number of foreign firms listing in Hong Kong. Over the past couple of years, companies from Russia, France, Italy, Brazil, the US and Switzerland as well as from across Asia, have listed in Hong Kong.
We will continue to facilitate overseas companies listing here, without compromising investor protection.
In Hong Kong there is no capital gains tax on the sale of shares of private companies. Also, dividend income is not subject to withholding tax. Offshore funds are exempted from tax on profits derived from specified transactions in Hong Kong.
The abolition of estate duty in 2006 is an incentive for local and overseas investors, to hold assets in Hong Kong. We have also extended the stamp duty concession and the enhancement measures for the Qualifying Debt Instrument (QDI) Scheme. Here profits tax concessions are provided to interest income and trading gains derived from certain types of debt instruments that meet the relevant criteria.
We are also expanding our network of comprehensive agreements for the avoidance of double taxation (CDTAs) with major economies. This helps improve the business environment and facilitate flows of trade, investment and talent between Hong Kong and the rest of the world.
Since amending the Inland Revenue Ordinance in 2010, we have signed CDTAs with 17 trade and investment partners. More are in the pipeline.
Ladies and Gentlemen, Hong Kong will continue to maintain a business-friendly environment for venture capitalists and all entrepreneurs. This is the best way for us to promote investment and develop our asset management industry. Importantly, we also have the full support of the Central Government in Beijing in realising these goals.
I would like to thank you all for placing your faith﷿and of course, your money﷿in Hong Kong, and I wish you all a successful Forum and a happy and prosperous Chinese New Year.
Thank you very much.
Ends/Wednesday, January 18, 2012
Issued at HKT 10:09
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