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Following is the speech entitled "Hong Kong's role in China's Development" by the Chief Executive, Mr Donald Tsang, at the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) at the Sala Prebisch in Santiago, Chile, today (April 12, Santiago time):
Mr Prado, Commission Members, members of the diplomatic corps, distinguished guests, ladies and gentlemen,
It is an honour and a pleasure to join you today. I would like to thank the Commission for this kind invitation to talk about Hong Kong's role in China's development. I hope that it serves as a useful addition to the address delivered here in June last year by our Vice President Xi Jinping.
I must take this opportunity to congratulate the Commission for its work in promoting economic, social and sustainable development through continuous international co-operation, research, analysis and technical support.
Like the Commission and Member States, Hong Kong is a firm believer in multi-lateral dialogue, networking and sharing knowledge. Indeed, Hong Kong's success - past and future - is very much aligned with these principles.
Some of the issues you are discussing - for example, enhancing competitiveness through infrastructure investments, boosting trade facilitation, and increasing the efficiency of supply chains and logistics - are areas where Hong Kong has a good story to tell.
We welcome you visiting us in Hong Kong to see first-hand the nuts and bolts of our development model. We are more than happy to share our knowledge and experience with you.
I am particularly encouraged by the Commission's efforts to strengthen links with the global economy, and the desire to forge even closer ties with new partners in the Asia-Pacific region, and especially with China.
This is a natural - some might say necessary - result of the global economic realignment now underway. With the European and North American economies in trouble, the growth potential of Africa, Asia and Latin America is receiving more attention.
As one of the most free, open and globally connected economies in the world, we in Hong Kong readily support initiatives that expand opportunities for economic as well as cultural co-operation.
For example, we continue to play an active role promoting open trade and investment through our membership of the World Trade Organisation and APEC - membership that we enjoy in our own right under the "One Country, Two Systems" formula that recognises Hong Kong as a separate Customs territory and separate economy with our own monetary, trade, investment and fiscal policies.
Another way we seek to promote trade and investment opportunities is through visits such as this. The main reason I am here is to help forge closer links with Member States, and to explain the unique role that Hong Kong plays as an Asian business hub, and as the pre-eminent global gateway into, and out of, China.
In discussing Hong Kong's role in China's development, it is important to understand a little of our history, as well as the significant opportunities made possible by our Reunification with China in 1997 under "One Country, Two Systems".
Hong Kong has always been a part of China but from the 1840s, up until 1997, Hong Kong was a British colony.
What made Hong Kong such an attractive location in the first place was our magnificent, sheltered deep-water harbour - a harbour that continues to pulsate with economic activity today.
What made Hong Kong a success was a combination of factors including the entrepreneurial spirit of our merchants, the tenacious spirit of our people, and the unique access we provided to those wishing to trade with Mainland China.
All of this was buttressed by a trade-friendly government, a common law legal system, a level playing field for business, the free flow of news and information and a low and simple tax regime. All of these traits are what makes us different from Mainland China, and continue to underpin Hong Kong's success today.
What we might regard as "modern Hong Kong" began to take shape after the devastation of World War II. There was much rebuilding, and a huge influx of people in the years immediately after 1945.
The UN trade embargo against China and North Korea in the 1950s was an enormous shock to our economy, which halted our growing and prosperous entrepot trading business with China overnight. It was a case of sink or swim, and this led to Hong Kong's rise as a global manufacturing base.
In the '60s and '70s, "Made in Hong Kong" goods propelled our economic growth and helped us to establish a broad range of trading and business networks throughout Asia, and the rest of the globe - but in particular in Europe and North America.
These networks - nurtured and expanded over decades - are crucial elements of our success. Now, they are also of strategic national value, as China reaches out to the world and we explore, with our sovereign, the potential of the Renminbi as a global currency. I will talk more about this later.
Links with Mainland China really started to flourish when China launched its opening up and reform drive in 1978.
In the '80s and '90s, our manufacturing operations relocated into the adjoining Pearl River Delta, and elsewhere in Asia. Hong Kong and international corporations also began to expand their business links in all the Mainland provinces and major cities.
With this came impressive growth in professional and business services - financial services, banking, investment, legal services and accounting. At the start of the new Century, we refined and honed our expertise in global supply chain management and logistics, as well as design, marketing and management.
Over the past 35 years we have transformed from a "Made in Hong Kong" economy, to a "Made by Hong Kong" economy. And today, services account for about 93% of our GDP.
Our links with the Mainland took on new meaning and significance with the reversion of sovereignty in 1997. In recent years, they have expanded and deepened considerably to accommodate the Mainland's growing economy and rising status in global trade, finance and business.
Hong Kong entities have for some time been the largest external investors in the Mainland, with realised investments of almost US$460 billion by end-2010. Mainland entities are also the largest external investors in Hong Kong - with more than US$400 billion worth of investments by end-2010. Together, that represents a US$860 billion investment in each other's futures.
Many of the Hong Kong investments in the Mainland have helped upgrade and modernise the physical infrastructure and cityscape, as well as product quality and service delivery throughout the country.
This investment and transfer of service expertise has been an important and positive force in the Mainland's modernisation and opening up. This great contribution to the Mainland's development is not widely known, or understood.
Since 1997, government-to-government links have, understandably, expanded considerably. As the Mainland continues to reform and open its markets, Hong Kong has often been the first port of call for information on global best practice.
That is because - as I mentioned before - we have been plugged into global markets for many decades, and developed global business and logistics networks. In addition, the concentration of high grade service sector expertise in Hong Kong is another resource that can be readily tapped. Accounting and legal services immediately spring to mind. There is no other city in China that can play this role for our country.
Barriers to cross-boundary trade have also been broken down progressively. This process is accelerating and holds great promise for international business wanting to access the Mainland market, and for Mainland businesses venturing into the global market, all via Hong Kong.
It is also part of the Mainland's step-by-step strategy to opening up its markets after accession to the WTO in 2001. In many ways, Hong Kong is being used as a testing ground for broader liberalisation efforts.
One such initiative is the Mainland and Hong Kong Closer Economic Partnership Arrangement, or CEPA, which was announced in mid-2003 and implemented fully by January 1, 2004.
This unique free trade pact is possible because both the Mainland and Hong Kong are separate members of the WTO. This is also a very good example of how "One Country, Two Systems" works in practice to the benefit of both our country and Hong Kong.
We recently signed Supplement VIII [8] to CEPA, which provides even greater opportunities for Hong Kong service providers in the Mainland market - and this includes all international companies incorporated in Hong Kong that meet the relevant access requirements. This latest enhancement is a stepping stone to the complete liberalisation of trade in goods and services between Hong Kong and the Mainland by 2015.
Building on CEPA, we have the Pan-Pearl River Delta grouping, or 9+2 economic co-operation. This involves breaking down trade and investment barriers in the nine southern provinces of China, plus the two Special Administrative Regions of Hong Kong and Macao.
The Pan- Pearl River Delta economic caucus covers an area of some two million square kilometres with a population of about 475 million. This is more than the combined populations of Brazil, Mexico, Colombia, Argentina, Peru and Chile, and bigger than that of NAFTA. The 9+2 grouping accounts for roughly 35 per cent of China's total GDP.
Our goal is to show that breaking down barriers is better than keeping them in place, because many provinces still have their own separate rules, regulations and ways of doing things. We want to develop a kind of "common market" in southern China that can be used as an example for the rest of the country to follow - with Hong Kong as the international services centre.
In 2010 we signed a specific agreement with Guangdong, our neighbouring province on the Mainland. This Agreement further opens the gates to cross-boundary trade, finance and investment as well as ideas, innovations and new technologies with Guangdong where we have always had very close business, cultural and family ties.
This Agreement establishes Hong Kong and Guangdong as bridgehead partners to accelerate and test new liberalisation measures before they are tested or implemented in the rest of the country.
During a visit to Hong Kong in August last year, China's Vice Premier Li Keqiang announced a package of more than 30 measures to further strengthen Hong Kong's competitiveness as the premier international gateway to the Mainland, and as the best partner for Mainland businesses looking to expand their horizons in the global market - and that of course means exploring opportunities with the Member States of the Commission for Latin America and the Caribbean.
Banking and financial services in particular will benefit from these measures as our country's efforts to internationalise the Renminbi expand and gather pace.
During that visit, Vice Premier Li made specific mention of Hong Kong's "irreplaceable role" in China's reform, opening-up and modernisation drive, as well as the Mainland's firm and concrete support for Hong Kong's prosperity and stability. All of this has been made possible because we now belong to "One Country".
But our benefit and value to "One Country" - our irreplaceable role - is firmly rooted in our different systems, our different history and experiences, our different outlook and our different way of life. All of these are protected by the Basic Law, our constitutional document.
That means we have our own tried and trusted common law legal system, our independent judiciary, our own highly respected Police Force, our own immigration and Customs regimes, a world-class anti-corruption agency and a clean administration. We have our own financial system, our own currency, low taxes, and the free and unfettered flow of information.
What's significant about the Basic Law is that it is not just a law for Hong Kong, it represents the national policy on Hong Kong. It is a blueprint for our future social, political and economic development as well as a shield around our value systems.
At the same time, we must ensure that we bring into full play all of the advantages we have as a Special Administrative Region of China. My job as Chief Executive is not only to ensure the prosperity and stability of our society - it is also to ensure that Hong Kong can play the fullest and most appropriate role possible in our nation's development.
The most significant recent development in Hong Kong's role for China has been the internationalisation of the Renminbi.
This national policy is being spearheaded via Hong Kong and is possible because we have the technological infrastructure required to handle large volumes of multi-currency, real-time gross settlement transactions.
We also have a completely free and open market, with no capital controls. We have a world-class regulatory and legal environment. We have mature banking, stock and financial markets on par with New York and London.
And we have decades of experience dealing with the Renminbi and the Mainland's evolving financial system.
To promote the cross-boundary use of Renminbi between Hong Kong and the Mainland, we have established extensive links with the Mainland's onshore market through three bridges. These are: trade settlement, direct investment, and portfolio investment.
These links are crucial elements in the overall plan to develop Hong Kong as China's major offshore Renminbi centre. The measures announced last year will help consolidate Hong Kong's role in this regard.
They include expanding the Renminbi trade settlement scheme to cover the whole of Mainland China. For the first time, companies and firms around the world - including here in Latin America - can settle their Mainland trade in each and every Mainland province using Renminbi. Last year alone, Hong Kong banks handled 1.9 trillion Renminbi in trade settlement transactions - or about 92% of all global trade settlements in Renminbi.
Another initiative is the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme for investing in Mainland securities markets. There are also pilot arrangements for foreign banks to increase the liquidity of their Mainland subsidiaries using Renminbi, and to expand Renminbi bond issuance in Hong Kong.
All these represent important opportunities for Hong Kong's financial services sector and for our partners around the world. It is also an incentive for lenders to expand their range of Renminbi financial products.
These include investment funds, insurance products and risk management instruments. The first Renminbi Real Estate Investment Trust was listed on the Hong Kong Stock Exchange a year ago, and the first Renminbi-denominated gold exchange-traded fund was listed in February this year.
The development of offshore Renminbi business is not limited to Hong Kong. We encourage financial institutions elsewhere, including here within Member States, to use Hong Kong as a platform to develop their own Renminbi portfolios.
Ladies and gentlemen, I hope that I have been able to provide you with a deeper understanding of Hong Kong's unique characteristics and role in China's development. We are known to the world as a dynamic trading and financial centre, and exciting tourist destination where East meets West. That is certainly true.
But we also have played an important role in the opening up and reform that has been unfolding in China since the late 1970s. That role became even more strategic and important following Reunification in 1997. And as China continues to develop, modernise, reform and transform in the future, Hong Kong will be there playing our role to the fullest, every step of the way.
Thank you very much.
Ends/Friday, April 13, 2012
Issued at HKT 08:09
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