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Following is the speech by the Chief Executive, Mr Donald Tsang, at the business breakfast organised by the Hong Kong Trade Development Council, the Hong Kong Economic and Trade Office in Washington, DC, Invest Hong Kong and HSBC in Santiago, Chile, today (April 13, Santiago time):
Ambassador Schmidt, Senator Frei, distinguished guests, ladies and gentlemen,
I am delighted to join you all today.
Thank you for your warm welcome.
I also thank the Hong Kong Trade Development Council and HSBC for organising this event and bringing us together in the wonderful city of Santiago.
HSBC is known as "the world's local bank". It has operations around the world including here in Santiago. However, the bank's spiritual home is Hong Kong. The Hong Kong and Shanghai Banking Corporation was established in our city way back in 1865. The rest, as they say, is history.
From relatively humble beginnings, our city, its banks and businesses, its infrastructure and, above all, its people have come a very long way.
Back in the mid-19th century, Hong Kong was famously described as a "barren rock".
Today, that "barren rock" has been transformed into an international business and financial centre with deep connections to all corners of the globe, including here in Chile.
This year we are celebrating the 15th anniversary of the establishment of the Hong Kong Special Administrative Region of China. It is a special time for us, because the past 15 years have heralded a new era for Hong Kong.
While Hong Kong has always been a part of China, it was a British colony for a century and a half until our reunification with the Mainland in 1997. Since reunification, our city has become much more closely integrated with the Mainland in all areas of our development.
At the same time, Hong Kong has lost none of its unique characteristics as a vibrant and open economy with an extraordinary cultural blend of East and West.
This win-win situation is made possible by the principle of "One Country, Two Systems". In other words, we enjoy all the benefits that come from being "One Country" while maintaining the tried and trusted capitalist system that has been at the heart of Hong Kong's evolution from a "barren rock" to an international metropolis.
As a small and externally oriented economy, Hong Kong has always relied heavily on its strong international links, prime location in East Asia and vast hinterland just across our boundary in the Mainland.
To borrow a popular phrase from our friends in the real estate business, it is all about location, location, location.
Allow me to add another crucial element: the element of timing.
Today, China is the world's second largest economy, after the US. China recently leapfrogged Japan into second place. Since the late 1970s, first as a British colony and more recently as a Special Administrative Region of China, Hong Kong has played an important role in the Mainland's opening up to the rest of the world. Our city has been a testing ground for our nation's reforms, providing an international benchmark as well as strong links with markets around the world.
Despite the global economic swings and cycles of the past decade, Hong Kong has achieved an annual average growth rate of 4.5 per cent. Our GDP growth for last year was 5 per cent. This was achieved against the backdrop of an ongoing global financial crisis and of a community enjoying a per capita GDP of over US$34,000. Hong Kong is the world's 10th largest trading entity and the 11th largest exporter of commercial services.
Our bilateral trade with Chile exceeded US$900 billion last year. That is a more than 16 per cent (16.4 per cent) increase year-on-year. We are doing well and, I can assure you, there is plenty of room for growth.
Chile has successfully expanded its international trade links through its many bilateral Free Trade Agreements (FTAs). We are currently negotiating an FTA between Hong Kong and Chile. When finalised, I am confident this FTA will give our bilateral trade and investment a big boost.
Why Hong Kong?
For one thing, Hong Kong is the world's freest economy. We have been ranked number one by both the US-based Heritage Foundation and the Fraser Institute in Canada for each of the past 18 years.
I mention this because the Heritage Foundation ranks Chile as the freest economy in Central and South America, and the seventh freest in the world. We both know the benefits that free and open trade can bring to our communities.
Our business-friendly environment is underpinned by the rule of law, clean and efficient government and free flows of information, goods and capital. We also have world-class transport and telecommunications infrastructure.
Our low and simple tax system is well regarded and much envied by many economies around the world. In Hong Kong, profits tax is capped at 16.5 per cent. People pay no more than 15 per cent salaries tax. There is no VAT, no dividends tax and no capital gains tax in Hong Kong. All this is music to the ears of our business community.
But what really sets Hong Kong apart in Asia is the convergence of "China advantages" and "global advantages".
With low taxes and an open economy, Hong Kong is the preferred platform to carry out both China-related activities globally and also global operations in the Mainland.
Although our city is a relatively small place with a population of just 7 million people, Hong Kong is the Mainland's third largest partner for merchandise trade. We are also the largest external investor in each and every Mainland province, while Mainland entities provide the largest source of external investment in Hong Kong. At end-2010, the total amount of investment in both directions amounted to US$860 billion. That represents a huge commitment in each other's futures.
Our closer integration with our nation is underscored in the National 12th Five-Year Plan. This is our nation's blueprint and action agenda for economic and social development for the period up to 2015. The Plan, for the first time, highlights the importance of Hong Kong's unique strengths and role in the Mainland's development.
These strengths include our ongoing and expanding role as an international centre for finance, trade and shipping. The Plan also supports Hong Kong's development as an international asset management centre and an offshore Renminbi business centre.
Underpinning our business relationship with the Mainland is a unique free trade pact. We call this the Closer Economic Partnership Arrangement, or CEPA. CEPA provides tariff-free access for Hong Kong originated goods to Mainland markets. It also gives preferential market access to Hong Kong companies in 47 services sectors. These include key areas such as trade and logistics, financial services, education, conventions and exhibitions and legal services, just to name a few.
We are continuously updating, expanding and fine-tuning CEPA. It is an ongoing and deepening commitment to open up markets in our region. We aim to achieve full liberalisation of trade in goods and services between Hong Kong and the Mainland by 2015.
The great thing about CEPA is that it is nationality-neutral. In other words, firms globally that are incorporated in Hong Kong can enjoy the full benefits of CEPA. Through their Hong Kong operations or by teaming up with Hong Kong companies, Chilean enterprises can gain greater access to the China market via CEPA.
I also encourage you to take advantage of the many trade fairs organised by the Hong Kong Trade Development Council (HKTDC). These events are a great way to connect with buyers and sellers from the Mainland. The HKTDC also has a dedicated matchmaking service that links foreign firms to the right partners in the Mainland. Please do take advantage of the expertise provided by the HKTDC.
Whether for small companies taking their first steps in Asia, or multinationals looking for a premium business location in our region, Hong Kong has got it covered.
The Mainland's rapid pace of economic development extends well beyond goods and services trade. Initiatives to liberalise the Mainland currency, the Renminbi, have also gathered pace in recent years. The National 12th Five-Year Plan cements our city's position as China's global financial centre and platform for offshore Renminbi business.
This is another area where companies and financial institutions of all sizes can leverage on Hong Kong's experience and location to sharpen their competitive edge.
We have established three main channels to promote cross-boundary Renminbi business. These channels are trade settlement, direct investment and portfolio investment. In each of these areas we have the full support of the Central Government.
Last August, the Central Government announced a series of measures to strengthen Hong Kong's development as an international asset management centre and offshore Renminbi business centre. This includes expanding the Renminbi trade settlement scheme to cover the whole of Mainland China, supporting the use of Renminbi for foreign direct investments in the Mainland, introducing an RMB Qualified Foreign Institutional Investors (RQFII) scheme for investing in Mainland securities markets, and a pilot arrangement for foreign banks to increase the capital of their Mainland subsidiaries using Renminbi.
These measures not only deepen the development of the offshore Renminbi market in Hong Kong, but also expand the flow and circulation of Renminbi funds globally.
In 2009, the value of Renminbi trade settlement conducted through Hong Kong's banks was only RMB1.9 billion. By the end of 2011, the figure surged to RMB1.9 trillion, i.e. growth of over 1,000 times in just two years, and that amounts to 92 per cent of total Renminbi trade settlement in 2011. Chilean companies settling their Mainland trade in Renminbi can reduce exchange rate risks and attract Mainland partners who prefer to settle their trade in Renminbi.
The growing volume of trade settlement in Hong Kong has boosted the pool of Renminbi liquidity in our financial system. At the end of January, total Renminbi deposits in Hong Kong were around RMB576 billion, or over 44.5 trillion Pesos.
This ample liquidity provides a sound footing on which to develop new financial products and open up fresh avenues for firms to raise capital. In 2007, Hong Kong became the first and only place outside the Mainland to have a Renminbi bond market.
Companies around the world have issued Renminbi bonds in Hong Kong to finance their Mainland operations.
Up to the end of February, a total of 134 Renminbi bond issues had been offered. The total issuance size is almost RMB200 billion (RMB197.9 billion). Last year alone there were 91 bond issuances with a total value exceeding RMB107 billion.
New financial products have also become available, such as Renminbi investment funds, insurance products and risk management instruments. The first Renminbi real estate investment trust was listed on the Hong Kong stock exchange last year, and a Renminbi-denominated gold ETF was listed in February this year.
Ladies and gentlemen, Hong Kong and Chile are separated by almost 19,000 kilometres of Pacific Ocean and 11 time zones. Yet it has never been more convenient and - in the current unstable global economic climate - more important for us to strengthen our bilateral ties.
During this visit, I have had the opportunity to discuss ways to enhance Hong Kong's links with Chile.
I am also pleased to have this chance to speak with you about my home city, and the opportunities brought about by "One Country, Two Systems", CEPA and Hong Kong's position as China's global financial centre.
I can assure you that this is a great time to explore ways for Hong Kong to help you grow your businesses and your bank balances.
Thank you very much.
Ends/Saturday, April 14, 2012
Issued at HKT 09:16
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