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Following is the speech by the Financial Secretary, Mr John C Tsang, at a luncheon organised by the Hong Kong Economic and Trade Office in Singapore and the Asian Strategy & Leadership Institute in Kuala Lumpur, Malaysia, today (April 25):
Distinguished Guests, Ladies and Gentlemen,
Good afternoon.
I am delighted to be here in Malaysia and to have this opportunity to meet you all today.
I would also like to thank Asian Strategy & Leadership Institute (ASLI) and our Hong Kong Economic and Trade Office in ASEAN for organising this luncheon. Hong Kong is a firm believer in multi-lateral dialogue and networking. I am pleased to be able to play a small role in this knowledge-sharing process today.
Nowadays, it is critically important to go beyond the international news headlines and get a better understanding of each others' cultures and visions for the future. That way we can make the most of the opportunities ahead, and avoid some of the pitfalls experienced in the past.
Given our proximity and our many connections, Hong Kong and Malaysia already have a deep understanding of each others' way of life and approach to doing business. We also have a number of bilateral agreements and initiatives that help align our business sectors. These accords cover areas, including air services, finance and economic co-operation.
The future for even closer business and economic collaboration between us is bright. Both our economies have weathered the worst of the recent global financial storm. Last year, Hong Kong's GDP expanded five per cent year-on-year. However, we expect growth to slow to between one and three per cent for 2012, due to the ongoing uncertainty in the external environment.
We expect the lingering Eurozone debt crisis and an under-performing US economy will continue to affect our overall economic performance in 2012.
Fortunately for us, the outlook for Asia is more positive.
This brings me to the main focus of my talk today, Hong Kong's development as an international financial centre in the Asian time zone.
Here, I would like to begin with some "breaking news".
At the end of last month (March 29), we launched a consultation exercise on proposed legislative amendments to pave the way for the development of an Islamic bond market in Hong Kong. This two-month consultation is now in full swing. This is a timely and welcome development in our goal of establishing Hong Kong as a platform for Shariah-compliant financial products.
At the end of the two-month consultation period, we intend to finalise the proposed amendments and introduce them into our Legislative Council in the next legislative session. So please do "watch this space".
You may recall that, in 2009, the Hong Kong Monetary Authority and Bank Negara Malaysia signed a Memorandum of Understanding on co-operation in the development of Islamic finance.
Since then, the impact of the global financial crisis has caused a frustrating but necessary delay to these initiatives. Now, we are firmly back on track.
The proposed amendments to our Inland Revenue Ordinance and the Stamp Duty Ordinance will facilitate the development of a market for Islamic bonds, or sukuk, in Hong Kong. Once introduced, the changes to our tax laws will ensure that sukuk would enjoy the same treatment as conventional debt securities.
We can learn a great deal from Malaysia's experience in promoting Islamic finance. I am very grateful to our Malaysian friends who have so generously shared with us their experience and expertise with respect to the required financial infrastructure. I am particularly indebted to Governor Zeti of Bank Negara Malaysia and members of the Malaysian International Islamic Financial Centre whom I met during my visit here back in March 2010. Their insight in developing the Islamic financial industry and a framework for Shariah governance has been most useful.
While there may inevitably be an element of competition for Islamic finance in Asia, I believe that the most significant opportunities will come from our collaboration in establishing a dual hub for Islamic finance. This way Hong Kong and Malaysia can make the most of their respective advantages.
Malaysia has a large Muslim population and a critical mass in Islamic banks. Your government has taken significant steps to implement the appropriate tax measures for Islamic finance to flourish.
In Hong Kong, we have a highly transparent and robust regulatory regime, an extensive network of international business and a great deal of experience in international finance. We also have close financial links with Mainland China and its opportunity-hungry investors.
In 2006, the HKMA and Bank Negara Malaysia established a payment-versus-payment link between our two real time gross settlement systems. It was the first such link in the region, reducing settlement risk and improving payment efficiency. It is also an important element in our financial connectivity with Malaysia.
While Islamic finance is a relatively new development for us, Hong Kong already has a good deal of experience in dovetailing different financial systems.
This brings me to another exciting financial development in Hong Kong.
We are playing a leading role in the liberalisation of the Mainland currency, the Renminbi. This is the most significant recent development in Hong Kong's role as China's global financial centre.
The national policy to internationalise the Renminbi is being spearheaded via Hong Kong. It 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 control. We have a world-class regulatory and legal environment and our mature banking, stock and financial markets are on par with New York and London.
The World Economic Forum ranked Hong Kong first in its 2011 Financial Development Index. We overtook the US and the UK in the index to become the first Asian financial centre to top this ranking.
Through our close integration with the Mainland, we have accumulated decades of experience dealing with Renminbi and the Mainland's fast-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 provide a strong foundation in the overall plan to develop Hong Kong as China's major offshore Renminbi centre. New measures announced last year will help consolidate Hong Kong's role in this regard.
The measures 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 Malaysia - 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 per cent of all global trade settlements in Renminbi. To put the scale in context, about 10 per cent of all trade settlements involving China is transacted in RMB.
Another initiative is the RMB 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, the so-called RMB REIT, was listed on the Hong Kong stock exchange a year ago, and the first Renminbi-denominated gold ETF was listed in February this year. We are also making the necessary preparations for the launch of the first Renminbi IPO.
The development of offshore Renminbi business is not limited to Hong Kong. We encourage financial institutions elsewhere, including here Malaysia, to use Hong Kong as a platform to develop their own Renminbi portfolios.
Ladies and Gentlemen, in discussing Hong Kong's role in China's economic and financial development, it is important to understand our city's evolution, and in particular, the significant opportunities made possible by our Reunification with China in 1997 under the "One Country, Two Systems" principle.
Throughout Hong Kong's development over the past century and a half, the city's success has been based on a combination of factors, including the entrepreneurial spirit of our merchants, the tenacity of our people, and the unique access we provide to those wishing to trade with Mainland China.
All of this has been buttressed by a trade-friendly government, a common law legal system, a level playing field for business and free flows of news and information. All of these traits are what make us different from other Mainland cities, and they continue to underpin Hong Kong's success.
This year we are celebrating the 15th anniversary of the establishment of the Hong Kong Special Administrative Region of China.
It is a celebration above all of the successful implementation of "One Country, Two Systems". Under "One Country, Two Systems", Hong Kong people continue to run Hong Kong with the promised high degree of autonomy.
The SAR Government is responsible for virtually all areas of Hong Kong's administration, with just a couple of exceptions. These exceptions are, quite rightly, national defence and foreign affairs. For us, "One Country, Two Systems" is more than a guiding light; it forms the fabric of our community and is part of our constitutional document, the Basic Law.
This has enabled us to build on the unique strengths and characteristics that have driven the city's rapid development for over a century. Among other things, Hong Kong remains an individual member of international institutions, such as the World Trade Organization, APEC and the World Customs Organization. Our athletes will represent Hong Kong at the London Olympics this summer under the name Hong Kong, China.
Not only is Hong Kong's international standing good for our city, it is also good for our nation's development. Hong Kong has fine-tuned its role as the premier international gateway to Mainland China.
Through our city's open economy, our nation can better connect with the rest of the world as it pursues its own opening up policies and reforms, and tests out new initiatives on the global stage.
These are just a few of the things that set Hong Kong apart as a city in China, but outside the Mainland.
Naturally, over the past 15 years, Hong Kong has become much more closely integrated with Mainland China. This has opened up new opportunities for closer cross-boundary connectivity on all levels. Government-to-government, business-to-business and people-to-people contacts are closer than ever.
These networks - nurtured and expanded over decades - are crucial elements of our success.
We continue to share our success with our friends here in Malaysia, our neighbours throughout Asia and our business partners around the world.
I look forward to even stronger links with Malaysia in the years to come.
Thank you very much.
Ends/Wednesday, April 25, 2012
Issued at HKT 13:47
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