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Following is the speech by the Chief Executive, Mr C Y Leung, at the Credit Suisse Asian Investment Conference 2013 today (March 22):
Mr (Neil) Harvey, ladies and gentlemen,
Good afternoon. I spent some days in this month in Beijing attending various meetings, got back at around midnight the day before yesterday. Very good to be back in Hong Kong to recharge. Great pleasure to join you all today.
Firstly a warm welcome, a very warm welcome, to all our visitors who have come to Hong Kong from around the world.
I will begin by talking about Hong Kong's role in connecting the global financial community. Then I will say a few words about what we are doing to tackle one of our most important domestic issues, our property market.
In the world of international finance, Hong Kong can be regarded as a super-connector. In this city we bring capital, people and ideas together on the doorstep of the world's fastest growing large economy, namely the Mainland of China.
Like every good connector, Hong Kong depends on the quality of its contacts. And, as with all good contacts, they need to be nurtured over time to achieve a high degree of understanding, goodwill and mutual trust.
Throughout its modern history, the unique role of Hong Kong can be summed up in two brief descriptions: as a gateway for business and finance between the Mainland of China and the rest of the world, and as a testing ground for China's market liberalisation and, in the context of my address today, for China's financial market liberalisation.
In both cases, Hong Kong has been able to gain an advantage by establishing excellent connections as an international business and financial centre in Asia. International companies like yourselves come to Hong Kong to gain from this advantage and to use our city as the most efficient and effective route to markets in the Mainland of China. In terms of time and convenience, the route to China via Hong Kong is the shortest and the most cost-effective route. The shortest line between wherever you are in the world to the Mainland Chinese market is via Hong Kong.
Hong Kong is the Chief Information Officer for China. No one else has such a good understanding and deep contacts with the Mainland than here in Hong Kong. This is not something that can be achieved over a year or two, or even over a few decades. To truly understand market mentality, especially a market as large and complex as China, it takes generations of experience. Established firms and new companies coming to Hong Kong benefit directly from our extensive knowledge bank of experience in working with the Mainland of China, and here in Hong Kong we have open borders and, more importantly, open minds to share what we know about China.
At the same time, we are closely connected to global financial developments with a business environment that is on par and closely aligned with other international cities. This is achieved through our transparent and robust regulatory regime and global outlook. We have also built up a highly efficient infrastructure and, above all, we maintain free flows of money, information and people.
Our most important function today, with relation to our country, is to dovetail our financial system with that of the Mainland. That way, Hong Kong can provide a valuable bridge for the Renminbi (RMB) to become an international currency. And with this in mind, I called on a number of Central Government commissions and ministries a few days ago when I was in Beijing, and I shall revisit them in the next couple of months. I shall essentially break this unspoken tradition of visiting Beijing twice as Chief Executive of Hong Kong, and I shall be in the capital of the country for a few times more before the year runs out.
Importantly for us, Hong Kong's development as an offshore Renminbi business centre and an international asset management centre was hardwired into the Central Government's National 12th Five-Year Plan, and the plan, which came out about two years ago, says to support Hong Kong to consolidate and elevate - which is the key word - and elevate its position as an international financial, trade and transportation centre. So that's essentially the gist of the chapter in the National 12th Five-Year Plan concerning Hong Kong. This economic blueprint came out, as I said, in 2011. It recognises Hong Kong's strengths under the principle of "One Country, Two Systems".
Many of you will be familiar with the three pillars of Renminbi liberalisation through Hong Kong, and here I am getting technical.
The first pillar is banking. In 2004, Hong Kong became the world's first market to conduct offshore Renminbi business, offering deposit-taking, currency exchange, remittances and debit and card services. This has since been expanded to include loans, trade settlement and other currency hedging services in Renminbi. We have the world's largest offshore Renminbi liquidity pool, amounting to around RMB755 billion as at the end of January.
To provide a fast and reliable connection to international markets, we have a Renminbi Real Time Gross Settlement system, RTGS in short. Operating hours of the RTGS are designed to overlap with those of the European markets. This forms a Renminbi clearing platform that serves some 200 banks in Hong Kong, as well as the Mainland of China and overseas.
After banking, the second pillar is Renminbi fund raising. In 2007, in light of the vast Renminbi deposit pool, Hong Kong was the first offshore centre to develop a market for so-called "dim sum" bonds. Since then, four separate issuances of sovereign bonds by the Ministry of Finance as well as issuances from multilateral development banks, financial institutions and non-financial corporations both inside and outside China have propelled the market. Up to the end of February there have been 237 Renminbi bond issues with an outstanding amount of RMB248 billion - a figure that makes this bond market larger than many local currency markets in Asia.
The third Renminbi pillar is trade settlement, which was launched as a small-scale pilot scheme in 2009 and has since been expanded to cover each and every province in China.
In 2012, the total remittance of Renminbi for cross-border trade settlement exceeded RMB2.6 trillion, a year-on-year increase of 37 per cent. Banks in Hong Kong handled almost 90 per cent of the country's total offshore Renminbi trade settlement last year.
Building on the three pillars that I have just mentioned, there is still a very long way to go in promoting the Renminbi as an international currency and introducing new RMB-denominated financial products. Recent developments include the first RMB Gold ETF (exchange-traded fund) launched a year ago as well as the first listed RMB sovereign bond. Last July we saw the first RMB Qualified Foreign Institutional Investor, or RQFII, A-share ETF and last September the world's first deliverable RMB currency futures were launched by the Hong Kong exchange.
Developing a wider range of RMB-denominated products would benefit both Hong Kong and the Mainland in the process of RMB liberalisation and internationalisation.
Earlier this month, the China Securities Regulatory Commission - incidentally, I visited the commission and I sat down with the newly appointed Chairman on the second day of his new posting in Beijing a couple of days ago - the commission released the revised rules for the RQFII pilot scheme. Under the revised rules, Hong Kong subsidiaries of Mainland commercial banks and insurance companies, or financial institutions which are registered and have major operations in Hong Kong, can apply for the scheme.
We continue to work closely with the Central Government to strengthen our market infrastructure, and connect with other financial centres around the world to promote the use of Renminbi globally.
After my visit two days ago, the Secretary for Commerce and Economic Development and his colleagues will call on relevant Central Government commissions and ministries to take our discussions forward very shortly.
Beyond Renminbi business, Hong Kong is an international asset management centre, second only to Japan in terms of asset management business. At the end of 2011, Hong Kong's combined fund management business amounted to around HK$9 trillion, or US$1.1 trillion.
Hong Kong has the largest concentration of Chinese securities and fund management companies outside the Mainland of China. Over 60 Mainland Chinese companies have controlling interests in more than 170 licensed corporations or registered institutions in Hong Kong - it's quite a large number. They provide services such as securities and futures dealing, advising on securities and futures and asset management services.
I should also mention that Hong Kong's connectivity with the Mainland of China enjoys a unique advantage in the form of the Mainland and Hong Kong Closer Economic Partnership Arrangement, or CEPA. Both sides, and this is the Mainland and Hong Kong, can use CEPA effectively to gain tariff-free entry for goods and enhanced access to 48 services sectors covered under CEPA. International firms that are incorporated in Hong Kong can enjoy the full benefits of CEPA in connecting with consumers and suppliers in the Mainland of China. And this underlines again what I said earlier, namely we have open borders and an open mind for us to share these privileges, these market access privileges, to the Mainland with our friends from overseas.
I have made it a priority to use our strong government-to-government, G2G, contacts with the Central Government in Beijing and provincial governments across China to enhance the effective implementation of CEPA. And I said we have a priority to use our strong G2G contacts: my Hong Kong Government delegation, when in Beijing in the last few days, were the first set of guests received by the newly appointed ministers and chairmen of commissions. So that's the high regard, and for which we are thankful, that the Central Government hold for Hong Kong. These G2G contacts will enable all stakeholders to make the most of this free-trade arrangement.
I have mentioned some of the areas where Hong Kong has a distinct advantage as a super-connector linking the financial markets of Mainland of China to the rest of the world and vice versa.
Allow me now to switch gears and say something about the Hong Kong property market. Market watchers will be aware that prices for residential and commercial units in Hong Kong had been until a couple of weeks ago on the rise for a couple of years. Finally, we saw the market stabilising and, in most cases, prices coming down not only in the residential sector but also in the non-residential sectors.
Since I took office, I have been reaffirming that tackling the housing and land issue tops my priorities. They are both serious livelihood issues, and they are also serious constraints, bottlenecks, for our future growth.
Our goal is that the public should be able to choose accommodation according to their affordability and personal circumstances.
Given the strong demand for housing, we believe that the ultimate solution is to adopt a supply-led approach, although we have also adopted bold measures to manage demand.
The launch of the public rental housing (PRH) programmes in the 1950s has been a remarkable success story for Hong Kong. As at the end of last year, there were some 760,000 such flats in Hong Kong. They provide homes for about 30 per cent of our population.
The demand for public rental housing has been increasing over the years, placing a strain on the supply of these units. I announced in my Policy Address in January a production target to increase the total supply to at least 100,000 units over the five years starting from 2018. That translates into an annual average of 20,000 public rental housing units. It is a significant jump from the annual average of 15,000 during the current five-year period, and I should also add here that the production target of 15,000 a year in the next five years has been fully allocated with sites on which these units will be built.
We are working closely with the 18 District Councils and other stakeholders in the community to ensure the timely delivery of public rental housing flats in line with these targets.
We will also fast-track two projects with about 3,400 flats from two sites by one year from 2017-18 financial year to 2016-17 financial year. This will as a result increase the total production from some 75,000 to 79,000 for the coming five years.
As part of our efforts to fulfil our housing objectives, we have relaunched the Home Ownership Scheme (HOS), a subsidised flats sale programme. We will produce some 17,000 HOS flats over the four years from 2016-17. Thereafter, we aim at providing an average of about 5,000 units per year.
For the private housing market, the Government is monitoring the situation very closely. We need to ensure healthy development of the market. Our present target is to supply land for building an average of at least 20,000 private residential units a year.
We estimate that 24,000 first-hand private units will be offered for sale this year, including 12,000 units that are under construction.
In the coming three to four years, it is estimated that a total of about 68,000 first-hand units will be available in the private residential property market - 68,000 first-hand units will be available in the private residential property market, the highest number since September 2007.
At the same time, we are also proactively addressing demand-side imbalances. This is important because we live in extraordinary financial times with significant economic instability in major global economies. As a small externally oriented economy, Hong Kong is also impacted by the unprecedented scale of policies such as quantitative easing.
Last October, we increased the rates and extended the holding period for Special Stamp Duty, which is targeted at property speculators looking for a quick profit from buying and selling units.
We also introduced a new Buyers' Stamp Duty, which is imposed on non-local buyers.
While these two measures helped to cool down the residential property market towards the end of 2012, a few months ago, the market turned more bullish again this year. The market for commercial property also became a concern for the Government.
Last month - exactly a month ago - we introduced additional demand-side management measures. These basically doubled the ad valorem stamp duty rates on transactions of residential as well as non-residential properties.
I am glad that with all these measures in place, the market has started to cool down and show signs of stabilisation, but the Government will not relent. We will continue to keep a close eye on the market. Our long-term strategy is clear: to provide more land for new developments and make the most of land resources that are available to us. You probably have read in media reports this morning about the bold, ambitious and very large-scale reclamation projects on which we are consulting the public.
We have demonstrated in the past few months that, when it comes to ensuring healthy development of the residential and commercial property markets, the Government takes and will continue to take strong and timely measures. We will intervene as and when necessary. That was the situation in the past, and that will be the situation in the future going forward.
I have been in the post of Chief Executive for almost nine months. My Government has made its priorities very clear. First and foremost, we will concentrate on our city's economic development. Only with a strong economy can Hong Kong address its other deep-seated social problems, such as housing, poverty - yes, we do have poverty issues in Hong Kong - ageing society and the environment. These require us to fine-tune our role as a super-connector linking the Mainland of China and the rest of the world.
We have also made clear that the Government will maintain Hong Kong's free and open business environment - again, open borders and open minds. At the same time, we will not sit idly by when the markets work against the interests of the public. The property market is a good example.
Thank you very much.
Ends/Friday, March 22, 2013
Issued at HKT 18:04
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