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Following is the full text of speech (English only) by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Financial Times China-Middle East Summit in Dubai last night (January 30, Dubai time):
Hong Kong: Financial Centre in the New Silk Road
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Your Excellency, John (Ridding), Victor (Chu), distinguished guests, ladies and gentlemen,
Good evening. I am honoured to be here tonight. It is great to see so many friends from around the world including Mainland China, Hong Kong, London and New York at this dinner.
It is my pleasure to have an opportunity to speak at this Summit. I congratulate the organisers for making good choices of the location and timing for holding this event at a financial hub of the region when trade and investment flows between Asia and the Middle East are gaining momentum. I believe that there will be more such forums to come in view of the growing economic ties between China and the Middle East.
This is my second mission trip to the Middle East in less than 12 months. Both trips have received enthusiastic support from our private sector participants. During the past few days, I visited two major cities in Saudi Arabia and the UAE with a group of distinguished representatives from Hong Kong's financial services sector as well as the infrastructure and real estate industry. Apart from introducing to our hosts what Hong Kong's service providers can offer, an important objective of our visit is to get to know about the Middle East ﷿ the place, the people, the market and the culture better and to build relationship. Economies in the Middle East have always been the focus of the global market, not only because of their crucial role as oil exporters, but also due to their increasingly active involvement in many other realms of business such as trade and finance around the world. The growing investment flows from the Middle East has led to a shift in the global financial landscape, with institutions around the world looking into ways to tap the opportunities. We also see a trend of economic diversification among the Gulf economies to develop financial services and other sectors. Throughout my visit, I have learned many plans about development of financial centres and tourism in the Middle East.
On the other hand, emerging Asia particularly China is where huge opportunities lie. As Chinese enterprises grow, they look for business opportunities and capital beyond their domestic markets for further development and expansion. In recent years, the Middle East and China have reached out to each other to advance economic and trade co-operation. During the first 11 months of 2006, trade between China and the GCC exceeded US$40 billion, representing a remarkable 33.5% yearly increase (Note 1). Analysts believe that billions of dollars from the Gulf will be available for investment in Asia including China in the next few years (Note 2). From our meetings in the last few days, we clearly got the impression that our friends in the Middle East are very keen to know more about China and to invest more in China, but their involvement so far seems to have been limited. As such, I see huge opportunities in capital flows from the Middle East to China in the years to come. The next question then is, "what is the role for Hong Kong, a Special Administrative Region of China, in the Silk Road of the modern age?" Let me give you the answer.
Hong Kong as Gateway to China
First of all, Hong Kong is foreign businessmen and investors' gateway to China. As one of the largest economies in the world, China is regarded as a market with enormous potential and the powerhouse of global economic growth. International businesses are making strategic moves into the country, and many are already reaping the benefits from this expanding market. As China continues to open up its market, there are obvious advantages for using Hong Kong as a base for investing and doing business in Mainland China. What are these advantages? These include, just to name a few, a sound legal system, a stable currency, non-existence of foreign exchange control, a low and simple tax regime and state-of-the-art infrastructures. Hong Kong is a part of China, but it has a very unique position and strengths with its own political, legal, economic and financial systems under the "One Country, Two Systems" principle.
On top of our fundamental strengths, we have a very vibrant capital market and a sound banking system. Supported by a regulatory regime on a par with international standards, the strengths of our financial markets and services are highly regarded. Hong Kong has a very well-established banking system in Asia, with around 70 of the world's top 100 banks operating in the city. Our stock market, with market capitalisation of above US$1,700 billion, ranked 6th in the world and 2nd in Asia at the end of 2006. In 2006, Hong Kong ranked second worldwide in terms of IPO funds raised, ahead of New York. Our asset management business has been expanding rapidly with total assets under management exceeding US$580 billion at the end of 2005. The insurance sector has also been registering a double-digit growth over the past decade, now served by more than 180 insurers from around the globe.
As you all know, Hong Kong is well known for its free economy. The Heritage Foundation released its 2007 Index of Economic Freedom two weeks ago, ranking Hong Kong as the world's freest economy for the 13th consecutive year. Our system is widely recognised for its transparency, fairness and efficiency. Hong Kong was also ranked by the United Nation's World Investment Report 2006 as the second largest destination for foreign direct investment in Asia, after Mainland China. Beside economic freedom, the liberal lifestyle and cultural diversity are also prominent features of our city. Hong Kong is where people from different places, of different background, feel welcome and comfortable to live and do business.
Another advantage is what I call the China know-how factor. Hong Kong has a lot of professionals with international exposure and good knowledge about China. We have always had close relationship with Mainland China. When Mainland China opened up its economy, Hong Kong people were the first to go in and acted as its bridge with the rest of the world. Today, Mainland China is Hong Kong's largest trading partner, while we are Mainland China's fourth largest trading partner after the European Union, the US and Japan (Note 3). Hong Kong is also the largest external investor in the Mainland, accounting for around 40% of the cumulative foreign direct investment there. Throughout all these years, Hong Kong firms and people have accumulated much experience and knowledge about the China market. Our track record demonstrates our expertise in channelling investments to the Mainland market. We also have the advantage of having a Closer Economic Partnership Arrangement with Mainland China, which facilitates further co-operation and integration between the two economies. That is why many overseas corporations are working hand in hand with Hong Kong firms to expand into the Mainland. Others may choose to establish presence in Hong Kong, using our well-developed infrastructure as their platform for entering the Mainland market.
Hong Kong as China's Premier International Capital Formation Centre and Investment Platform
Another aspect of Hong Kong's role in the new Silk Road is that, Middle East investors can use Hong Kong, being Mainland China's premier capital formation centre, to participate in the booming economic growth of the Mainland.
Continued restructuring of state-owned enterprises of China and the expansion of private companies have generated substantial business financing needs. Because Hong Kong's financial markets have high liquidity, world-class infrastructure and a sound regulatory regime, Hong Kong has long been Mainland Chinese enterprises' most preferred listing platform outside the Mainland. These companies look to list in our stock market not only for funding, but also for raising their corporate governance standards, for the associated credibility and quality mark, and recognition by international investors. Mainland enterprises now represent about one third of the total number of listed companies in Hong Kong, 50% of the total market capitalisation and 60% of our market turnover. These enterprises have in total raised some US$188.6 billion from our stock market in the 13 past years. In October, 2006, the world saw the largest IPO, i.e. the listing of the Industrial and Commercial Bank of China in Shanghai and Hong Kong, which raised US$16 billion in Hong Kong. It attracted keen interest from Middle East investors. Fund-raising activities of this kind present lucrative opportunities to investors from all over the world. I encourage Middle East investors to participate in the growth of the Chinese economy using Hong Kong's financial market as a platform. In addition, the Central People's Government has recently agreed to further expand renminbi business in Hong Kong by allowing financial institutions in Mainland China, upon obtaining approval, to issue renminbi-denominated financial bonds in Hong Kong. This means that Middle East investors interested to have renminbi exposure may also use Hong Kong as the platform.
What's more, our people possess experience and expertise in managing venture capital. Figures as at mid-2005 revealed that we were the second largest venture capital centre in Asia, with over 600 professionals managing about US$30 billion or 27% of the total capital pool in the region. As Mainland China is increasingly the focus of venture capital investment, Hong Kong's private equity sector has developed strong expertise in investing in Asia, China in particular. Middle East investors can leverage on Hong Kong's professional services to manage their venture capital invested in growing and innovative businesses in China.
Hong Kong as China's Gateway to the World Market
What I have mentioned so far is about Hong Kong's role in channelling business and investment into Mainland China. What about the other direction of the trade and investment flows?
I must point out that Hong Kong has also been actively serving as China's gateway to the world market. The rapid economic growth and accumulation of personal wealth in China is providing impetus to the development of the investment market both within and outside the region, and create a strong demand for investment products. In April, 2006, the Mainland authorities announced measures to allow investments in overseas financial markets through qualified domestic institutional investors, commonly known as QDII. Hong Kong stands ready to capitalise on the opportunities arising from the huge savings in Mainland China, by offering a wide range of investment products and specialised services. With its international experience and market knowledge, Hong Kong is well placed to act as a platform for funds, investors, fund-raisers and financial institutions in Mainland China to come out and link up with the global market. The Middle East is, of course, one of the destinations.
Conclusion
Ladies and gentlemen, with these brief remarks I have outlined the opportunities ahead, as well as what Hong Kong may contribute as the economic ties between China and the Middle East continue to develop. With our unique position as China's international financial centre under "One Country, Two Systems", Hong Kong is best placed to be the most effective intermediary for the matching of business and investment opportunities between China and the Middle East. The outcome of such interaction will be a win-win-win situation for the origins, the gateways and the destinations of funds and investors. Given the enormous opportunities between China and the Middle East, I believe the new Silk Road will be very busy.
Thank you. And I wish you all a pleasant evening.
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Note:
1. Source: Ministry of Commerce of the People's Republic of China.
2. According to McKinsey & Company, up to $250 billion from the Gulf will be available for investment in Asia over the next five years, and much of that could go to China.
3. As at November 2006. Source: Ministry of Commerce of the People's Republic of China.
Ends/Wednesday, January 31, 2007
Issued at HKT 10:38
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