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Following is the speech by the Chief Executive, Mr C Y Leung, at the Public Forum "Financial Development in China and Implications for the Global Economy" organised by the Pacific Trade and Development (PAFTAD) Conference this afternoon (November 19):
Edward, Mr Zhou, distinguished guests, ladies and gentlemen,
Good evening.
A warm welcome to Hong Kong to all our visitors. I would also like to take this opportunity to congratulate the organisers on staging this event in Hong Kong. The last time our city hosted the Pacific Trade and Development Conference was in 1994.
The world was a very different place 20 years ago compared to today. Back then, new apples and blackberries were sold in supermarkets. Today you find them in electronic stores with, perhaps, an Orange shop nearby. Google, Twitter, Facebook and many of the hi-tech tools we depend on today had yet to be thought of in 1994.
Currently, 48 per cent of listed enterprises in Hong Kong are from the Mainland of China. These 765 listed enterprises account for 57 per cent of our total market capitalisation and 71 per cent of our market turnover. In 1993, Tsingtao Brewery became the first Mainland enterprise listed in Hong Kong as H-share, which was about the same time when Hong Kong hosted the PAFTAD conference last time. Twenty years is a very long time in Hong Kong. Since then, the Mainland enterprises have already raised over HK$3.5 trillion through our stock market, constituting about 58 per cent of the total funds raised here. Hong Kong has clearly become Mainland China's international equity funding centre over the past 20 years.
Although the world was switched on to the huge potential of Asia two decades ago, few people would have predicted our region's important role in the global economy today, and even fewer people could have imagined that the internationalisation of the Renminbi would become one of the most important global financial developments of our time.
The theme of this Forum, "Financial Development in China and Implications for the Global Economy", is a timely topic for Hong Kong.
As China's global financial centre, Hong Kong has been given the responsibility to test, launch and develop new products and initiatives to promote Renminbi liberalisation. In the process we have become the largest centre for offshore Renminbi business with sophisticated infrastructure and the largest pool of Renminbi capital outside the Mainland of China.
And because Hong Kong is also an international financial centre, it is our mission to promote the use of Renminbi around the world. This week, our Financial Secretary is in Europe to discuss, among other things, ways for Hong Kong to co-operate more closely with the financial centres of London and Paris.
What does financial development in the Mainland of China mean for Hong Kong and for the global economy?
Mainland China's financial reforms have presented huge opportunities for Hong Kong. It was less than a decade ago that Hong Kong banks took an unprecedented step to offer basic offshore Renminbi banking services in 2004, with full support from the Central Government in Beijing.
Since then these services have been expanded significantly, and always in a smooth manner with one step leading to the next. Today our banks offer a full range of Renminbi customer services including deposit-taking, currency exchange, remittance and credit card services. Since 2009, banks in Hong Kong have been at the forefront in handling offshore Renminbi trade settlement between foreign firms and their partners in the Mainland of China. Cross-boundary direct investment in Renminbi has expanded further with the launch in Hong Kong of the RMB Qualified Foreign Institutional Investors (RQFII) Scheme in 2011, nearly two years ago.
Through cross-boundary trade, direct investments and portfolio investments, Hong Kong is linking up the offshore and onshore Renminbi markets, and promoting the healthy circulation of Renminbi funds.
In the broader context, Renminbi liberalisation is more than the emergence of a new international currency. It creates a whole new mindset for international trade with Mainland China, which is already the world's second largest economy. Hong Kong has evolved from a testing ground for Renminbi business to a testing ground for Renminbi international investment for the Mainland. Through developing a variety of Renminbi loans, securities products including bonds, equities and other listed products, as well as insurance policies, Hong Kong has become the largest offshore Renminbi financing centre.
For the first time, overseas institutional investors can invest directly in the Mainland of China through the RQFII scheme. Since the scheme was launched in Hong Kong in 2011, the investment quota for financial institutions in Hong Kong has increased from RMB20 billion to RMB270 billion today. The types of pilot institutions have been expanded from Mainland brokers and fund managers to include Hong Kong subsidiaries of Mainland commercial banks and insurance companies, as well as financial institutions with their place of registration or major business activities in Hong Kong. The investment restrictions of RQFII funds have also been relaxed to allow pilot institutions to choose their preferred investment portfolios in accordance with market conditions. These measures will enable more market participants in Hong Kong to engage in Renminbi product origination, further facilitating the cross-boundary use and healthy circulation of Renminbi.
With more market participants in offshore Renminbi business, we are seeing more Renminbi-denominated investment products coming on stream, including deliverable Renminbi currency futures, offshore Renminbi stocks, A-share ETF warrants and offshore Renminbi Bond Index ETFs. These are encouraging developments to promote the use of the Renminbi as an investment currency.
All this presents huge new opportunities for international trade with the Mainland of China and investment in the Mainland. It is also a trend that Hong Kong has long been preparing for. Our city serves as the premier international gateway for trade and investment into and out of the Mainland of China. Nowhere has more experience in doing business in the Mainland than Hong Kong. We have the right government-to-government, business-to-business and people-to-people links to connect foreign firms to the opportunities just across our boundary.
This is what makes Hong Kong the Chief Knowledge Officer, or CKO, for China. Today, this knowledge extends beyond trade and services expertise to include financial and investment developments.
Naturally, we expect more competition for offshore Renminbi business from financial centres around the world. Hong Kong has always welcomed competition as a driver for growth and progress. Renminbi business is no exception. We look forward to a more liberalised environment and more players in the market. This will help to boost collective efforts to expand the range and quantity of Renminbi business globally.
In terms of financial infrastructure, Hong Kong has developed a unique, highly efficient and reliable RMB clearing platform - the RMB Real Time Gross Settlement (RTGS) system. The system facilitates banks from around the world to make Renminbi payments efficiently and with minimal risk. In the second quarter of this year, the average daily turnover handled by the RTGS system in Hong Kong exceeded RMB400 billion. That is a vast amount of capital being transacted through the system every day in Hong Kong.
We have also extended the operating hours of the RMB RTGS system until 5.30pm Central European time to meet the needs of banks in Europe.
As at the end of September, a total of 211 banks participate in Hong Kong's Renminbi clearing platform, including 186 branches and subsidiaries of foreign banks and overseas arms of Chinese banks.
All this represents an unparalleled global payment network capable of handling Renminbi transactions for different parts of the world, as well as among the various offshore markets and onshore markets in the Mainland of China.
Another development has been the Renminbi's emergence as an international reserve currency. In issuing Renminbi sovereign bonds in Hong Kong in 2012, China's Ministry of Finance made a special placement, totalling RMB2 billion, to overseas central banks to meet the needs of countries wishing to hold Renminbi as a reserve currency. This year, the special placement of bonds made to overseas central banks increased to RMB3 billion. This demonstrates that the Central Government is gradually liberalising Renminbi through the bond issuing platform in Hong Kong.
Importantly, the interactions between supply and demand for Renminbi and the price discovery process are becoming increasingly mature. With the largest and most active pool of Renminbi funds outside the Mainland, Hong Kong is best placed to launch Renminbi interbank rate fixing. In June this year, our Treasury Markets Association launched the CNH Hong Kong Interbank Offered Rate fixing, or CNH Hibor. It facilitates the pricing of Renminbi loan facilities and various offshore Renminbi interest rate derivatives. This is important for market participants to manage their risks and improve market-wide liquidity.
Against the background of Hong Kong's rapid development as China's offshore Renminbi centre, financial co-operation between Hong Kong and the Mainland has become increasingly close, both at the central government and regional government levels.
For example, Hong Kong's role as an offshore Renminbi centre and our position as an international financial centre are highlighted in the National 12th Five-Year Plan announced in 2011.
We also have a unique free trade pact called the Mainland and Hong Kong Closer Economic Partnership Arrangement, or CEPA. CEPA initiatives give preferential treatment for Hong Kong firms and Hong Kong-incorporated overseas companies to access key services sectors in Mainland China, including financial services.
The Hong Kong SAR Government is also working with its counterparts across the boundary to strengthen co-operation platforms with Shanghai, Guangdong Province and Shenzhen.
The first pilot free trade zone opened in Shanghai in September. It is too early to tell how or whether this initiative will impact on Hong Kong. But we know that Hong Kong has benefited significantly from its own free and open economic strategies in tandem with the gradual opening up and reform policies of the Mainland of China since 1978. This will not change.
To help us capture these and other new opportunities we have the Financial Services Development Council (FSDC), which was announced in my Policy Address in January this year. The FSDC's task is to engage the industry and formulate proposals to promote the further development of Hong Kong's financial services industry. The committed and highly experienced members of the Council will also help to map out the strategic direction for development. The platform has proven to be very effective, and the FSDC has just released the first batch of six research reports yesterday. Yes, a total of six reports in just the first batch - they really have been busy. A couple of reports cover holistic strategies and visions for developing the industry. This is important because we are building the industry not just for the present day but for the future. And we are building the industry not just for Hong Kong but for the country.
I very much appreciate the concrete proposals in these reports targeting specific lines of business such as the offshore Renminbi and asset management sectors. The industry, through the FSDC, is able to tell us exactly what can be done and the measures required to successfully implement the most promising proposals.
The Government together with the regulators will study the reports in detail, and we look forward to more proposals from the FSDC.
Ladies and gentlemen, I have mentioned some of the areas where financial development in the Mainland of China is having, and will continue to have, significant implications for Hong Kong and for the global economy.
I look forward to hearing more about your ideas on this topic under the theme of this Forum. I also hope that you will be able to join us for the next Asian Financial Forum which will be held in Hong Kong on the 13th and 14th of January next year.
In the meantime, I wish you all a very successful Forum and PAFTAD Conference and I hope our visitors enjoy a memorable stay with us in Hong Kong.
Thank you very much.
Ends/Tuesday, November 19, 2013
Issued at HKT 19:58
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