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Speech by FS at Morningstar Institutional Conference Asia 2016

Following is the speech delivered by the Financial Secretary, Mr John C Tsang, at the Morningstar Institutional Conference Asia 2016 this morning (June 23):

Nick (Chief Executive Officer, Asia of Morningstar Investment Management, Mr Nick Cheung), distinguished guests, ladies and gentlemen,

Good morning.

I am pleased to join you all today. This is my third time actually attending the Morningstar Institutional Conference Asia.

I don't know whether or not that would make you just a little nervous. After all, we all know that the third one in any movie series is usually a clunker. But then I realise that the third episode of Star Wars - "Return of the Jedi" - that was one of my all-time favourites. So there is every reason to think that this third Morningstar Institutional Conference Asia here in Hong Kong will be as rewarding as the first two.

In the past two conferences, my colleague K C (Professor K C Chan) and myself, we talked about our plans for Hong Kong's financial industry.

This year, some of those plans have already come to fruition, and I am happy to tell you about them - and also about our latest plans for Hong Kong.

To start with, I think Morningstar shares much the same sentiment as I do when it comes to Hong Kong's financial future, given this year's conference theme: "New growth drivers in an interconnected world".

There is certainly no shortage of challenges for today's increasingly interconnected global economy. The uncertainties on the timing and the pace of the US (United States) interest rate hike, coupled with the growing policy divergence among major central banks and the fragile recovery of the Eurozone and Japan, will bring much volatility to the global markets. Not to mention the verdict of the Brexit referendum that we shall find out tomorrow.

Despite all the downside risks, the Mainland economy is actually on track to meet its target of 6.5 per cent to 7 per cent growth this year, and will continue to be the major driving force of global economic growth.

Part of this expected growth can be attributed to the continued structural reforms. Coupled with a more proactive fiscal policy this year, these measures should help keep overall growth along a steady pace.

As for Hong Kong, our unparalleled connectivity and deepening financial integration with the Mainland, our ready access to Asian markets, as well as our ability to capitalise on new opportunities, are helping us to weather the storm.

In the next few minutes, I would like to elaborate on the exciting new plans that we have for Hong Kong.

Starting with our asset management business. Despite the gloomy economic outlook in other parts of the world, Asia is faring well in wealth creation as well as portfolio allocation.

Thanks to the Mainland's deepening financial market liberalisation, Hong Kong's well-established asset management industry continues to expand strongly.

This time last year, I was telling you about the groundbreaking Mainland-Hong Kong mutual recognition of funds arrangement. That arrangement has been well-received by the market. Down the road, it will allow Hong Kong to play an even more important role, enabling Mainland investors to access the world and international investors to access the Mainland.

As of mid-June, a total of 37 southbound funds have been authorised for public offering in Hong Kong, while six northbound funds have been approved for public offering in the Mainland. And we expect more funds will be launched soon in the two markets.

To give our fund industry a further boost, we are putting in place a legal framework for an open-ended fund company. With the increasingly connected global markets, it's important that Hong Kong's fund choices meet global market demand and compete with those in other major fund centres.

This new structure will allow us to do just that, creating a more flexible business environment for fund managers to meet market demand. Following the passage of the bill by our Legislative Council in early June, we hope to implement the open-ended fund company regime as soon as possible.

Last July, to take another example, we extended the profits tax exemption for offshore funds to include private equity funds.

Such policy initiatives, of course, are only as good as the people who know how to make full use of them. Which is why we are developing talent and manpower resources to expand the asset management sector.

That includes the launching next month of a three-year, HK$100 million pilot programme to enhance talent training for the financial services sector. About half of the fund will be used to implement training initiatives for the asset and wealth management sector.

We hope the programme will help young students gain early exposure to career opportunities in financial services. We hope, too, that it will encourage existing practitioners to sharpen their professional skills as well as their competencies.

And to ensure that Hong Kong remain a major international financial centre in this pervasive digital age, we are also putting in resources to promote the development of Fintech.

Just in the first quarter of this year, investors put some US$5.3 billion into Fintech ventures globally - that's a 67 per cent increase over the same period last year.

Many financial institutions and start-ups with regional and global ambitions are developing Fintech right here in Hong Kong, and taking advantage of our talent pool and world-class infrastructure on information and communications.

We shall be creating a dedicated working space to support 150 start-ups over the next few years, and we shall be arranging some 300 university students to join Fintech training camps in overseas universities. We are also nurturing the next generation of Fintech talent to drive development of various technologies, particularly cyber security as well as blockchain.

InvestHK is setting up a dedicated Fintech team to help start-ups, investors and R&D institutions establish a presence here in Hong Kong. And our financial regulators are establishing communication platforms with the local and international Fintech community, to ensure that we maintain the right balance between promoting market growth and protecting investors' interests.

And there are more stimulating opportunities for us ahead. The Belt and Road Initiative for example spanning some 65 countries in three continents that count for two-thirds of our planet's population, is a grand and visionary initiative about boosting integration, connectivity, trade and investment, as well as people-to-people bonding. I would say that this initiative presents the world, and Hong Kong, with an abundance of business opportunities.

According to the Asian Development Bank, Asia will need US$800 billion a year to cover infrastructure investment from now to the year 2020.

And Hong Kong has the expertise, the experience and the connections to serve as the fund-raising, project financing and asset management hub for the Belt and Road's mega-infrastructure projects.

We are now establishing an Infrastructure Financing Facilitation Office (IFFO) under the Hong Kong Monetary Authority. This Office, which is expected to get going in early July, will pool together stakeholders in both the public and the private sector. The Office will provide timely information about various projects and facilitate co-operative efforts in realising these projects.

Consider also the potential of Renminbi business as the Belt and Road projects find traction. With the world's largest offshore Renminbi pool and the world's largest Renminbi bond market outside of the Mainland, Hong Kong is perfectly positioned to take advantage of the continued internationalisation of the Renminbi.

Our portfolio of Renminbi services is equally outsized, covering everything from personal banking and asset management to cross-border trade settlement and bond issuance. Some 70 per cent of offshore Renminbi payments in the world are handled here in Hong Kong.

The Shanghai-Hong Kong Stock Connect, launched in late 2014, and the Mutual Recognition of Funds arrangement that I mentioned earlier, opened up new channels for the use of Renminbi funds.

That business keeps growing, I am pleased to report that last month, Hong Kong Exchanges and Clearing Limited announced that it will create a new series of Renminbi indices, tracking the Renminbi against a basket of currencies.

The indices are designed to be transparent and eminently tradable. They will help investors manage currency risk, while strengthen Hong Kong's status as a premier international financial centre and China's global centre for offshore asset management, risk management and product pricing.

The Belt and Road region embraces a substantial Muslim population and the market potential of Islamic finance is clear and promising.

We have already issued two well-received sukuk since September 2014, demonstrating Hong Kong's capability in supporting Islamic financial products and meeting their financing needs. So rest assured, we shall seize the opportunity to issue a third sukuk in a timely manner.

On a broader financing scale, there is the Asian Infrastructure and Investment Bank (AIIB), created to provide financial support for the Belt and Road's infrastructure development. The Bank, by the way, holds its first annual meeting this weekend in Beijing, and I shall be attending that. I shall be leaving for Beijing tomorrow morning to attend that meeting.

On top of the 57 founding members, the AIIB will soon be considering the applications from other economies, including Hong Kong, to join the Bank. I am sure the AIIB will be looking to take good advantage of our expertise in capital market financing, in asset management and dispute resolution services.

So ladies and gentlemen, I am grateful to Morningstar for bringing the Asia Conference here in Hong Kong for a third consecutive year.

I wish you all the best of business at the conference, and I hope to see you all again next year.

Thank you very much.

23.06.2016


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