Speech by FS at Boao Forum for Asia Financial Cooperation Conference luncheon
Following is the speech by the Financial Secretary, Mr John C Tsang, at the Boao Forum for Asia Financial Cooperation Conference luncheon today (July 5):
Secretary-General Zhou (Secretary-General of the Boao Forum for Asia, Mr Zhou Wenzhong), Your Excellencies, distinguished guests, ladies and gentlemen,
It is my great pleasure to be joining you all today at the Boao Forum for Asia's Financial Cooperation Conference.
And even better to be doing so over lunch. I can't help but note, by the way, that our luncheon's fine fare - the serrano ham chips and the Parisienne tart, which is coming soon - was decidedly continental. No roast, no Yorkshire pudding, no toad-in-the-hole, not a fat chip to be dipped. And certainly no sticky toffee pudding sticking to sticky toffee sauce.
I am not saying that we shall never see another fish pie or cream scone on the business luncheon circuit again. But only that things are up in the Scottish air, following Britain's hard-to-digest vote to quit the European Union (EU), something that I still find difficult to comprehend even though I have been watching every news programme on the BBC for the whole of last week.
The unexpected Brexit has brought significant shocks to the financial markets initially, with the markets somewhat stabilised in the last few days. On top of the anxieties over the timing and the pace of the US interest rate hike, the worryingly fragile Japanese and Eurozone economies, as well as the divergent policies among major central banks, we can now formally add Brexit and its palpable uncertainties to that growing list of concerns for the global economy. So talk about the perfect storm. We certainly have all the ingredients now.
The volatilities and uncertainties that we are experiencing right now will likely continue through this year, and even in the next few years, given that the negotiations between the UK and the EU on the exit terms are certain to be difficult and protracted.
The good news is that Asia will continue to be a key source of growth for the global economy. The global economic centre of gravity has been gradually shifting to the East in recent years. This trend is particularly evident amid the slow and punctuated recovery of the advanced economies following the global financial crisis in 2008.
Asia has achieved outsized success over the last 30 years. In 1980, developing Asia accounted for only 7 per cent of the world GDP at the current market exchange rate. By 2015, it had captured more than 20 per cent. A three-fold increase.
During that period, the Mainland's economy ascended in a phenomenal way to become the world's second largest economy as well as the number one manufacturer. Apart from the Mainland, the economies of ASEAN and India have also expanded, on average, better than 6 per cent per year, far outstripping the performance of major advanced economies in the West.
Of the top 500 global companies ranked by Fortune in 2015, 190 were Asian-based, up by some 60 per cent from just a decade ago.
The strong trade performance has been significant for the region's flourishing economies. Goods trade in developing Asia in 2015 reached US$6 trillion, about five times that of 2001. The quick upsurge in trade was accompanied by rapid industrialisation as well as high productivity gains.
And thanks to globalisation, foreign investment has poured into Asia, bringing technology as well as capital. In 2014, the stock of inward foreign direct investment (FDI) in Asia amounted to some US$6 trillion, more than one-fifth of the world's total. That same year, FDI inflow reached an historic high of nearly half a trillion US dollars, accounting for more than one-third of the world's FDI inflow. The high domestic savings rate in Asia has also helped supercharge investment expansion.
Last year, Asia's population came in at about 3.7 billion people, which is about half the world's total. With the expanding middle class in Asia as well as its growing appetite for high-end goods and services, to say the region's purchasing power is enormous is a gross understatement. Domestic demand in the region will for sure play an even more vital role in the continued development of the Asian economies.
Given the vastly different comparative advantages enjoyed by different parts of Asia, there is clear synergy and obvious benefit for Asian economies to strengthen co-operation in forming an efficient, region-wide supply chain with effective division of labour.
Southeast Asian economies are agriculture-rich, while central Asia and some ASEAN countries are abundant in minerals. Wages and skill levels differ markedly in the region, from advanced economies such as Japan and Korea to low-income countries like Cambodia and Bangladesh.
South Asia's huge young population could, potentially, become a rich source of labour, complementing Asian economies that are, or will soon be, confronting an ageing population.
Looking ahead, Asia, and in particular China, will continue to be the main engine of growth for the world economy in the 21st century. In its recent report released in early April, while the IMF has lowered its forecast of global growth in 2016 to 3.2 per cent, it also indicated that emerging and developing Asia will contribute about 60 per cent of the world's GDP growth this year. And that trend will continue, with growth expected to average 6.3 per cent a year in the next five years, markedly higher than the 3.7 per cent predicted for the world over the same period.
As for the Mainland's economy, it is on track to meet its target of 6.5 to 7 per cent GDP growth this year, while it continues with structural reform and rebalancing from an investment-led economy to one that is consumption-driven.
Coming back to Hong Kong, our enviable location at the heart of Asia and our extensive economic and cultural connections make us well positioned to profit from Asia's growth.
In particular, as an international financial centre with a well-developed capital market, Hong Kong has a unique edge in directing capital between Asia and the rest of the world.
Last year, Hong Kong ranked first in equity funds raised through IPOs. According to the UN World Investment Report 2016, Hong Kong continues to rank second, after the US, in global FDI inflows. Our foreign direct investment inflows in 2015 amounted to US$175 billion, a year-on-year surge of 53.5 per cent.
Among other things, we have seized the opportunity to become the world's largest centre for offshore Renminbi business. The Renminbi liquidity pool in Hong Kong, which amounts to some RMB820 billion, is the largest globally. Our diversified and mature range of services covers personal banking to asset management, as well as cross-border trade settlement to bond issuance.
We are also the largest Renminbi bond market outside of the Mainland. Our "dim sum" bonds have consistently attracted an extensive range of issuers, including global institutions such as the Asian Development Bank and the World Bank.
Hong Kong is also the springboard for many Mainland companies looking to expand overseas, as well as an ideal base for overseas companies looking to gain a foothold in the Mainland.
Our wealth management and asset management business is looking good, too. Between 2010 and the end of 2014, the combined fund management business in Hong Kong expanded by 75 per cent, reaching a record high of US$2.3 trillion.
And, just last month, we enacted legislation to allow the establishment of an open-ended fund-company structure. This new structure will widen the choices of funds, helping us meet global market demand and compete with other major fund centres.
Hong Kong has long been a choice location for corporate treasury operations, given the strength of our financial, banking and professional services, as well as our deep capital market for liquidity and portfolio management.
In May, we passed legislation to provide a half-rate profits' tax concession for dedicated corporate treasury centres in Hong Kong. The legislation also provides profits tax interest deductions for the intra-group financing business of corporations.
And there are more stimulating opportunities ahead for Asia, in the form of the far-reaching and visionary Belt and Road Initiative spearheaded by the Mainland.
Speaking in Hong Kong less than two months ago, Zhang Dejiang, Chairman of the Standing Committee of the National People's Congress, made it clear that the Central Government was counting on Hong Kong to play a significant role in the initiative.
Infrastructure connectivity is the core driving force of the Belt and Road Initiative. And that will serve as a catalyst in promoting connectivity in trade and investment, as well as people-to-people bonding in the region.
According to the Asian Development Bank, Asia will need about US$800 billion a year to cover infrastructure investment needs from now to the year 2020, for a wide range of projects including railways, highways, ports, power plants, waste management and more.
Governments, to be sure, play a key role in capital project investment. Multilateral and regional development banks, such as the World Bank and the Asian Development Bank, also play an instrumental role in channelling funds into infrastructure projects, particularly for emerging markets.
The Asian Infrastructure Investment Bank, the AIIB, which started operation in January this year, will certainly play a significant role as well. I was in Beijing a week or so ago to attend the first annual meeting of the AIIB's Board of Governors as a member of the Chinese delegation.
At that meeting, the AIIB approved a total of US$509 million for investing in its first four projects. They include the power grid upgrade in Bangladesh, a slum renovation in Indonesia and highway construction in Pakistan and Tajikistan.
As the international financial centre in Asia, Hong Kong has the essential expertise, experience and connection to serve as a fund-raising and financial management centre for these big-ticket projects in the pipeline.
We have just established under the Hong Kong Monetary Authority a new Infrastructure Financing Facilitation Office, the IFFO, to serve as a designated platform to facilitate the exchange of market information and to enhance co-operation among stakeholders, with the aim of bridging funding gaps and catalysing infrastructure investment in the region.
The office started operation yesterday. I am glad to note that it already has the support of more than 40 partners including investors, banks, multilateral institutions, project developers as well as professional services firms from the Mainland, from Hong Kong and also from overseas.
Ladies and gentlemen, global economic growth remains uncertain. But it is clear that there is a rising need for financing in Asia. For us in Hong Kong, that spells opportunity.
Our many compelling advantages, from our mature financial infrastructure, favourable business environment, the rule of law, the open and level playing field to our simple and low tax regime, will continue to serve businesses in the region well.
When it comes to cashing in on promising opportunities, Hong Kong's track record is sterling.
My thanks to the Boao Forum for Asia and the Hong Kong Monetary Authority for organising today's conference.
I know that you will enjoy the afternoon session. And I wish you all the best of business, whatever currency you are counting in, or counting on, these days.
Thank you very much and have a great day.
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