Speech at Panel on Financial Affairs

Briefing by the Administration

Discussion Macroeconomic conditions and trade tensions between China and the United States

Mr CHAN Chun-ying expressed concern about the impacts on Hong Kong arising from trade tensions between the United States (“US”) and other economies, and a possible trade war between China and the US. They sought FS’s assessment of the impacts on Hong Kong, and enquired about the Administration’s measures to prepare Hong Kong for the possible shocks.

FS said that given that Hong Kong was a small and open economy, and that the Mainland and the US were major trading partners of Hong Kong; the recent China-US trade conflict would inevitably affect Hong Kong. However, it would be difficult to assess the actual impact on Hong Kong’s economy at the moment as negotiations between the Mainland and the US were still underway and surrounded by uncertainties. The Administration’s initial assessment was that the recent trade conflict (including the US’s restrictive measures on aluminium and steel imports) would have limited direct impact on Hong Kong’s economy. Based on the tariff list covering 1 300 items of products announced by the US in April 2018, it was estimated that some $52 billion of Hong Kong’s re-exports of Mainland origin to the US (which accounted for 1.3% of Hong Kong’s total exports of goods in 2017) would be affected. Nevertheless, if the trade relations between the Mainland and the US deteriorated, the global and local investment sentiment might be affected and Hong Kong might suffer as a result. The Administration would closely monitor the latest development and take swift measures to alleviate possible negative impacts of the trade conflict on Hong Kong.

FS said that both himself and the Secretary for Commerce and Economic Development (“SCED”) had highlighted to the Consul General of the US in Hong Kong on the unique status of Hong Kong as a separate customs territory under the “One Country, Two Systems” arrangement. SCED would conduct a duty visit to the US in September 2018 and raise the issue with US Government officials directly as necessary. FS added he was also prepared to do so if he visited the US in future.

Mr CHAN Chun-ying opined that the interest rates of Hong Kong dollar would gradually rise owing to capital outflow arising from the US interest rate hikes. He sought the Administration’s assessment on the impacts of a possible correction in the local property market on Hong Kong’s economy and local consumption.

FS responded that the Hong Kong dollar interbank offered rates were on the rise against the backdrop of the US interest rate hikes. While the current situation differed from that in 1998, the Administration had been closely monitoring the risks and impacts of higher local interest rates on the local property market at a time when the overall housing supply was also increasing.


Proposed Amendments to the Occupational Retirement Schemes Ordinance (Cap. 426)


Mr CHAN Chun-ying declared that he was an ORSO scheme member. He sought information on the number of employees and the proportion of the work force covered by the 4 322 ORSO schemes at present, and the Administration’s view on the future development of the pension system in Hong Kong. He also enquired about the purpose of empowering the Registrar to enter non-domestic premises for inspection and whether MPFA had exercised the said power in regulating MPF schemes.

Executive Director (Policy), Mandatory Provident Fund Schemes Authority (“ED(P)/MPFA”) advised that as at 31 March 2018, there were about 370 000 members participating in 3 712 ORSO registered schemes, covering about 13% of the entire working population. Regarding the pension system in Hong Kong, DS(FS)2 said that with the launch of the Mandatory Provident Fund (“MPF”) System on 1 December 2000, in general, all employers were required to enroll their employees in MPF schemes. ORSO schemes could be provided by employers for their employees as top-up schemes in addition to MPF schemes, or retained by employers for keeping the benefits of their employees accrued before the launch of the MPF System for continued investment. He added that the purpose of the proposed amendments was to enable the Registrar to conduct investigation or inspection in employment establishments or business premises for ascertaining compliance with the statutory requirements under ORSO. Similar powers were available to MPFA for regulating MPF schemes under the Mandatory Provident Fund Schemes Ordinance (Cap. 485).


Legislative proposals to update the financial resources requirements for licensed corporations


Mr CHAN Chun-ying sought information on the criteria adopted by SFC in selecting the proposed eight futures exchanges and six stock exchanges to be added to the list of specified exchanges in Schedule 3 to FRR. He also enquired about the reasons for proposing the same haircut percentage of 30% for both listed and unlisted real estate investment trusts (“REITs”) and setting 40% as the haircut percentage for high risk financial products like structured funds and funds that invest in financial derivative instruments.

D/SFC advised that no changes had been introduced to Schedule 3 to FRR since 2003, and the eight futures exchanges and six stock exchanges proposed to be included as specified exchanges in Schedule 3 to FRR were subject to comparable regulatory and prudential requirements as those already included in the Schedule. Adding the proposed exchanges to the list could facilitate LCs’ participation in the Mainland and other emerging markets. With the launch of the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, Hong Kong had already established trading and clearing links between the Shanghai Stock Exchange and Shenzhen Stock Exchange and it was also noted that the Mainland’s measures to stabilize and regulate its securities markets, such as the “circuit breaker” mechanism, could serve to contain risks of price fluctuation in the securities markets. As regards the other four stock exchanges, D/SFC said that the depth and breadth of the securities markets of Brazil, India and Taiwan were similar to that of other specified exchanges. As regards haircut treatment for REITs, he said that except blue chip stocks, other listed stocks in Hong Kong were generally subject to a 30% haircut requirement. REITs would be subject to a haircut percentage of 30%, regardless of whether they were listed or unlisted, but only REITs that were authorized by SFC or by other recognized jurisdictions and complied with the Code on Real Estate Investment Trusts published by SFC could be considered as liquid assets for the purposes of FRR. The proposed haircut percentage of 40% for structured funds and funds that invested in financial derivative instruments was in line with the existing haircut percentage for funds with similar nature. The proposed amendment only aimed at aligning the product names with that used in the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products.