MR CHAN CHUN-YING (in Cantonese):
President, after Chief Executive LEUNG Chun-ying’s announcement that he will not seek re-election, and as those intending to run in the Chief Executive Election roll out their respective political platforms, we cannot help asking just how many policies set out in the Policy Address this year will be carried forward by the next Chief Executive after his or her coming to power. Or will there be a complete reversal of these policies? We just don’t know. As a Member representing the finance functional constituency, I consider that the continuity of financial and economic policies should be maintained. No matter who is elected the next Chief Executive, he or she should seek to enhance and improve the status of Hong Kong as an international financial centre.
For 30 years or so, we Hong Kong people have been proud of our status as an international financial centre, and this is actually a hard-earned reputation. The financial industry is one of the four major pillar industries of Hong Kong, which accounts for one-sixth of our GDP. It also offers almost 250 000 posts, so its contribution to Hong Kong’s economic development is very substantial. Although the Policy Address does not say much on this, it still rolls out several major initiatives. I hope the present Government and the next Chief Executive will both push ahead with the following areas.
First, I wish to discuss the direction for sustaining the development of Hong Kong’s financial industry. Just now Mr Kenneth LEUNG and Ms Starry LEE both mentioned the Financial Services Development Council (“FSDC”), and my first point happens to about FSDC as well. FSDC was founded in 2013. It aims to promote the further development of Hong Kong’s financial services industry and map out the direction for its development. It is mentioned in the Policy Address this year that the Government will allocate further resources to support the work of FSDC
As far as I know, FSDC has pooled together the best financial talents in Hong Kong, and these people have compiled 26 research reports for FSDC over the past three years on a voluntary basis. However, some of the recommendations have not been treated with any importance. Just now, Mr Kenneth LEUNG mentioned the statutory role of FSDC. I consider that the role of FSDC should not be limited to that of a policy research body or a policy proponent, and it should become a policy promoter. However, the reality is often quite different. At present, the staff of FSDC are all on secondment. Some time ago, FSDC wanted to recruit an executive director and put forward a funding request to the Legislative Council. But some said that FSDC was just the baby of LEUNG Chun-ying and queried whether FSDC could continue to exist after the government changeover. As a result, I just do not know when this new post can be created.
As I said at the beginning of my speech, no matter who is elected the next Chief Executive, he or she should seek to enhance and improve the status of Hong Kong as an international financial centre. For that reason, I am disappointed that the funding request concerning the post of executive director in FSDC has simply vanished after all the criticisms. Maintaining the status of an international financial centre needs long-term planning. We should not stick to defensive strategies all the time without launching any offensive. I hope financial officials can pay full attention to this and endeavour to bring forth actual investments of manpower and material resources, so as to enable FSDC to function effectively.
Second, I hope the Government can grasp the opportunities arising in the short- and medium-run. The first opportunity is the prospects brought by Belt and Road. The Policy Address this year devotes an entire chapter to Belt and Road. Last year, the Chief Executive already appointed the Commissioner for Belt and Road. Nevertheless, the tenure of the Commissioner will expire by the end of June this year. The Chief Executive mentions in the Policy Address this year that the Government will beef up the establishment and resources of the Belt and Road Office to ensure that it can take forward the relevant work on a long-term basis.
It is widely known that the economic aggregate of Belt and Road countries accounts for more than 30% of the global aggregate, totalling US$21 trillion. The importance of this first opportunity is therefore evident. However, we know very little about the work progress of the Belt and Road Office. At the same time, the Infrastructure Financing Facilitation Office was established under the Hong Kong Monetary Authority to drive and promote investment and financing plans relating to infrastructure projects along Belt and Road countries. I think the Government needs to integrate the existing resources, and the top echelons of the Government should lead various local investors in the efforts to enlarge both the number and scope of mutual visits between Hong Kong and Belt and Road countries, with a view to driving and promoting the export of those services of ours that enjoy an advantage, such as infrastructure financing, infrastructure design, legal services and arbitration and accounting.
The second opportunity is the development of off-shore Renminbi (“RMB”) business. Recently, many people are worried that the depreciation of RMB may affect the development of off-shore RMB business in Hong Kong. The reason is that as shown by statistics, there was a decline in all major RMB business indicators in Hong Kong in 2016. For example, as at the end of last year, the amount of RMB deposits in Hong Kong was $546.7 billion, a decline of 35.8% compared with the figure at the end of 2015. The total remittance of RMB for cross-border trade settlement amounted to RMB 287.6 billion, a year-on-year decline of 56.9%. The issuance of Dim Sum Bonds amounted to $42.2 billion, a year-on-year decline of 49.8%. The RMB real-time gross settlement amounted to $15.16 trillion, a year-on-year decline of 25.3%. According to the data of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the value of international RMB payments in 2016 fell by 29.5% when compared with 2015.
The status as the biggest off-shore RMB market in the world has along enabled Hong Kong to perform the irreplaceable role of providing a new channel for the entry of off-shore investments into the China market, and to enhance our role in the liberalization and development of the Mainland financial markets. Nevertheless, in view of the reform of the RMB exchange rate regime, the Mainland has adjusted its cross-border RMB policies. Some of the measures limit the outflow of RMB capitals, and this has caused a drop in corporate treasury services and Hong Kong’s off-shore RMB business.
In fact, following the International Monetary Fund’s inclusion of RMB in its Special Drawing Rights currency basket in October last year, RMB will change in function, evolving from an international payment currency and a currency for foreign exchange trading and settlement to an international reserve currency. It is estimated that the proportion of RMB assets in global official foreign currency reserves will increase from 1.8% last year to 4% or 5% in the coming three years, amounting to US$330 billion. The Mainland will continue to promote the opening up of capital accounts and the internationalization of RMB, and all these will provide opportunities and room for development for Hong Kong’s financial industry. Therefore, I hope the Government will take active steps to promote the work in this area. Regardless of which organization is to take up the task―FSDC as discussed in the Policy Address or the Hong Kong Trade Development Council―efforts must be made to promote the cooperation of all sides, so as to turn Hong Kong into an RMB trading centre for central banks and sovereign funds all over the world in their business of RMB reserves and assets management and RMB bond trading.
The third opportunity is mutual market access for Hong Kong and Mainland financial products. The proportion of foreign investors in China’s local bond market is obviously very low when compared with the western world. It can be said that there is still room for improvement. As to the mutual market access for Mainland and Hong Kong financial products, after the implementation of the “Shanghai-Hong Kong Stock Connect” and “Shenzhen-Hong Kong Stock Connect”, the Government should speed up mutual market access for more financial products. Few days ago, Secretary Prof K C CHAN mentioned on an occasion that “ETF Connect” for exchange traded funds will be put in place very soon. I think mutual market access for other products, such as for bonds and funds should be implemented as soon as possible.
As to FSDC’s proposal on the Mainland-Hong Kong Bond Market Connect, it allows mutual market access for both over-the-counter bond market and exchange-traded bond market. But the latter is only limited to retail investors, which is insufficient to meet the needs of institutional investors. The Government should fulfil its role as a connector by providing clearing agency services, and so on, for off-shore investors.
The fourth opportunity arises from the intensification of the mutual recognition of funds (“MRF”), which can enhance the position of Hong Kong as an asset management centre.
MRF between Hong Kong and Mainland was implemented about one year ago. The total sales of “Northbound Funds” (qualified public funds domiciled in Hong Kong recognized and offered in Mainland China) in the first 11 months of last year already exceeded RMB 10 billion, showing that Mainland investors have a keen demand for portfolio allocation outside China.
Under the MRF arrangement between the Mainland and Hong Kong, only qualified public funds registered in Hong Kong can apply for recognition in Mainland China. The arrangement has encouraged fund managers to make Hong Kong the fund domicile and to attract global assets management companies to develop business in Hong Kong.
In December 2016, Hong Kong and the Switzerland concluded a MRF scheme which allowed Hong Kong public funds to be introduced to Swiss investors. The recognition by the Swiss Financial Market Supervisory Authority is a testament to Hong Kong’s stringent and effective fund management regime. Besides, of all Asian funds, only Hong Kong funds are recognized by a European market.
As far as I know, there are three conceptions in the Asia-Pacific Region now, and of them, the “Asia Region Funds Passport” (is a region-wide initiative for MRF) may be implemented. Now that Hong Kong possesses the edge of having connection with the Mainland and Switzerland, I hope the Government can strive for a bigger leadership role for Hong Kong in the Asia Region Funds Passport initiative.
The fifth opportunity is the opportunity of seeking to play a more important role in the Asian Infrastructure Investment Bank (“AIIB”).
As stated in the Policy Address, Hong Kong will become a member of AIIB. Nevertheless, our goal should not be limited to the setting up of an AIIB office in Hong Kong. It should not be limited, too, to the establishment of the Treasury Management Centre of AIIB as advocated by Secretary Prof K C CHAN earlier. Once AIIB is founded, it will focus on the infrastructure investment of developing countries, such as power and water supply facilities, railways, telecommunications, and so on. AIIB members who extend loans to developing countries for infrastructure construction will also grasp the opportunity to let their own enterprises and experts participate in the construction projects of these countries. Through government loans and corporation contractorship, AIIB members will participate extensively. As many business opportunities will arise from participation in developing country projects, the Government should actively joins hands with local investors to strive for participation in AIIB projects, including the provision of loans and various projects of development and construction.
The third thing I wish to discuss is the continuous improvement of Hong Kong’s financial infrastructure.
The first thing about the financial infrastructure is to strike a balance between the compliance with international regulatory standards and market development.
With the continuous tightening of international standards on anti-money laundering and counter-terrorist financing, banks must conduct very stringent due diligence checks on their customers. As a result, local and foreign enterprises, new companies and even individuals have been complaining about the difficulty in opening a bank account. This has undermined Hong Kong’s reputation of facilitating business operation.
I consider that we should create a regulatory environment which is conducive to the stable development of the financial industry. We should make sustained efforts to streamline regulatory measures, so as to strike a balance between business flexibility and security concerns.
The Government should clarify the spirit of the relevant legislation through different channels. I hope that besides stepping up anti-money laundering education, the Government can expeditiously complete the study on setting up a centralized database of customers, so that banks can supply information in standardized formats to a professional intermediary platform and assist in collecting information about bank account-openers. On the part of customers, they can authorize banks to access their information in the database. This will save customers the trouble of having to provide the same information repeatedly, thus making the bank account-opening process much smoother. In this way, it will be possible to meet international regulatory standards on the one hand, and to benefit the financial industry on the other.
The second point about the financial infrastructure is the promotion of exponential Fintech progress.
As the saying goes, a boat moving upstream must keep forging ahead, or it will be driven back. The Global Financial Centres Index 19 rates Hong Kong as one the four global financial centres, among the ranks of London, New York and Singapore. Both the Heritage Foundation of the United States, with its headquarters in Washington, and the Fraser Institute, a Canadian think tank, have rated Hong Kong the freest economy in the world for 22 consecutive years.
However, the competition between Hong Kong and Singapore has become rather ferocious in recent years, particularly in Fintech development. Singapore has been providing all sorts of complementary measures in taxation in order to facilitate business operation and induce multinational companies to set up business headquarters in Singapore. In November last year, the world’s Largest Fintech Hub, “LATTICE80” set up a centre in Singapore, and R3 (a global blockchain technology consortium) has also set up its operation at “LATTICE80”.
In the past, Hong Kong was the hare in race between “the hare and the tortoise”. Now, it has become the tortoise moving at a snail’s pace. Although the race is not yet over and we do not know the result, we should have a sense of crisis in order to maintain the competitive edge of Hong Kong. I hope the Government will not feel complacent with the recent small achievement in Fintech so far, as the levels of our Fintech in certain areas are still quite low. We must rise and catch up in order to join the bandwagon of rapid Fintech development.
In order to further promote Fintech development in Hong Kong, the Government should adopt an incremental approach of gradually relaxing the regulatory policy. Just now, many colleagues have mentioned Hong Kong Monetary Authority’s Fintech Supervisory Sandbox, I think it is a good start. This initiative can encourage and induce local banks to speed up their innovations, so it should speeded up. Another thing is to encourage cross-sector cooperation. In recent years, the trend of cooperation between venture capital enterprises (“VC enterprises”) and financial institutions has gradually taken shape. VC enterprises have innovations, but if there is no setting for them to apply their innovation, they will only be confined to technological research. On the other hand, the application of innovative technology is not the strength of financial institutions. For that reason, a win-win situation will be achieved if the two sectors are effectively combined and innovative ideas are applied to the products or services in the financial market
The third thing about the financial infrastructure is that the Government should make strong efforts to attract financial professionals.
Talents are of utmost importance in sustaining the development of our financial industry. Here, I must mention the President of the United States, Donald TRUMP. Several days ago, he issued a travel ban on citizens from seven Islamic countries. The ban will directly impact the Silicon Valley, the cradle of technology in San Francisco. It is because according to research data, three quarters of all computer and mathematic professionals in the Silicon Valley aged under 45 are not born in the United States.
Likewise, the development of Hong Kong’s financial industry needs the help of professionals from other places. For that reason, the Government should formulate more packages for attracting talents and professionals, so as to create a larger pool of talents for sustaining the development of Hong Kong’s financial industry. For example, the Government may provide suitable support for Fintech professionals, such as taxation concession and discounted office space in order to encourage more capable people to join the innovative financial industry.
The fourth thing about the financial infrastructure is to complete the tax concession arrangement in a timely manner, so as to make it a driving force to promote the development of a new financial industry
The present fiscal reserves of Hong Kong are over $800 billion. Our financial officials have of course explained over and over again that due to the changes in Hong Kong’s demographic structure, the Government’s financial burden is and will be very heavy, and this will ultimately use up the reserves. But I would think that before the using up of our reserves, there should still be some leeway, so we should use the reserves for investments in Hong Kong’s future as early as possible, so as to create a much more robust economic foundation. Over the years, the industry has been urging the Government to follow Singapore’s practice of offering taxation concession to assist the development of a new financial industry and to create new sources of revenue.
The Government has amended the Hong Kong Inland Revenue Ordinance, which now provides for a concessionary rate of 8.25% on qualifying profits of a qualifying corporate treasury centre (“CTC”). The move has succeeded in gradually inducing certain enterprises to establish CTCs in Hong Kong. Nevertheless, the Government needs to adopt an even more flexible and ambitious tax regime, so as to introduce to Hong Kong certain industries which it has potentials to do well, but which it has not yet been able to develop. For example, the Government now intends to amend the relevant legislation to reduce the profit tax for aircraft leasing companies, with the aim of snatching this type of lucrative business from leading market players such as Ireland and Singapore. I hope the Government will relax all the restrictions in this regard and implement the relevant measures as soon as possible. Besides, the candies handed out should be sweet enough to induce companies to do business in Hong Kong.
The fourth point I wish to discuss is the provision of assistance to the development of Hong Kong’s small and medium enterprises (“SMEs”).
It seems that this issue does not have any direct relationship with the financial industry. But the fact is that SMEs account for more than 98% of local businesses and provide 1.3 million job opportunities, making up 46% of the total workforce of Hong Kong. SMEs are the major source of Hong Kong business activities. They are the basic clients of the banking industry and the pillars and foundations of Hong Kong’s financial transactions.
Unfortunately, this time around, the Policy Address fails to mention how SMEs should be helped. Ms Starry LEE has rightly mentioned in her speech that the Government should provide SMEs with more supportive measures. I have all along been urging the Government through various channels to improve the financing plans for SMEs. In the meantime, some programmes set up by the Government to support SMEs will soon come to an end, but even now, we cannot see any new development direction. The Government should further study the enhancement of various financing plans for SMEs, so as to provide more flexibility to increase the participation of SMEs and banks.
President, in order to share the fruit of Hong Kong’s economic development with the public, the current-term Government has proposed a number of policies to narrow the wealth gap. I believe very few people will oppose that. Nevertheless, such policies should be complemented by the allocation of large amount of resources. Given the uncertain prospects of the global economy, and the fact that the economy of many countries are recovering only very slowly, we should keep on identifying new points of economic growth for Hong Kong in order to support and complement our economic growth. Hong Kong’s financial industry is one of the traditional industries with competitive edge. Our sound infrastructure facilities, legal system, tax regime,bilingual proficiency and talents are all our advantages. If we can do some deep ploughing and careful cultivation, the economic benefits so generated should be able to support the sustainable development of Hong Kong. It is only by so doing that Hong Kong’s status as an international financial centre can be enhanced and elevated.
I so submit. Thank you, President.