January 28, 2012

Chief Executive Donald Tsang

Hong Kong recently retained its position as the world's freest economy. Earlier this month, the US-based Heritage Foundation named Hong Kong as number one for economic freedom for the 18th year in a row. I know this will resonate with the business community here in Zurich because Switzerland was ranked as the freest economy in Europe.
 
This recognition highlights Hong Kong's competitive edge globally, but especially in Asia. We have free flows of capital, information, talent and ideas. We maintain a low and simple tax system. Salaries tax is capped at 15% and businesses pay no more than 16.5% profits tax. We have no inheritance tax, no VAT, no GST and no capital gains tax. Our clean and efficient government, unfettered media and zero tolerance of corruption help to ensure that all companies compete on a level playing field. This includes some 190 Swiss companies operating in our city.
 
Reunification in 1997 not only brought a transfer of sovereignty, but also significant legal, political and social change to our community – which I have to say, was change for the better.
 
We have weathered not one but two major financial crises – the Asian financial crisis in 1998 and the more recent global financial tsunami; our economy was affected by the bursting of the "dot.com" bubble just over a decade ago; and we have endured three major health scares in Avian influenza, SARS and swine flu.
 
Any one of these challenges would have tested the mettle of the most resilient economy and society. But the fact that we have endured – and continued to prosper – after so many trials and tribulations speaks volumes about the type of people you will find in Hong Kong and the type of society in which we live.
 
Given all the economic and social challenges of the past 15 years, which are rather extraordinary and looking back at one and a half centuries, I cannot recall any single period of 15 years where there are so many major trials and tribulations. And we did that. We overcame that and we dealt with that. We continue to prosper. But all along we remained firmly committed to promoting open markets, free trade and business-friendly policies – and we welcome with open arms investors and business people from around the globe. We have thrived as an open economy and there is no reason to fiddle with a winning formula, even if we hit a rough patch now and then.
 
Under One Country, Two Systems, Hong Kong has maintained its own currency. The Hong Kong Dollar is fully convertible and has been linked to the US Dollar since 1983. This currency link continues to be a source of stability for our monetary and fiscal systems.
 
We have maintained our own common law legal system, which is underpinned by an independent judiciary. And, our Independent Commission Against Corruption has an international reputation for rooting out corruption.
 
Also under One Country, Two Systems, Hong Kong remains an individual member of international bodies such as the World Trade Organisation, World Customs Organisation, APEC and the Asian Development Bank. We look forward to taking part in the London Olympics this summer in our own right under the name of 'Hong Kong, China'.
 
As a city of China but outside the Mainland system, we enjoy many unique benefits – some of which I have just mentioned.
 
Access to the Mainland market
Another is the fact that because we remain a separate customs territory, we have been able to negotiate a free trade pact with the Mainland of China, what we call the Closer Economic Partnership Arrangement, or CEPA.
 
Under CEPA, all Hong Kong products that meet some straightforward rules of origin can enter the Mainland market tariff-free. For example, Hong Kong's watch and clock industry has been able to take advantage of CEPA to tap the vast Mainland market. And because CEPA rules are nationality-neutral, foreign companies including Swiss firms can enjoy the full benefits of CEPA. I am not just referring to Swiss watch-makers but companies in a wide variety of industries.
 
More importantly, CEPA provides preferential and enhanced access to the Mainland market in the services sector. CEPA was recently expanded to cover 47 services areas, so there are plenty of opportunities for Swiss companies to take advantage of this arrangement.
 
Like Zurich, Hong Kong is a major international financial centre. We ranked number one in the World Economic Forum's Financial Development Report 2011. Hong Kong leapfrogged the US and Britain to become the first Asian market to achieve this top ranking. Not only does this reflect the growing prominence of Asia in global finance, it also highlights Hong Kong's competitiveness as a global financial centre.
 
The WEF report specifically noted the development of our non-banking services including insurance, and Initial Public Offerings, or IPOs.
 
We have led the world in funds raised through IPOs for the past three years. Last year, total IPO funds raised in Hong Kong reached US$36 billion.
 
We were pleased to welcome the first listing of a Swiss-based company, the commodities giant Glencore, which completed a successful dual listing in Hong Kong and London last May. The company raised US$10.3 billion.
 
A favourable combination of attractive valuations, world-class financial services and access to wealthy Asian investors are behind the surge in company listings in Hong Kong.
 
Hong Kong's position
We are actively promoting Hong Kong's position as China's global financial centre. This includes fine-tuning our role as a centre for offshore business using the Mainland currency, the renminbi. Last year, offshore renminbi banking, trade settlement and bond issuance performed strongly in Hong Kong. In fact, Hong Kong is a crucial element of China's plans to internationalise the use of the renminbi – and again it's all because of our unique strengths and advantages and because we have decades of experience dealing with international markets, as well as the Mainland market.
 
A few years ago, Hong Kong handled very little renminbi trade and indeed the entire trade portfolio of our nation, China, was conducted and denominated in US dollars. But a few years ago, major trading partners of China have begun to test out the use of renminbi as a medium for trade and Hong Kong has been helping them. From almost nothing, last year in 2011, Hong Kong handled 1.9 trillion renminbi in terms of trade settlement and clearances. This represented more than 90% of the total trade conducted in renminbi by the whole nation. In other words, at the moment, there is a huge trade portfolio of China, about 8-9% of it is done in renminbi, and no longer in US dollars or euro. And that 8 or 9% almost entirely was cleared and settled in Hong Kong.
 
Hong Kong has become quite clearly the offshore money changer for the nation as a whole. And this is very important, particularly for foreign firms who want to operate extensively in the Mainland of China and who are running short of renminbi. They can of course raise it in the Mainland itself, but sometimes it's not very easy. And they tend to use the Hong Kong market, so in Hong Kong, people tend to raise renminbi. They use bonds and they use the banking services as well for that purpose. Many firms have done that, particularly American firms and foreign firms. And I'm sure there will be opportunities for Swiss firms, particularly global operators who have extensive operations in China, your pharmaceutical firms and so on who want to raise renminbi.
 
Swiss-Hong Kong relations
Allow me now to give you a quick overview of the current economic situation and the prospects for Swiss-Hong Kong relations in the year ahead.
 
As a highly open and internationally connected city, Hong Kong's economy will inevitably be affected by events around the world. However, Hong Kong's location in Asia and our deepening links with the dynamic Mainland Chinese economy will continue to support Hong Kong’s growth trend.
 
The Asian Development Bank has forecast healthy GDP growth for the Emerging East Asia region of 7.2 % in 2012. This forecast covers the Association of South East Asian Nations as well as Hong Kong, Mainland China, South Korea and Taiwan. We expect Hong Kong's GDP growth for last year to come in at around 5%.
 
The financial crises of the past 15 years taught us that we need to diversify our economic base, which in Hong Kong has traditionally been supported by financial services, business and professional services, transport and logistics and tourism. We will continue to promote and develop these pillar industries.
 
Six industries
At the same time, we have been exploring ways to develop industries with good potential and where Hong Kong enjoys clear advantages. We have identified six industries for special attention, namely: medical services, testing and certification, education services, innovation and technology, creative and cultural industries and "green" industries.
 
The government is taking steps to help these sectors grow and prosper and I encourage Swiss entrepreneurs and businesses to look for opportunities in these sectors.
 
Although Hong Kong and Switzerland are relatively small places, we are each other's very significant trading partners. We share the same free-market philosophies and values of fair play. We each have important roles to play in the development of our respective regions.
 
By forging closer links between Hong Kong and Switzerland, we can combine our strengths and empower our economies in the face of uncertain economic times ahead.
 
Chief Executive Donald Tsang gave this address at the luncheon hosted by the Hong Kong Economic & Trade Office (Berlin), the Hong Kong Trade Development Council and the Swiss-Hong Kong Business Association, in Zurich on January 27.