On The Record
HK Asia-Pacific super-connector
(November 09, 2014)
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Chief Executive CY Leung
The global economy has reached a critical moment. Christine Lagarde, Managing Director of the IMF (International Monetary Fund), last month described it as moving either into a "new mediocre", with the global economy stuck for an extended period in a "mediocre" level of growth, or arriving at a "new momentum", one built on a "bolder" mix of policies, and these policies are important for the government.Clearly, the recovery of advanced economies from the game-changing 2008 financial crisis has been slow, fragile and uneven. Uncertainties linger over the US Federal Reserve's timing and pace of its exit from quantitative easing. In the Eurozone, it will take time to determine whether the European Central Bank's latest monetary easing will counter the risk of deflation, given weak economic momentum.
Economic recovery
Recent data show that the US economy has been performing better. Indeed, it may be reaching the point where interest rates may start to rise. We are all aware of the potential shocks that could bring, particularly to open and emerging market economies, Asia-Pacific regions. These, of course, are more vulnerable to swings in fund flows and substantial adjustments in asset prices.
Asia, which accounts for around one third of global GDP - and about 60% of global growth since 2008 - remains slightly more dynamic. Growth momentum, however, is still being dragged by the modest performance of external trade given the lacklustre global economic recovery. Asia has ample supply of labour and an expanding middle class consumer market, with immense growth potential. That said, many of our neighbours are facing a variety of development issues: economic volatility, inflation, capital flight and currency depreciation, among others.
The Hong Kong economy. Hong Kong, one of the world's largest trading economies, is not immune to macro-risks. We expect modest growth this year, likely in the range of 2 per cent to 3 per cent. In the first quarter of the year, our economy rose 2.6%, year-on-year. That pace, however, slowed slightly, to 1.8%, in the second quarter, due to the growth slowdown of domestic demand and services exports.
Our exports of goods improved moderately in recent months. The flexibility of our labour market also helped to keep the unemployment rate at just 3.3%. Nevertheless, the near-term outlook for our economy still depends much on how the global economy will evolve.
A positive sign is the steady growth of the Mainland China economy. That's reflected in the pick-up in export growth and continued notable growth in domestic demand. Further opening-up and economic reforms will help unleash growth, providing vigour to the regional economy.
Hong Kong's role in Asia
While the world economy continues to search for a path beyond mediocre growth, Hong Kong - the world's eighth-largest trading economy - stands ready to play its role as an APEC member. Our economic success over the years owes much to our resolute commitment to openness, transparency and free-market values.
Hong Kong is also one of the world's major financial centres. That's thanks largely to our combined advantages of "one country and two systems", our longstanding business connections and our professional expertise. Our Stock Exchange, the second-largest in Asia, sixth-largest in the world, both in terms of market capitalisation, has long attracted Initial Public Offerings. Last year, we ranked second globally in terms of funds raised. Overseas investors account for 46% of trading on our Stock Exchange. We are the eighth-largest banking centre, with 70 of the world's 100 top banks operating in Hong Kong. Our asset management industry tops the league table in Asia, with more than 2 trillion US dollars under management from Hong Kong at the end of last year. That's up 27% over 2012 totals. And 14 of the top 20 global insurers conduct their business in our city.
Our financial services may be strong, but we are working to improve them, to make them even more attractive to international investors. Among other things, we are introducing an open-ended fund company regime for public and private funds. We are also setting up an independent insurance regulator.
Door to China
More than the region's international financial centre, Hong Kong is also the leading provider of financial services to businesses in the Chinese market. Indeed, Hong Kong has a unique role to play in contributing to our nation's financial reforms, building the necessary financial infrastructure against the background of the Mainland's fast-changing financial landscape.
Our offshore Renminbi business flourishes. Last year, banks in Hong Kong handled trade settlement between Mainland China and other economies to the tune of RMB 3.8 trillion. That's 10 times more than just three years ago. The outstanding amount of dim-sum bonds stood at some RMB 370 billion at the end of September, a 21% increase over the end of 2013. And Hong Kong hosts the largest pool of Renminbi liquidity outside the Mainland and handles more than 70% of global Renminbi payments.
In short, Hong Kong assumed a critical role in the internationalisation of the Renminbi - from the promotion of personal banking services to trade settlement and financing, and the marketing of innovative investment products. There is, of course, much still to be done. And we look forward to remaining at the heart of it - strengthening our market infrastructure and financial platforms to meet evolving market needs.
Over the past several decades, we've seen a proliferation of regional forums, from APEC and the Pacific Economic Co-operation Council to the Pacific Islands Forum and the Pacific Alliance. For the most part, these forums, notably APEC, promote free and open trade and investment across borders as their primary goal. I think we can all agree that they have helped accelerate regional economic integration.
APEC's work
Given APEC's 25th anniversary, I believe this is an opportune time to review APEC's achievements and how they have benefited member economies.
APEC's work on trade and investment liberalisation has led to reduced trade barriers across the region. It has also enabled more efficient supply chains and greater ease in doing business.
The numbers are clear on this. The average tariff in the APEC region fell from 17% in 1989 to 5.7% in 2012. Trade transaction costs dropped 5 per cent from 2002 to 2006, and another 5% by 2010. Between 2009 and 2012, the ease of doing business in the Asia-Pacific region improved by 11.5%. Between 2009 and 2011, supply chain efficiency soared, with trade times reduced by nearly 7% and uncertainty by 4%.
The APEC Business Travel Card provides substantial time and cost savings to business people and helps regional travel, allowing visa-free travel and express-lane transit at airports in participating economies.
The combined efforts of these measures have enabled APEC to enjoy robust growth, outpacing the rest of the world. Indeed, APEC's average annual real GDP growth of about 3.3% since 1989 compares favourably to the 2.3% growth in non-APEC economies. APEC's share of global GDP increased from 51% in 1989 to 57% in 2012.
APEC has carried out practical cooperation in many other areas: structural reform; standards and conformance; women and the economy; health; education; food security; energy security; the green economy; SMEs; information and communications technology; emergency preparedness; anti-corruption, and more.
Hong Kong, I'm pleased to note, has participated in, and benefited from, APEC policy dialogue, capacity building and experience sharing.
Hong Kong maintains an open trade and investment policy. Our unique location on the southern coast of China, coupled with our world-class infrastructure, international networking, financial expertise and related professional services support, has made us a great connector in the region on logistics, commercial and trade fronts.
We are willing and eager to exchange experience and explore collaborative opportunities with APEC economies, and other forums, to strengthen the region's overall competitiveness.
We face the critical issue of how to move the global economy beyond its current mediocre growth. Working together, I'm confident we will find the essential momentum to move us forward, to create economic growth that will strengthen APEC and, in doing so, reward us all.
Chief Executive CY Leung gave this speech at the Asia-Pacific Economic Co-operation CEO Summit in Beijing.
