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HK creates opportunity

December 09, 2014

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Financial Secretary John Tsang

Hong Kong's financial services industry has enjoyed robust growth in recent years. We rank first in the World Economic Forum's Financial Development Index, and come third in the City of London's Global Financial Centres Index. We maintain a highly open and internationalised financial market, and our regulatory regime is aligned with major global markets. We offer a wide range of financial services.

 

Islamic finance

Islamic finance is among the fastest-rising segments in the international financial system, with a growing presence in both Muslim and non-Muslim communities. We are actively tapping into this unbounded opportunity.

 

In September this year, the Hong Kong Government issued its first sukuk, which also marked the first US-dollar denominated sukuk originated by a triple A-rated government in the global Islamic financial market. The US$1 billion issuance was greeted with strong demand, attracting orders in excess of US$4.7 billion. The sukuk was priced at 2.005%, which is only 23 basis points over five-year US Treasuries.

 

The deal attracted interest from a diverse group of conventional and Islamic investors. The sukuk was allocated to over 120 global institutional investors, with 36% distributed to investors in the Middle East. Our inaugural sukuk was awarded this year's Best Islamic Financing Deal by FinanceAsia. This Thursday, I shall also attend the Bell-Ringing Ceremony for the listing of the sukuk in NASDAQ Dubai, witnessing a significant milestone of our bond market.

 

To prepare for this issuance, we have amended our laws in the past couple of years to provide a level playing field between sukuk and conventional bonds in terms of tax treatment, covering most common types of sukuk, including Ijarah (lease arrangement), Musharakah and Mudarabah (profit-sharing arrangements), Murabahah (purchase and sale arrangements) and Wakalah (agency arrangements).

 

Through the inaugural sukuk offering, we demonstrated that the legal, regulatory and taxation framework in Hong Kong can easily accommodate sukuk issuance. Many of our financial and legal professionals are well versed in Shariah-compliant regimes. And they can handle sukuk-related disputes and legal proceedings.

 

We welcome more sukuk to be marketed, listed and executed in Hong Kong. And we invite more Islamic financial institutions to establish a presence in Hong Kong.

 

Asset management

Hong Kong is a top asset management centre in Asia, thanks partially to the robust economic growth in Asia, particularly in the Mainland of China. This has generated huge savings and wealth accumulation in the region, generating unprecedented demands on Hong Kong's asset management industry. Those assets, by the way, amounted to more than US$2 trillion at end-2013, an increase of 27% over 2012 totals.

 

Those are exciting numbers in terms of assets under management for the financial services industry worldwide. In order to sharpen our competitive edge even further, we have recently introduced a number of attractive business-friendly policy initiatives, including:

 

(1) amending the trust law so that settlors are able to establish perpetual trusts in Hong Kong. That's not possible in other major common law jurisdictions;

(2) proposing a new, open-ended company fund structure to expand the range of investment vehicles to be established in Hong Kong;

(3) extending the profits tax exemption for offshore funds to private equity funds; and

(4) extending the stamp duty concession to cover ETFs, exchange-traded funds.

 

We also offer a unique channel to invest in Shanghai-listed stock through the Shanghai-Hong Kong Stock Connect programme, which was launched just three weeks ago. Investors from Hong Kong, and around the world, can now trade 570 Shanghai-listed shares, directly, for the first time from the Hong Kong Stock Exchange. And we welcome UAE participation.

 

We are working on another proposal which is about mutual recognition of funds between Hong Kong and Mainland China. General agreement on the basic parameters has already been reached between the respective regulators. Pending formal approval by the Central Government, the arrangement will expand the investment options for offshore Renminbi and provide a wider choice of products to investors in both markets.

 

Another exciting asset class for investment, if you like, is our rapidly growing start-up clusters. In March 2013, Forbes magazine ranked Hong Kong the top tech hub to watch, ahead of Washington, Tel Aviv and London. The ranking did not obtain much approval from Forbes' readers at that time. But after only one year, the developments have begun to reinforce Forbes' prediction.

 

We now have over 1,000 start-ups operating in Hong Kong, up 30% from 2013. Over half of these are in the areas of information, communications and technology; e-commerce; and financial technology. Many are established by overseas entrepreneurs attracted to Hong Kong by our business environment and, perhaps more importantly, experienced professional mentors, extensive business networks as well as eager investors. Even Accenture has made Hong Kong their home.

 

Renminbi business

Over this past decade, Hong Kong has emerged as the world's largest offshore Renminbi business hub. From personal banking services to trade settlement and financing, and the marketing of innovative investment products, Hong Kong plays a critical role in the Renminbi's internationalisation.

 

At the end of September, our banks held 1.1 trillion yuan in deposits and certificates of deposit. In the first nine months of this year, Renminbi trade settlement handled by banks in Hong Kong totalled 4.5 trillion yuan. This accounts for about 80 per cent of the total offshore business.

 

From 2007 to October of this year, more than 460 Renminbi bonds had been issued in Hong Kong, with an outstanding amount exceeding 360 billion yuan. The average daily turnover of Hong Kong's RMB Real Time Gross Settlement system amounted to 800 billion yuan.

 

The increasing use of the Renminbi in international trade and finance will help reduce foreign exchange risks in cross-boundary trade and investment between Mainland China and the rest of the world. It will also offer new opportunities for corporations and financial institutions of the UAE.

 

Hong Kong is all about business. About creating opportunities, about building connections and investing for a rewarding future.

 

Financial Secretary John Tsang gave these remarks at a networking luncheon co-hosted by the United Arab Emirates Ministry of Economy and the Abu Dhabi Chamber of Commerce & Industry in Abu Dhabi.



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