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HK to contribute to AIIB’s work

November 01, 2017

Financial Secretary Paul Chan

My thanks to the organisers – the Financial Times and the Asian Infrastructure Investment Bank (AIIB) – for giving me this welcome opportunity to speak to you today. I'm happy to follow the summit's smart theme, "Mobilising infrastructure capital to connect and transform Asia", with a considered nod to Hong Kong and its value in mobilising capital.

 

I must say, I like the use of that active verb "mobilising", with its suggestion of action and momentum. It speaks of urgency. And when it comes to capital and infrastructure needs today, ladies and gentlemen, that urgency is clear and compelling.

 

Asia today is the growth engine of the global economy, accounting for more than 60% of the world's growth. For Asia to maintain that momentum, however, investment in infrastructure is essential. Indeed, much has been said – and I'm sure that we shall hear more today – about the infrastructure financing gap in Asia.

 

The Asian Development Bank has estimated that developing Asia needs US$1.7 trillion annually in infrastructure investment in order to maintain growth, fight climate change and address poverty, from 2016 to 2030.

 

Given those vast needs, public-sector assistance is not nearly enough. We need a lot of private-sector investment and financing as well, if we are to bridge that funding gap.

 

In that regard, the AIIB will play a central role. Indeed, it's already doing so, with approved projects in hand valued at more than US$3 billion.

 

I am pleased to report that Hong Kong became a member of the AIIB in June. As an international financial centre, we can, and will, contribute to the work of the AIIB in many ways.

 

Three priorities guide the AIIB in its approach to lending. Mobilising private capital is one of them.

 

As the world's leading financial centre in Asia, Hong Kong is blessed with the experience, expertise, international connections and deep liquidity to serve as the region's fundraising and financial management hub for infrastructure projects.

 

Hong Kong's stock market offers some of the best liquidity in the world. For the past two years, we have been ranked number one for funds raised through initial public offerings. Last year's total came in at more than US$25 billion. Indeed, Hong Kong had been ranked among the top five, globally, in IPOs over the past 15 years.

 

Hong Kong is also the largest offshore renminbi business centre in the world. And through our Stock Connect arrangements with Shanghai and Shenzhen, as well as the mutual recognition of funds arrangement, Hong Kong also has unique access to the investors and funds in the Mainland of China.

 

In April this year, our Securities & Futures Commission set out eligibility criteria for infrastructure project companies to list on our main board. These criteria provide a clear pathway for these project companies looking to Hong Kong for equity and debt financing.

 

But while there are substantial funding needs for infrastructure projects, and strong investment interest in infrastructure, there are tremendous challenges in channelling capital to infrastructure projects in developing countries, especially greenfield ones – without secure revenue streams.

 

At the country level, political, legal and regulatory risks can undermine the feasibility of a project.

 

At the project level, construction risks, cost overruns, currency risk and refinancing risk, among other concerns, can negatively impact a project’s profitability.

 

Funding of cross-border projects or regional projects become even more challenging as the above risk factors magnify.

 

What's needed are concerted efforts – ways to "de-risk" these projects – to make them more investment-worthy, more bankable.

 

To bridge the gap and to catalyse more private sector investment in infrastructure projects, the Hong Kong Monetary Authority set up an Infrastructure Financing Facilitation Office last year. Its mission is to provide a facilitative platform for key stakeholders in the area to work together for better collaboration.

 

In the past year, the office has built a network of close to 80 partners. They range from development banks and financiers to project developers and operators, institutional investors and professional service firms. In short, it’s uniquely positioned to offer East-West and public-and-private sector perspectives for realising infrastructure financing in Asia's emerging markets.

 

As another demonstration of our commitment to help funding infrastructure projects, the HKMA signed an agreement with the IFC - the International Finance Corporation - a member of the World Bank Group, in September, committing US$1 billion to the Managed co-lending Portfolio Programme, which is to fund infrastructure projects in different regions.

 

In fact, apart from our financial services prowess, Hong Kong can also contribute, through our deep pool of multi-talented and multi-cultural professionals across different disciplines, in law, accounting, engineering, architecture, management and consulting.

 

Allow me to take the legal sector as an example. Thanks to the unique "one country, two systems" arrangement, Hong Kong remains a common law jurisdiction. The international community is familiar with Hong Kong's common law system, underpinned by an independent judiciary. Our legal professionals' strengths in conducting due diligence, enforcing contract terms and resolving dispute are also well acknowledged. It helps, too, that the sector can balance local, Mainland and global demands with consummate East-West experience and expertise. Hong Kong is perfectly positioned to serve as the hub for legal matters and for resolving business disputes. Arbitration awards made in Hong Kong are enforceable in over 150 jurisdictions, including the Mainland of China.

 

Ladies and gentlemen, now is only the beginning. Hong Kong will continue to create an efficient and a sustainable infrastructure-investment flow, continue to fill the region’s infrastructure gap. On that, I am confident.

 

We will also continue to support the work of the Asian Infrastructure Investment Bank, contributing to the sustainable economic and social development throughout the region.

 

Financial Secretary Paul Chan gave these remarks at the Financial Times-AIIB Summit on November 1.



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