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HK has vital Belt-Road role

November 03, 2017

Financial Secretary Paul Chan

You are here because you believe that the Belt & Road offers what the global economy needs in this 21st century - a way forward we can all embrace. A future built on co-operation, mutual benefits and friendship, East and West together. No doubt, the Belt & Road would become the driving force for the global economy - for growth, progress and prosperity throughout this 21st century.

 

Infrastructural connectivity

Infrastructural connectivity is at the heart of the Belt & Road. According to the Asian Development Bank, as much as US$1.7 trillion a year will need to be invested in infrastructure in Asia until 2030, if this continent is to maintain its growth momentum, while reducing poverty and combating climate change.

 

It is apparent that the public sector alone cannot satisfy this vast funding need, and we must mobilise private-sector investment and financing to bridge the gap.

 

As the world's leading financial centre in Asia, Hong Kong is determined to be the Belt & Road's financial wheel down the road, bringing our experience, expertise, international connections and deep liquidity.

 

Deep liquidity

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 (IPOs). Last year's total came in at about US$25 billion. Hong Kong has been ranked among the top five, globally, in IPOs over the past 15 years.

 

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

 

Apart from the traditional IPOs, loan syndication and bonds, we also have successfully issued three sukuk over the past three years, demonstrating our ability in launching top-grade, sophisticated Islamic financial products. Given Eurasia's substantial Muslim population, I believe Islamic financial services have a very promising future.

 

But while there is ample liquidity in the market with strong interest in investing in infrastructure, there are tremendous challenges in channelling private capital to infrastructure projects in developing countries, especially greenfield ones – those without secure revenue streams.

 

First, at the country level, political, legal and regulatory risks can undermine the feasibility of a project. Then, at the project level, construction risks, cost overruns and refinancing risks, among others, can negatively impact a project's profitability.

 

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

 

De-risk cross-border projects

We therefore see a need for concerted efforts, a need to "de-risk" these projects, to make them more bankable and more investment-worthy.

 

To this end, the Hong Kong Monetary Authority set up an Infrastructure Financing Facilitation Office, in brief we call it IFFO, last year. The objective is to provide a facilitative platform to enable stakeholders to come together to exchange market information and to compare investment parameters, so that they can better collaborate on infrastructure investments.

 

To date, close to 80 key stakeholders, including multilateral banks, financiers, pension funds, insurance companies, commercial banks, infrastructure developers and operators, as well as professional services firms, have joined us as partners.

 

In addition, in September this year, the Hong Kong Monetary Authority signed an agreement with the International Finance Corporation, a member of the World Bank Group, committing up to US$1 billion to the Managed Co-Lending Portfolio Program with the IFC for investment in infrastructure projects globally, not just in Asia.

 

And there is a great deal more that we in Hong Kong can bring to the table. Corporations expanding into countries along the Belt & Road will face a more complex operating environment, including the challenges of multiple currencies, interest rates fluctuations and regulatory regimes.

 

Many see a need to set up a corporate treasury centre to centralise their financing and liquidity, and the financial risk management activities of their subsidiaries.

 

Do it in Hong Kong, that is my recommendation. With our close proximity to the Mainland, we are its key gateway for corporate investment, in and out. We are, as well, a hub for corporate headquarters, providing smooth links with corporate treasury activities.

 

And we have now made it even easier for you, more beneficial to you. Because last year, our legislature passed a law providing tax concessions for corporate treasury centres, which will be taxed at only 8.25% of their profits, half of our already very low standard profits tax rate.

 

Offshore renminbi centre

China's currency, the renminbi, is destined to be the currency of choice for the financing of many Belt & Road projects. The International Monetary Fund's inclusion of the renminbi in its Special Drawing Rights currency basket just over a year ago sends a positive and powerful message about the renminbi's future.

 

Hong Kong is the world's largest offshore renminbi centre. We are uniquely placed to play a vital supporting role. We manage about 70% of global offshore renminbi payments and boast the world's largest renminbi offshore liquidity pool. Importers and exporters in Belt & Road countries can settle their trade in renminbi through more than 200 participating banks from all over the world in our payment system.

 

Investors in Belt & Road projects can tap our renminbi funds through bank loans or "dim sum" bond issuance. They can invest their surplus funds in a wide range of renminbi products available here in Hong Kong. Financial institutions can also hedge their renminbi currency risks through derivatives and other financial instruments actively traded in Hong Kong.

 

Hong Kong can also contribute to the work of the Belt & Road through our deep pool of multitalented and multicultural professionals across different disciplines – in law, accounting, engineering, architecture, consulting and management.

 

Our legal services sector is a prime example. Thanks to the unique "one country, two systems" arrangement, Hong Kong remains a common law jurisdiction. The international community is familiar with our common law system underpinned by an independent judiciary, as well as a deep pool of legal professionals who excel in conducting project due diligence, enforcing contract terms and resolving business disputes.

 

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.

 

The emerging markets of the Belt & Road, including the great many that distinguish Eurasia, are about to take centre stage.

 

To grasp the extraordinary opportunities we need visionary strategies and concerted co-operation among governments and businesses, institutions and communities.

 

Today's gathering is a sure step in that welcome direction.

 

Financial Secretary Paul Chan gave these remarks at the Belt & Road Innovation & Development Forum on November 3.



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