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HK's key role in One Belt, One Road future

March 27, 2015


Chief Executive CY Leung

When it comes to the original Silk Road, many of us harbour impressions centred on trade over vast periods of time and great distances. These hazy impressions are generally populated with camels and nomads plying their trade under an unforgiving desert sun.


The Silk Road initiatives that are emerging will be less reliant on camels. In this modern day Silk Road initiative, One Belt, One Road, is about creating economic co-operation through vast regions of Asia, Africa and Europe. The plan will open up a wealth of opportunities for a great number of countries and regions.


Bringing together countries and economies on such a huge scale demands infrastructure - and the capital to build it - on an equally grand scale. Hong Kong can help make it happen.


We have the capital markets to finance large-scale infrastructure projects throughout the region. Hong Kong is the world's seventh-largest stock market in market capitalisation and second in equity funds raised through initial public offerings.


Fundraising hub

China's major international financial centre, and one of the world's financial capitals, Hong Kong has the experience, the expertise and the connections to serve as One Belt, One Road's fundraising hub - the super-connector between the Mainland and the rest of the world.


Take, for example, the Asian Infrastructure Investment Bank, which is expected to be in place by the end of this year. Another example is the US$40 billion Silk Road Fund, along the lines of a long-term private equity venture, which was launched in 2014. Hong Kong's strengths in international financing and asset management can help support the new bank and the new fund's operation.


That we can do so is testament to the "One country, two systems" principle that shapes Hong Kong. That makes Hong Kong unique, allowing us to maintain our own financial system, entirely separate from that of Mainland China.


Our currency is fully convertible, while capital - from the Mainland and from all over the world - flows freely in and out of Hong Kong. And that's critical to our role as a testing ground for the Mainland's continuing financial liberalisation. It's also critical to our central place in the internationalisation of the renminbi.


Offshore renminbi hub

We are the world's offshore renminbi hub. Hong Kong can provide Mainland enterprises and international investors with renminbi services ranging from cross-border trade settlement to bond issuance. And, as trade and other economic activities along the One Belt, One Road expand, so, too, will the demand for settling trade in renminbi, if only to reduce exchange risks.


Hong Kong's highly efficient renminbi trade settlement system is well in place to respond to that demand. After all, we've been handling the lion's share of renminbi trade settlement since its beginnings in 2009. Renminbi trade settlement managed by Hong Kong banks last year came in at RMB6.3 trillion - a jump of 60% over the previous year. It is expected to grow further with the One Belt, One Road initiatives.


Our renminbi debt market has grown rapidly in recent years as well. It provides a reliable channel for enterprises looking to issue renminbi bonds to meet project funding needs. In 2014, the issuance of RMB bonds in Hong Kong amounted to about RMB200 billion, representing a year-on-year increase of 69%.


Largest renminbi liquidity pool

Hong Kong, I'm pleased to note, hosts the world's largest pool of renminbi liquidity. At the end of January, it amounted to more than RMB1.1 trillion. And that pool is steadily growing.


Hong Kong can help companies raise funds in renminbi to finance the transportation networks and other infrastructure projects that will make One Belt, One Road a ringing reality.


The scheme will also encourage more and more Mainland enterprises to go global in pursuit of One Belt, One Road's opportunities. As they do so, their asset and risk management service demands will rise accordingly.


Hong Kong's wealth and asset management business has soared in recent years. And, once the mutual recognition of funds arrangement between the Mainland and Hong Kong is in force, and it is something we are discussing with the Central Authorities, it will enrich our investment funds.


Risk management expertise

Hong Kong also boasts a wide variety of insurance services and derivative products. They offer sound reason for Mainland enterprises to manage their risks when investing in One Belt, One Road's large-scale infrastructure projects.


Hong Kong's services professionals can help beyond the provision of financial capital and expertise. Our legal professionals work with the world of business every day. They conduct due diligence, ensure contract enforcement and help resolve disputes, all under a system supported by the twin foundations of rule of law and an independent judiciary.


Unparalleled trade opportunities

Hong Kong was built on trade, and we remain today one of the world's greatest trading economies. Our geographical location, at the southern gateway to Mainland China, gives us unparalleled trade opportunities.


And, I can tell you, we've taken full advantage of these opportunities. Hong Kong businesspeople have been trailblazing in Mainland China's economic development for decades. Today, some 20% of the Mainland's international trade is handled by Hong Kong. Again, we serve as the super-connector, enabling overseas companies to enter the China market, while assisting Chinese enterprises in going global.


That longstanding expertise isn't going to go away. Indeed, I expect that Hong Kong will play an even stronger role in the years, and decades, ahead, as One Belt, One Road takes root and flourishes on three continents.


Consolidating super-connector role

In fact, we are taking steps to strengthen Hong Kong's trade and economic relationships with our neighbours in Asia, further consolidating our role as the super-connector to the Mainland.


We are negotiating a free-trade agreement with the Association of Southeast Asian Nations, and are looking to set up a new Economic & Trade Office in Asia. We have concluded Investment Promotion & Protection Agreements (IPPA) with Bahrain and Myanmar.


Later this year, we will begin negotiations on an IPPA with the United Arab Emirates, while continuing IPPA talks with Russia. These agreements enhance the confidence of companies looking to invest in Asia and Hong Kong. Similarly, they help protect Hong Kong businesspeople making investments in these regions.


We are strengthening our economic and trade ties between Hong Kong and the region's promising markets in other ways as well. The Hong Kong Trade Development Council, our official trade promotion organisation, is exploring a variety of business opportunities arising from the One Belt, One Road initiatives. They include large-scale events in ASEAN, India and the Middle East this year.


Logistics hub

Logistics goes hand-in-hand with trade. And when it comes to One Belt, One Road, I believe we are particularly well-situated along the Maritime Silk Road.


Consider, for example, maritime cargo. Hong Kong is the world's fourth-busiest container port. The average annual container throughput exceeded 23 million TEUs over the past 10 years. Hong Kong Port provides comprehensive liner shipping services, with about 350 services a week connecting to more than 500 destinations worldwide.


Thanks to Hong Kong's long maritime history, we have a strong base of ship owners and a cluster of diversified maritime services. These include ship agency and management, ship finance, ship broking and marine insurance, finance, ship registration, and maritime legal and arbitration services.


Transport hub

As the Maritime Silk Road finds its sea legs, it will create fresh demand for shipping services, as well as quality maritime services. Hong Kong will be ready.


As for air cargo, Hong Kong International Airport is the busiest air cargo airport in the world. Last year, it handled 4.4 million tonnes of cargo, running about 1,100 flights a day.


Hong Kong can reach all major Asian economies within four hours' flight time, and half the world's population within five hours. And we are planning for a third runway. That will increase our airport's handling capacity to some 100 million passengers and 9 million tonnes of cargo per year by 2030.


The story doesn't end here. Hong Kong counts about 14,000 logistics companies, most of them serving the trade between China and the world. All of them are adept at providing supply chain solutions to fit the customised needs of global companies.


Hong Kong's free-port policy, our efficient customs clearance, rule of law, strong intellectual property protection and level playing field provide strong support for our logistics sector.


And for the executives of multinationals here today, a piece of advice - if you are to take a slice of this promising initiative, what better place to service and support your business than Hong Kong, situated at the door-step of southern China and the super-connector to the Mainland of China, as well as the Chief Information Officer and Chief Knowledge Officer of the vast country?


I am certain of Hong Kong's central place in the One Belt, One Road future. Being the super-connector to the Mainland, Hong Kong stands to benefit from, and has much to offer, to this 21st Century Silk Road initiative.


Chief Executive CY Leung made these remarks at a discussion session on opportunities for multinationals and the role of Hong Kong in One Belt, One Road at the Boao Forum for Annual Conference 2015 in Hainan.