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HK: Asia's super-connector

April 27, 2015


Chief Executive CY Leung

I have a lot to do, but we are catching up, on Malaysian and ASEAN developments. Catching up, as well, with the many political and business leaders here in the great, global city of Kuala Lumpur.


For the next few minutes, allow me to update you on the progress of Hong Kong - and how Hong Kong and Malaysia can work together to boost our business.


Business between us has long been good. And the latest trade numbers tell me we're only getting better at it. Last year, our bilateral merchandise trade topped US$17 billion. Round up the numbers, and that's up 16% year-on-year.


No less impressive is the trade between Malaysia and Mainland China that was routed through Hong Kong in 2014, and the number was US$12 billion, and that's a big 12% slice of your total trade with the Mainland of China. So 12% of China-Malaysia trade is routed through little Hong Kong.


And it underscores one of Hong Kong's fundamental business advantages. I'm talking about Hong Kong's singular role as the "super-connector" between Mainland China and the rest of the world.  For more than three decades now, we have used our free-trade experience and global connectivity to support, and expand, the Mainland's opening up to the world. More than the Mainland's largest investor, Hong Kong is the central launching pad for Chinese companies and brands keen to go global with their products, their services and their capital. 


Mainland market potential

No less important, we have long served as the gateway, the superhighway, for global business eager to cash in on the Mainland's vast market promise. We may be a small market on our own, with a population of just over seven million, but when you consider that we welcomed 61 million visitors to Hong Kong last year - including more than 47 million from Mainland China most of whom attracted to our shops - you will understand why Hong Kong is where the world wants to be. 


At last count, nearly 7,600 Mainland and overseas companies kept offices in Hong Kong. They know that "what sells well in Hong Kong will sell well in the rest of China", a market of 1.3 billion potential customers. That's why sometimes, tongue-in-cheek among friends, I will say, give Hong Kong some free samples.  


Our great strength is Hong Kong's "one country, two systems" arrangement. When you are in Hong Kong, you are in China. But then Hong Kong is no ordinary Chinese city. We practise the other "system". That makes Hong Kong the safest, surest, most efficient means of tapping into the Mainland's vast market promise. It brings us business and financial advantages no other economy can match. But then there's no need to try and emulate Hong Kong. Hong Kong is ready to work with you, in the usual open-minded, welcoming and level-playing-field sort of way.  


Economic partnership

The Closer Economic Partnership Arrangement, or CEPA, was one of our earliest formal business links with the Mainland. Signed in 2003, set in motion in 2004, with a variety of liberalisations since then, CEPA serves as our free-trade agreement with the Mainland. It gives Hong Kong companies and their products and services, preferential treatment in Mainland markets.  


Malaysian investors and businesses are welcome to enjoy the same benefits as local Hong Kong companies. Set up manufacturing operations in Hong Kong, produce goods that meet CEPA origin rules, and your products enter the Mainland, tariff-free. Or simply partner with a Hong Kong company to take advantage of all that CEPA can offer to your products and services. 


The latest CEPA development, in effect only since March, gives Hong Kong basic liberalisation of trade in services in the neighbouring and prosperous Guangdong Province. Guangdong is a major recipient of Hong Kong investment. Indeed, in 2013, the province accounted for about one-third of our outward direct investment in the Mainland. 


The new agreement enables Hong Kong investors to take early advantage of the opening up of Guangdong's services sectors. The new Guangdong Free Trade Zone, formally established earlier this week, will only expand Hong Kong business and investment in Guangdong. 


Renminbi business

More than CEPA also took flight in 2004. That same year, Mainland China gave Hong Kong first-mover rights to the offshore Renminbi business. The Renminbi and Hong Kong have come a long way since then. Hong Kong, today, is the world's offshore Renminbi centre. Indeed, it may be the best illustration of Hong Kong's "super-connector" role between the Mainland and the rest of the world. Through cross-border trade, direct investment and portfolio investment, Hong Kong links offshore and onshore Renminbi markets, promoting the healthy circulation, and development, of Renminbi funds. 


Last year, Renminbi trade settlement managed by banks in Hong Kong soared past RMB 6.3 billion (should be trillion), up a remarkable 63% over 2013 totals. Our Renminbi Real Time Gross Settlement system links the Mainland, Hong Kong and major financial centres, helping more than 200 international banks make Renminbi payments in real time. 


Banks from Malaysia are welcome to make use of the system for Renminbi trade settlement and other financial transactions. I'm confident it will help expand your China trade. 


Market connections

Our role as China's international financial centre is expanding in other ways as well. The most recent example of this is the Shanghai-Hong Kong Stock Connect, launched last November. Under the programme, investors from Hong Kong, and overseas, can now trade in more than 500 Shanghai-listed shares through the Hong Kong Stock Exchange, directly, for the first time. Similarly, Mainland investors can trade in about 280 Hong Kong-listed shares, directly, through the Shanghai Stock Exchange.


Stock Connect certainly found its financial feet this month, with both northbound and southbound turnover recently enjoying record-breaking days.


Next up is the Shenzhen-Hong Kong Stock Connect. We are now working on it and hope to launch it in the second half of this year.


New economic belt

Then there's the Silk Road Economic Belt and 21st Century Maritime Silk Road initiatives. The Silk Road Economic Belt will link China with Europe via Central and Western Asia, while the Maritime Silk Road will deepen the Mainland's connections with Southeast Asia, Africa and Europe. 


As Mainland China strengthens its economic and trade connections with the Belt-Road countries, Hong Kong can provide Mainland enterprises with a wide range of professional services in the financial and legal areas. I'm talking about here international investment, cross-border trade settlement, Renminbi bond issuance, and asset and risk management. Corporate treasury functions, too. 


For instance, Mainland enterprises looking to invest in infrastructure development projects will look to manage their investment risks, and I believe many will turn to Hong Kong to do so. In short, the "One Belt, One Road" initiatives will create huge opportunities for Hong Kong's financial services industry and professionals.


It helps that we are negotiating a free-trade agreement with ASEAN. The third round of negotiations took place just last month in Hong Kong. And I can tell you that all is progressing smoothly. Indeed, we look forward to a successful conclusion of negotiations next year. With the Free Trade Agreement in place, I'm confident that Hong Kong can supercharge its "super-connector" role between Mainland China and ASEAN. 


Ladies and gentlemen, let me now conclude, by expressing my sincere thanks again to our evening organisers, the Associated Chinese Chambers of Commerce & Industry of Malaysia and the Hong Kong Economic & Trade Office in Singapore. Allow me to add that we plan to set up a new Economic & Trade Office in Asia very soon. And this is in response to our growing ties. That alone speaks eloquently of the opportunities, the promise, of Asia - of ASEAN and Hong Kong. 


My thanks, as well, to the evening's supporters, the Hong Kong Trade Development Council and the Hong Kong-Malaysia Business Association. The Association, by the way, got going just last year, established to promote the expanding business ties between Hong Kong and Malaysia. I'm sure it will enjoy a long and rewarding future.


Chief Executive CY Leung gave these remarks at a dinner in Kuala Lumpur co-organised by the Hong Kong Economic & Trade Office in Singapore and the Associated Chinese Chambers of Commerce & Industry of Malaysia.