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On The Record

Belt-Road initiatives benefit HK

(May 28, 2015)


Chief Executive CY Leung

We have a long history of friendship with Australia. That's evident in our strong trade and investment links, and our extensive people-to-people links. Last year, for example, our bilateral merchandise trade came in at nearly US$6.6 billion.
And, at last count, more than 600 Australian companies were operating in Hong Kong. They are a vibrant and diverse group: prominent in financial and professional services, transportation, construction, design, retail, and of course, food and beverage, among many other sectors. And they contribute to Hong Kong's success - to our diversity, our creativity and our cosmopolitan lifestyle. They are also part of the unique role of Hong Kong.
Hong Kong may be small, in area and in population, but we have thrived as an open, market-based economy. More than 7,500 overseas and Mainland Chinese companies maintain offices here. About half of them use Hong Kong as regional headquarters or offices.
Enduring advantages 
We are a dynamic global city thanks to a number of enduring advantages. These include the rule of law supported by an independent judiciary, a low and uncomplicated tax system. It should take most professionals and business people no more than 10 minutes to fill out their annual salaries tax return. And we have free flow of information and uninhibited political and economic commentary that come with it, and free flow of capital and goods, and 21st century communications and logistics infrastructure. They connect us to a world of business - globally, regionally and throughout the Mainland of China.
We maintain a level playing field for all market players and have a seek-and-destroy mindset when it comes to red tape. The government here does not compete with businesses as we don't have government-linked business corporations. Unless of course you happen to be in the railway or theme park businesses as we do own part of the Mass Transit Railway Corporation and Disneyland. And we stop at that. Add it up, and you can understand why the Washington-based Heritage Foundation has named Hong Kong the world's freest economy for the past 21 years. And the International Institute for Management Development has just moved Hong Kong two notches up as the second most competitive economy, only after the United States. And I am pleased and flattered to note that government efficiency in Hong Kong has been ranked number one in the world.
Super-connector role
And then there's our unique role. We are the "super-connector" between the Mainland of China and the rest of the world. Thanks to the "one country, two systems" arrangement, when you are in Hong Kong, you are of course in China. And then you are part of our "system", which makes us different from other Chinese cities. So Hong Kong offers the combined advantages of both "one country" and "two systems". Hong Kong has the most extensive and the longest history of economic ties with the Mainland of China. And we were there as soon as the door of China reopened in the late 1970s.
Over the past three decades, Hong Kong used its free trade expertise, experience and international connectivity to support the Mainland’s opening up to the world. So modestly, we say to our foreign business partners we have some experience and business connections to share. And we are happy to share as we believe in getting the pie bigger rather than getting a bigger share of a small pie. Hong Kong has open borders, more importantly our people including our business people have open mind. We welcome new partners from all parts of the world and that of course includes Australia. We also welcome new partners from the Mainland of China too. So we are also the launching pad for Mainland Chinese companies and brands looking to go global.
Renminbi hub
More than one of the world's major financial centres, Hong Kong is China's international financial capital. We are also the world's China financial capital. The Renminbi, Mainland China's currency, is a prime example of our "super-connector" role.
Eleven years ago, we were given the opportunity to internationalise the renminbi. Today, Hong Kong is by far the world's largest offshore renminbi hub. Through cross-border trade and direct and portfolio investment, Hong Kong connects renminbi markets on the Mainland and around the world, expanding both the currency's circulation and its convertibility.
In 2014, banks in Hong Kong managed renminbi trade settlement exceeding RMB 6.3 trillion. That was up more than 60% over the previous year. Hong Kong banks now handle some 70% of global renminbi payments.
Connecting markets
Today, the Shanghai-Hong Kong Stock Connect may be the most visible of Hong Kong's "super-connector" role between Mainland China and the rest of the world. Under the scheme, running smoothly since its launch last November, investors in Hong Kong, and from around the world, can invest, directly, in more than 500 Shanghai-listed shares through the Hong Kong Stock Exchange. And Mainland investors can use onshore renminbi funds to invest in shares listed on the Hong Kong Stock Exchange.
Shanghai-Hong Kong Stock Connect is only the beginning. Last week, we have announced the Mainland-Hong Kong Mutual Recognition of Funds, to be implemented in July this year. The arrangement will deepen the exchange and co-operation of the Mainland and Hong Kong asset management industries, and enhance the competitiveness of the Mainland and Hong Kong fund markets. And there's more to come. We expect the Shenzhen-Hong Kong Stock Connect to be up and running later this year.
Our "super-connector" role is about more than high finance. We have a free-trade agreement with Mainland China known as CEPA. It gives Hong Kong companies tariff-free access to the Mainland for goods produced in Hong Kong. It also offers Hong Kong service suppliers preferential access to the vast and rapidly growing Mainland market. CEPA is nationality neutral. Australian companies are welcome to partner with Hong Kong companies to take advantage of CEPA's benefits.
Belt-Road initiatives
Hong Kong is also closely watching the progress of the Mainland's ambitious Silk Road Economic Belt and 21st Century Maritime Silk Road programmes. The Belt-Road initiatives will certainly expand China's transcontinental connectivity, and promote economic, political and cultural cooperation and development from Asia through Africa and into Europe.
The Belt-Road initiatives will generate huge demand for services. And that's good news for Hong Kong. Our financial, trading, legal, accounting and other professional services, as well as our infrastructural project management, environmental consultancy, and transport and tourism services, give us clear, competitive edges.
The Belt-Road is also likely to increase the volume and intensity of international investment flow, as well as investment traffic in and out of China. In this, too, Hong Kong is well-placed to serve as the "super-connector" and take advantage of the surge in investments.
Of course there are now plenty of direct flights from Australia to the Mainland of China, but the shortest and easiest business routes between China and any other country in the world is still the route through Hong Kong.
Chief Executive CY Leung gave these remarks at the AustCham Westpac Australia China Business Awards Gala Dinner 2015 on May 28.