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Following is the speech by the Financial Secretary, Mr John C Tsang, at a business luncheon co-organised by the Hong Kong Trade Development Council and the Dubai Chamber of Commerce and Industry in Dubai today (December 11):
Your Excellencies, distinguished guests, ladies and gentlemen,
Good afternoon. I am delighted to be here in Dubai, a city of superlatives - for the fastest, the longest, the biggest, the tallest, the largest, and so on. Nowadays, the continually evolving desert oasis has emerged from the Arabian sands to become a glamorous city and the business hub of the Persian Gulf.
Hong Kong too has a long history of being a major international business and financial hub, and we do have much in common. As we all know, Dubai is the gateway to the resource-rich and fast growing Middle East. And Hong Kong is the ideal gateway to the population-rich Mainland China and Southeast Asia, both of which are endowed with an expanding middle class with large consumption capacities. Both our hinterlands are vibrant economies, full of consumers and full of opportunities. Like Dubai, Hong Kong is the kind of place where opportunities are waiting to be harnessed.
We both are aviation hubs as well. Half of the world's population is within five hour flight time from Hong Kong. We have over 1 000 flights every day serving more than 150 global destinations. Dubai, of course, is the centre of commercial aviation services, from where one can reach virtually any destination on this planet by direct flights, without transit and without transfer. And between our two hubs, there are 12 daily flights going to and fro.
The potential synergy of strengthening the connection between our two hubs is enormous. Indeed, ties between us are encouraging. The UAE is Hong Kong's largest trading partner in the Middle East. Over the past five years, our bilateral trade has grown by an average of 30 per cent a year.
But there is always room for more, deeper, and wider connections between us. That's why I am here with you today leading a senior mission of two dozen high-profile business leaders from Hong Kong. We are here to talk business with you, to strengthen the co-operation that already exists between our two communities.
For the next few minutes, allow me to spotlight one key aspect of our mission - Hong Kong's financial services and how they can help UAE business. How they can help your business.
Yes, Hong Kong's financial services industry has enjoyed robust growth in recent years. We rank first in the World Economic Forum's Financial Development Index, and we come third in the City of London's Global Financial Centres Index. We maintain a highly open and internationalised financial market, and our regulatory regime is aligned with major global markets. We offer a wide range of financial services, but I would focus on only three specific areas today.
Islamic finance
First, Islamic finance. Islamic finance is among the fastest-rising segments in the international financial system, with a growing presence in both Muslim and non-Muslim communities. We are actively tapping into this unbounded opportunity.
Some of you may be aware that in September this year, the Hong Kong Government issued its first sukuk which also marked the first US-dollar denominated sukuk originated by a triple A rated government in the global Islamic financial market. The US$ 1 billion issuance was greeted with strong demand, attracting orders in excess of US$4.7 billion. The sukuk was priced at 2.005 per cent which is only 23 basis points over five-year US Treasuries.
The deal attracted interest from a diverse group of conventional and Islamic investors. The sukuk was allocated to over 120 global institutional investors, with 36 per cent distributed to investors in the Middle East. Indeed, our inaugural sukuk was awarded this year's Best Islamic Financing Deal by FinanceAsia and Best Sovereign Bond by Global Capital Asia. Right before coming here, I attended the Bell-Ringing Ceremony for our listing of the sukuk in NASDAQ Dubai. I am pleased to witness this important milestone linking our markets and reinforcing our connections.
To prepare for this issuance, we have been actually making preparations in the past two years, amending our laws to provide a level playing field between sukuk and conventional bonds in terms of tax treatment, covering most common types of sukuk, including Ijarah (lease arrangement), Musharakah and Mudarabah (profit-sharing arrangements), Murabahah (purchase and sale arrangements) and Wakalah (agency arrangements). Sorry about the pronunciation, and I hope you know what I mean to say.
Through the inaugural sukuk offering, we demonstrated that the legal, regulatory and taxation framework in Hong Kong can easily accommodate sukuk issuances. Many of our financial and legal professionals are well-versed in Shariah-compliant regimes. And they can handle sukuk-related disputes and legal proceedings.
Asset Management
Second, asset management. Hong Kong is a top asset management centre in Asia, thanks partially to the robust economic growth in Asia, particularly in the Mainland of China. This has generated huge savings and wealth accumulation in the region, generating unprecedented demands on Hong Kong's asset management industry. Those assets, by the way, amounted to more than US$2 trillion at end 2013, an increase of 27 per cent over the 2012 totals.
Those are exciting numbers in terms of assets under management for the financial services industry worldwide. In order to sharpen our competitive edge even further, we have recently introduced a number of attractive business-friendly policy initiatives, including:
(1) amending the trust law so that settlors are able to establish perpetual trusts in Hong Kong. That's not possible in other major common law jurisdictions;
(2) proposing a new, open-ended company fund structure to expand the range of investment vehicles to be established in Hong Kong;
(3) extending the profits tax exemption for offshore funds to private equity funds; and
(4) extending the stamp duty concession to cover ETFs, the exchange-traded funds.
We also offer a unique channel to invest in Shanghai-listed stocks through the Shanghai-Hong Kong Stock Connect, which was launched just three weeks ago. Investors from Hong Kong, and around the world, can now trade in the 570 Shanghai-listed shares, directly, for the first time from the Hong Kong Stock Exchange. And we welcome UAE participation.
We are working on another proposal on the mutual recognition of funds between Hong Kong and Mainland China. General agreement on the basic parameters has already been reached between the respective regulators. Pending formal approval by the Central Government, the arrangement will expand the investment options for offshore Renminbi and provide a wider choice of products to investors in both markets.
Another exciting asset class for investment, if you like, is our rapidly growing startup clusters. In March 2013, Forbes Magazine ranked Hong Kong the top tech hub to watch, ahead of Washington, Tel Aviv and London. The ranking did not obtain much approval from Forbes' readers at that time. But after only one year, the developments have begun to reinforce Forbes' prediction.
We now have over 1 000 startups operating in Hong Kong, up 30 per cent from 2013. Over half of these are in the areas of Information, Communications and Technology, e-commerce, and financial technology. Many are established by overseas entrepreneurs attracted to Hong Kong by our business environment, and perhaps more importantly, experienced professional mentors, extensive business networks as well as eager investors. Even Accenture has made Hong Kong their home.
So, if you are looking for expertise or channels to enhance the value of your assets and diversify your portfolios, Hong Kong is the place to turn to.
Renminbi business
Third, Renminbi business. If you are doing or planning to do business with the Mainland, our Renminbi business will just be what you are looking for. Over this past decade, Hong Kong has emerged as the world's largest offshore Renminbi business hub. From personal banking services to trade settlement and financing, and the marketing of innovative investment products, Hong Kong plays a critical role in the internationalisation of the Renminbi.
At the end of September, our banks held 1.1 trillion yuan in deposits and certificates of deposit. In the first nine months of this year, Renminbi trade settlement handled by banks in Hong Kong totalled 4.5 trillion yuan. This accounts for about 80 per cent of the total offshore business.
From 2007 to October of this year, more than 460 Renminbi-denominated bonds had been issued in Hong Kong, with an outstanding amount exceeding 360 billion yuan. The average daily turnover of Hong Kong's RMB Real Time Gross Settlement system amounted to 800 billion yuan.
The increasing use of the Renminbi in international trade and finance will help reduce foreign exchange risks in cross-border trade and investment between Mainland China and the rest of the world. It will also offer new opportunities for corporations and financial institutions of UAE.
Ladies and gentlemen, I have just highlighted three areas of our financial services portfolio that would be useful to UAE business leaders, namely Islamic finance, asset management and Renminbi business.
We welcome more sukuks to be marketed, listed and executed in Hong Kong. And we invite more Islamic financial institutions to establish a presence in Hong Kong, whether to conduct Islamic banking or asset management business, and to leverage Hong Kong's financial platform to tap into investment opportunities available in, as well as to get a wider exposure to, the Asian and China markets.
Moreover, with the signing of the avoidance of double taxation agreement with the UAE this morning, we are happy to witness the further development of bilateral trade between UAE and Hong Kong. I am sure Dubai, and Dubai businessmen like yourselves, will see good reasons to work with us - both here and in Hong Kong.
Also, as trading activities between UAE and China have grown more than ten times over the past decade, it can only mean a wider use of the Renminbi. And with the increase of real business between you and our region, that will surely open up more opportunities for companies in Dubai, the Middle East, Mainland China and Hong Kong.
Ladies and gentlemen, Hong Kong is all about business. About creating opportunities, about building connections and investing for a rewarding future. But Hong Kong is actually more than business. Even if you have yet to have the chance to do business with us, you and your families are still most welcome to spend several carefree days with us, simply for leisure and pleasure.
Thank you very much.
Ends/Thursday, December 11, 2014
Issued at HKT 21:25
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