Major Speeches
Speech by the Financial Secretary John C. Tsang at the Century 21 Club luncheon
Consul General (Hitoshi Noda), Your Excellencies, Mr (Masaaki) Ogino (Chairman of Century 21 Club), Suzie (Committee Member of Century 21 Club), Distinguished Guests, Friends, Ladies and Gentlemen,
Good afternoon.
I am delighted to be back again for today’s annual luncheon. It is my pleasure to be here again, to have this opportunity to meet so many old friends, so many distinguished business leaders from the Japanese community here in Hong Kong.
All of you are accomplished business people with years of experience. I don't think I can tell you anything that you do not already know, but to get our discussion started, I would make a few points on the big picture, highlighting some of the challenges as well as opportunities ahead. To say the least, we are going through some interesting times.
Europe
First of all, Europe, the Greek debt crisis is obviously one of the biggest concerns of late. A deal was reached earlier this week with the creditors, and the reform package was approved by the Greek parliament last night.
We should see the financial assistance to be provided to Greece as a temporary solution that would not solve the country’s problems. Greece can only get back on the right track with substantial and sustainable structural reforms. The problem, however, is whether these reforms can be delivered as planned, and in a timely manner. Now that the ruling party is split politically, how the future will play out remains to be seen.
On the other hand, the Eurozone overall has been enjoying some recent improvement. Growth in the first quarter picked up somewhat, under the support of further monetary easing, a weak Euro and a reduction in oil prices.
U.S.
Across the Atlantic, the economic performance of the United States saw a disappointing setback in the first quarter. Supported by improved retail sales, visible job creation and a lower unemployment rate, the US economy is expected to perform better in the second quarter, but the extent of this rebound would only be modest.
The Federal Reserve Chair Janet Yellen last week gave some useful hints on the timing of the US rate hike. In a speech that she made, she said that she expected to take at some point later this year the first step in raising the federal funds rate, and begin the process of normalizing the US monetary policy. The message was reaffirmed again last evening causing the bond rates to fall somewhat.
While Yellen also cautioned that the course of the economy as well as inflation remained highly uncertain, and unanticipated developments could delay or even accelerate this first step, the general anticipation in the market is that there may be up to two interest rate increases this year, with further rate increases in subsequent years.
China
Back in Asia, the latest data released yesterday indicated that Mainland China’s economy posted a 7-percent growth in the second quarter, maintaining the same level of growth as the first quarter, and fares better than the market's expectation. Other economic indicators also showed encouraging signs, with industrial output growing 6.3 percent year on year in the first half of 2015, and fixed-asset investment climbing 11.4 percent in the same period.
However, the Mainland’s economy still faces downward pressure this year. The Mainland stock market underwent sharp corrections in the past few weeks following a period of exuberance. Last Wednesday, the Shanghai Composite Index was down by more than 30 percent when compared to 12 June, the day when the index hit a seven-year high.
The Mainland stock market has stabilized somewhat starting from the beginning of this week, following a full scale intervention involving a host of stimulus measures by the central authorities. It remains to be seen as to whether investor confidence and domestic consumption would be further affected by the volatility in the stock market.
Japan
As for Japan, the situation remains uncertain. As you well know, the Japanese economy has been plagued by structural issues for years, including an aging population, falling potential growth and swelling public debt.
The Japanese government put forward aggressive policies in early 2013 to revitalize the economy and pull it out of the deflationary spiral. These policies, known as the three arrows of Abe, have achieved some instant success with economic growth bouncing back quickly in 2013.
Unfortunately, the effect of these policies did not last long. The Japanese economy has again faltered in the wake of the sales tax hike in April last year. As the initial positive impacts of Abenomics diminish, bolder fiscal policies by the Japanese Government will be needed to deal with the structural problems of huge public debt and low inflation.
ASEAN
As for the other Asian countries, the ASEAN economies are not doing particularly well, with a few running huge debt and presenting relatively poor fiscal position. Since Southeast Asian markets were among the biggest beneficiaries of Fed stimulus with investors seeking higher returns from riskier assets, we should be cautious about a sudden capital exit when the Federal Reserve starts raising interest rates later this year, inducing a repeat of the “taper tantrum” and market volatility in 2013, and rendering these countries more difficult to repay the debts due to the battered exchange rates.
BRICS
Other major emerging markets, notably the BRICS markets, are expected to encounter varying degrees of economic slowdown this year given the lackluster demand in advanced economies.
Geopolitics
Lingering geopolitical tensions in Eastern Europe and Middle East will also continue to be issues of concern. The protracted and intensified conflicts in these areas may complicate the picture even more.
Looking ahead, I am afraid the future is not quite rosy. The global economy continues to follow a modest and uneven expansion path, with this year’s outlook clouded by considerable uncertainties.
The conflicting stance between the US Fed and other major central banks that favour monetary easing only enhances volatility in capital flows and interest-rate expectations. And these may again threaten global financial stability.
Against the subdued global backdrop, the IMF adjusted downwards last week its global growth forecast for 2015 from 3.5 percent to 3.3 percent.
As for us in Hong Kong, our export will continue to be dragged by the external unsteadiness and a strong US dollar. On the positive side, domestic demand and local consumption is likely to remain a stable growth driver. Hong Kong’s economy is expected to grow a modest 2.1 percent in the first quarter, and is forecast to expand by one to 3 percent this year as a whole.
One good news is that the local labour market is broadly stable and the seasonally adjusted unemployment rate stays low at 3.2 percent, representing a state of full employment.
Ladies and Gentlemen, Hong Kong’s externally oriented economy will never be sheltered from international market volatility. Fortunately, our connectivity means that we are well-positioned to capitalize on new opportunities brought by an increasingly inter-connected global economy.
One such golden opportunity ahead is the Silk Road Economic Belt and 21st Century Maritime Silk Road, or the Belt-Road Initiatives. The initiatives put forward by China aim to foster closer economic and cultural ties among some 60 countries in Asia, Europe and Africa, through, among others, market integration, improvement of infrastructure, and facilitation of trade and investment.
As I have pointed out in my Budget earlier this year, the Belt-Road landscape is dominated by emerging economies which can provide ample business opportunities to Hong Kong.
Hong Kong is blessed with the unique advantages under the “One Country, Two Systems” framework and can play the key role in connecting the Mainland’s economy with other participating economies in the Belt-Road region.
Our pillar industries – including financial services, trade and logistics, professional services and tourism – together with some of our emerging industries, including the creative and technology sectors, all stand to benefit from the Belt-Road initiatives.
Work has already started to prepare for Hong Kong to take part in the exciting Belt-Road initiatives. We are working to engage different countries, in particular those emerging markets with great potential to become regional hubs, with a view to enhancing mutual understanding and identifying suitable opportunities for business and cooperation.
The Hong Kong business sector has long been renowned for its competitiveness, flexibility and creativity. I am confident that you all have what it takes to reap the rewards of the Belt-Road initiatives. And I am certain you would actively explore the potentials of all these new and emerging markets along the Belt-Road and continue to contribute to the development of Hong Kong’s economy.
Thank you very much, and I wish you all a successful and prosperous year ahead.
July 16, 2015
