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Marching forward with both offensive and defensive strategies
During my recent visits to the US and UK, I met with representatives of the financial and investment sector, the business community, think tanks, as well as government officials and regulators. They were very concerned about the recent social unrest in Hong Kong, and enquired about the situation of Hong Kong’s financial market in particular, including the flow of funds, the Hong Kong dollar exchange rates, and the performance of the banking system and stock market, etc.
Financial security has been a subject dear to my heart in the past year or so. It is because the trade conflict between China and the US not only affected the global economy, but also led to a more volatile financial market. From many overseas experiences, an unstable financial market would affect corporates and small and medium enterprises, as well as people's livelihood and social stability. In order to ensure financial security, we have been implementing substantial works on shock-resistance and market surveillance. In the past few months, even though the society was relatively turbulent and full of malicious rumours, the financial market in Hong Kong has remained largely stable.
Hang Seng Index was around 26,900 points at the end of May and closed at 27,651 points last week. The period's ups and downs were roughly in line with the external stock markets. In addition, the Hong Kong dollar exchange rate is stable, the funds are free to enter and exit, and there is no significant outflow. The banking system operates smoothly and has sufficient liquidity. This shows that social incidents in recent months have not seriously affected investors' confidence.
Funds and investors’ decision to stay reflects their confidence in the Hong Kong market to a certain extent. In addition to the effort that we have made to ensure the smooth and orderly operation of the financial market, more importantly, the framework of "One Country, Two Systems" enables Hong Kong to maintain its institutional strengths and core competitiveness, and provides solid support and development opportunities to Hong Kong.
The financial services sector is a readily example. As an economy with a gross domestic product (GDP) of $2.8 trillion, Hong Kong holds a stock market with a value of more than $32 trillion (equivalent to 11 times of GDP). The total assets of the banking sector also reached $24 trillion (about 9 times of GDP). It is all supported by the pooling of funds, corporates and investors from both international and Mainland markets. Looking ahead, how we can further deepen and improve the mutual market access arrangements between Hong Kong and Mainland on stocks, bonds or fund products, and facilitate more Hong Kong financial services institutes to conduct businesses in the Greater Bay Area, would be an important issue.
The Leading Group for the Development of the Guangdong-Hong Kong-Macao Greater Bay Area (Leading Group) held its third meeting last Wednesday, and announced 16 new policy measures. Several were aimed at deepening the financial cooperation in the Greater Bay Area, including continue to enhance the use of mobile electronic payment by Hong Kong and Macao residents in the Mainland, simplify the procedures for them to open Mainland personal bank accounts in the Greater Bay Area, and explore the feasibility of establishing cross-boundary wealth management connect, and other measures supporting the development of the insurance industry.
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The two-way wealth management connect scheme (“The Connect Scheme”) will be implemented through the banking systems of the two places, bringing business opportunities to the entire financial industry value chain in Hong Kong, from wealth management product development, asset management, sales and distribution, risk management and other professional services. Asset management companies can make use of Hong Kong's platform to develop, launch and manage wealth management products to target the large investor base in the Mainland, driving a large demand for Hong Kong's financial and professional services, such as treasury, custody, risk management, auditing and legal service, etc. Banks in Hong Kong can also attract Mainland customers and benefit greatly from the distribution of wealth management products.
The Greater Bay Area has a population of more than 70 million and is one of most affluent regions of the Mainland. The region’s per capita GDP is US$23,000, which is comparable to some European countries. Wealth in the region continues to accumulate at a high speed which makes it a very attractive market to asset management companies. The Connect Scheme will allow these companies to leverage Hong Kong’s position as an international asset management centre to expand their business in the Greater Bay Area. With a robust regulatory regime and a sound cooperation basis established through the current mutual access schemes, Hong Kong is an ideal testing ground for buying and selling a wide range of wealth management products for both international asset management companies as well as Mainland residents. We expect that more asset management companies or financial institutes will set up branches or further invest in Hong Kong. This will further strengthen Hong Kong's position as an international asset management centre and a global offshore Renminbi hub.
Facing the competitions from other Mainland and international cities, Hong Kong possesses institutional strengths under the "One Country, Two Systems" arrangement and has its unique position and contribution in the development process of China, which are difficult for other cities to replicate. These include the rule of law, independent judiciary, an open and free society, the free flow of funds, the free exchange of currency, and the free flow of talent, information, and goods. Similar to other international financial centers such as New York and London, Hong Kong is a common law jurisdiction but is unique in using both English and Chinese as official languages. Hong Kong also has a good tradition and practice of the rule of law. In recent months, Hong Kong's social order and security have been seriously challenged, which caused worries to investors. However, I believe that once we have stopped the violence, we will be able to identify the best way forward, continue to improve and upgrade ourselves, and strive for an even brighter future for our financial service sector.
10 November, 2019
