Major Speeches
Speech by the Financial Secretary John C. Tsang at the Lion Rock Institute (English only)
Good afternoon.
Thank you so much for the opportunity for me to speak with you today. It is always a pleasure to speak with an audience of like-minded people.
The name of your Institute “Lion Rock”, embodies the spirit of the people of Hong Kong: courageous, hard working, entrepreneurial, always on the lookout for new opportunities and fierce defenders of their freedoms. These are the people who have made the city what it is today.
I am also encouraged to see your Institute’s emphasis on independent research as an absolute necessity for policy debate. It sets a good example for other think-tanks and NGOs.
Sometimes I wish more people and organizations here in Hong Kong would subscribe to the same values and principles that your Institute cherishes. But freedom to be different is also part and parcel of what we stand for! And we can’t all be right all the time!
I am not here to preach to the converted when it comes to free market philosophies. But this is a good opportunity to reinforce the Government’s firm commitment to open market policies. The same policies that have served us well in the past that will continue to serve us well in the future.
Don’t just take my word for it. The findings of three separate international business surveys published just last month gave Hong Kong high marks.
We were ranked first in Asia for corporate governance by the CG Watch 2007 report. This was jointly published by investment group CLSA and the Asian Corporate Governance Association. The report highlights some of our strengths, such as shareholder voting, the disclosure of regulatory enforcement activities, voluntary de-listings and press freedom.
Separately, the World Bank’s annual ranking of the easiest places in the world to do business elevated Hong Kong from fifth to fourth place. Within that study of 178 countries and territories we were top in terms of enforcing contracts.
We also moved up from 15 to 14 in Transparency International’s list of least corrupt places on the globe.
So we are doing rather well. Yes, with some room for improvement, but more importantly, we are moving in the right direction.
Remember as well that Hong Kong is consistently ranked as the world’s freest economy. Heritage Foundation said so. Fraser Institute and Cato Institute said so too. Our credentials as a free trader are, indeed, strong.
The past decade has not always been smooth sailing. Reunification with the Mainland was the biggest economic, social and political challenge Hong Kong has ever faced. But 10 years on, I am sure you will agree that the unique “One Country-Two Systems” formula for reunification is working well.
During this period, our economy also took one knock after another, some of which came without warning: the Asian financial crisis, SARS, not one but two outbreaks of avian influenza, negative equity and a painful period of deflation, to name just a few.
A firm commitment to tried and trusted free market principles and the spirit of the Hong Kong people have helped to see us through the rough patches.
Free markets are not only our moral, social and political philosophy. They are also our economic reality. They help us respond swiftly to opportunities and challenges that arise from a rapidly changing global economic, financial and political scene. And they help to keep us competitive.
So what is the Government’s role?
To a purist, everything, and I mean everything, should be left to the market, but we need to be pragmatic so that Government and market together can deliver the best possible services to the people. In a nutshell, providing the necessary infrastructure, promoting an efficient market environment and opening up new markets are areas where Government is particularly effective. As a global financial centre, it is also important that Hong Kong is a leader, not a follower, in developing and defining the rules and regulations governing global markets.
Markets do not exist in a vacuum. Property rights have to be protected. Transaction costs and uncertainty need to be reduced. Efficient markets need guiding rules and principles. They need the necessary market infrastructure, the right regulatory framework and the ability to enforce contracts.
The Government is also working to break down barriers to trade. Here we are involved at different levels that reflect our new dual role as a global business centre on the one hand, and as the nation’s international financial centre on the other.
On the national level, we are engaged in extensive discussions with Mainland authorities over our CEPA free trade agreement.
The latest supplement to CEPA, which comes into effect on January 1 next year, further strengthens financial cooperation with the Mainland. A raft of new measures will make it easier and quicker for Hong Kong banks to enter the Mainland market and vice versa, for example.
A growing presence of Mainland banks in Hong Kong will boost our status as an international financial centre, especially with China’s growing influence on the world stage.
A recent example of how we are interfacing with the Mainland’s financial sector was the launch of Renminbi bonds in Hong Kong this summer. So far three Mainland banks have issued Renminbi bonds here, totalling 10 billion yuan. It is the only Renminbi bond market outside the Mainland.
In addition to QDII, the Qualified Domestic Institutional Investor scheme, there is also a well-publicised proposal to enable Mainland investors to buy Hong Kong shares. These are exciting developments in facilitating the outflow of capital from the Mainland.
On the international stage, we are fully engaged as a member of the WTO and APEC and conduct complex trade negotiations through the multilateral framework. The Government is also in-step with the global economy as it becomes more interconnected and more specialised.
As our own economy matures and grows, what used to be the best policies may need to be upgraded or refined. Take the telecommunications sector for example. It has gone through a massive transformation since it began opening up in the 1990s. A key part of this involved abolishing the monopoly right of the Hong Kong Telephone Company despite the need to compensate the company. The monopoly right had played an important role in reassuring the company when it was investing hefty sums in developing the telecommunications infrastructure. But it became outdated. Today we have one of the most advanced telecom sectors in the world.
Some of the decisions the Government has taken in the past have been difficult and controversial ones. Members of this Institute have been vocal critics on occasion.
I am sure most of you remember the decision to intervene in the stock market in 1998. It was a decisive step and part of a package of measures to rectify a situation when our markets were cornered and rigged.
There are still critics who question the move even though our market was under serious threat at the time.
I want also to talk about a more recent decision that has raised a few eyebrows.
Last month, I announced that the Government’s shareholding in the HKEx had grown from 4.5 per cent to 5.88 per cent.
Although the Government is not bound to disclose its shareholding in the HKEx, we did so after it rose above 5 per cent in the spirit of transparency and following standard market practice.
This share purchase is not an intervention in the market. And it is not part of any wider scheme by the Government to acquire shareholdings. It is a long-term commitment through a free-market mechanism, to play a constructive role in the development of a sound financial infrastructure. There is no intention to control the HKEx or undermine its independence.
The increased shareholding of HKEx shares is for strategic, not investment, reasons even though our holding has done rather well with the recent rise in the share price. The decision to acquire the shares was reached after the drawing up of our nation’s 11th Five Year Plan that was unveiled last year. This plan affirmed Hong Kong’s role as China’s international financial centre. Part of this strategy involves promoting a more interactive relationship between financial markets in Hong Kong and on the Mainland. Our increased holding of HKEx shares would give the Government an additional tool to achieve our goals in a flexible, practical and positive manner.
It will also help to maintain the stability and integrity of our financial systems as we continue to adapt in the face of new challenges and opportunities.
Finally, I wish to thank Members of the Lion Rock Institute on your continued support for the work that we do. You have been the supportive nod when I was debating the unionists on WTO issues a couple of years ago. You were the supportive article in the paper when we sought to implement controversial issues. I believe that the Lion Rock Institute has an important role to play in the development of our city. Working together, I am confident that we can keep Hong Kong moving in the right direction and we can help enhance the city’s status as the world’s freest economy and a place of opportunity.
Thank you.
October 8, 2007
