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Speech by FS at Belt & Road Innovation and Development Forum

2017-11-03

Following is the speech by the Financial Secretary, Mr Paul Chan, at the Belt & Road Innovation and Development Forum this morning (November 3):

Secretary-General Alimov (Secretary-General of the Shanghai Cooperation Organisation, Mr Rashid Alimov), Deputy Commissioner Yang (Deputy Commissioner of the Ministry of Foreign Affairs of the People's Republic of China in the Hong Kong Special Administrative Region Mr Yang Yirui), Your Excellencies, Regina (Co-Chair of the Maritime Silk Road Society Mrs Regina Ip), Ms Wu (Executive Director of the China Academy of Culture, Ms Wu Jianfang), distinguished guests, ladies and gentlemen,

Good morning.

It is my honour to join you today for the Belt & Road Innovation and Development Forum. I am particularly pleased to welcome to Hong Kong ambassadors and business leaders from many countries.

I am sure you are here for more than our fine autumn weather. You are here because, like Hong Kong, you believe in the power and the promise of the Belt and Road Initiative. Believe that it can, and will, make a difference for your economy, your people, your future.

You are here because you believe that the Belt and Road offers what the global economy needs in this 21st century - a way forward we can all embrace. A future built on co-operation, mutual benefits and friendship, East and West together. No doubt, the Belt and Road would become the driving force for the global economy - for growth, progress and prosperity throughout this 21st century.

Infrastructural connectivity is at the heart of the Belt and Road. According to the Asian Development Bank, as much as US$1.7 trillion a year will need to be invested in infrastructure in Asia until 2030, if this continent is to maintain its growth momentum, while reducing poverty and combating climate change.

It is apparent that the public sector alone cannot satisfy this vast funding need, and we must mobilse private-sector investment and financing to bridge the gap.

As the world's leading financial centre in Asia, Hong Kong is determined to be the Belt and Road's financial wheel down the road, bringing our experience, expertise, international connections and deep liquidity.

Hong Kong's stock market offers some of the best liquidity in the world. For the past two years, we have been ranked number one for funds raised through initial public offerings (IPOs). Last year's total came in at about US$25 billion. Indeed, Hong Kong has been ranked among the top five, globally, in IPOs over the past 15 years.

In April this year, our Securities and Futures Commission sets out eligibility criteria for infrastructure project companies to list on our stock exchange. These criteria provide a clear pathway for these project companies looking to Hong Kong for equity and debt financing.

Apart from the traditional IPOs, loan syndication and bonds, we also have successfully issued three sukuk over the past three years, demonstrating our ability in launching top-grade, sophisticated Islamic financial products. Given Eurasia's substantial Muslim population, I believe Islamic financial services have a very promising future.

But, ladies and gentlemen, while there is ample liquidity in the market with strong interest in investing in infrastructure, there are tremendous challenges in channelling private capital to infrastructure projects in developing countries, especially greenfield ones – those without secure revenue streams.

First, at the country level, political, legal and regulatory risks can undermine the feasibility of a project. Then, at the project level, construction risks, cost overruns and refinancing risks, among others, can negatively impact a project's profitability.

Funding of cross-border projects or regional projects becomes even more challenging as the above risk factors magnify.

We therefore see a need for concerted efforts, a need to "de-risk" these projects, to make them more bankable and more investment-worthy.

To this end, the Hong Kong Monetary Authority set up an Infrastructure Financing Facilitation Office, in brief we call it IFFO, last year. The objective is to provide a facilitative platform to enable stakeholders to come together to exchange market information and to compare investment parameters, so that they can better collaborate on infrastructure investments.

To date, close to 80 key stakeholders, including multilateral banks, financiers, pension funds, insurance companies, commercial banks, infrastructure developers and operators, as well as professional services firms, have joined us as partners.

In addition, in September this year, the Hong Kong Monetary Authority signed an agreement with the International Finance Corporation (IFC), a member of the World Bank Group, committing up to US$1 billion to the Managed Co-Lending Portfolio Program with the IFC for investment in infrastructure projects globally, not just in Asia.

And there is a great deal more that we in Hong Kong can bring to the table. Corporations expanding into countries along the Belt and Road will face a more complex operating environment, including the challenges of multiple currencies, interest rates fluctuations and regulatory regimes.

Many see a need to set up a corporate treasury centre to centralise their financing and liquidity, and the financial risk management activities of their subsidiaries.

Do it in Hong Kong, ladies and gentlemen, that is my recommendation. With our close proximity to the Mainland, we are its key gateway for corporate investment, in and out. We are, as well, a hub for corporate headquarters, providing smooth links with corporate treasury activities.

And we have now made it even easier for you, more beneficial to you. Because last year, our legislature passed a law providing tax concessions for corporate treasury centres, which will be taxed at only 8.25 per cent of their profits, half of our already very low standard profits tax rate.

Ladies and gentlemen, China's currency, the Renminbi, is destined to be the currency of choice for the financing of many Belt and Road projects. The International Monetary Fund's inclusion of the Renminbi in its Special Drawing Rights currency basket just over a year ago sends a positive and powerful message about the Renminbi's future.

Hong Kong is the world's largest offshore Renminbi centre. We are uniquely placed to play a vital supporting role. We manage about 70 per cent of global offshore Renminbi payments and boast the world's largest Renminbi offshore liquidity pool. Importers and exporters in Belt and Road countries can settle their trade in Renminbi through more than 200 participating banks from all over the world in our payment system.

Investors in Belt and Road projects can tap our Renminbi funds through bank loans or "dim sum" bond issuance. They can invest their surplus funds in a wide range of Renminbi products available here in Hong Kong. Financial institutions can also hedge their Renminbi currency risks through derivatives and other financial instruments actively traded in Hong Kong.

Hong Kong can also contribute to the work of the Belt and Road through our deep pool of multi-talented and multi-cultural professionals across different disciplines – in law, accounting, engineering, architecture, consulting and management.

Our legal services sector is a prime example. Thanks to the unique "one country, two systems" arrangement, Hong Kong remains a common law jurisdiction. The international community is familiar with our common law system underpinned by an independent judiciary, as well as a deep pool of legal professionals who excel in conducting project due diligence, enforcing contract terms and resolving business disputes. Hong Kong is perfectly positioned to serve as the hub for legal matters and for resolving business disputes. Arbitration awards made in Hong Kong are enforceable in over 150 jurisdictions, including the Mainland of China.

Ladies and gentlemen, the emerging markets of the Belt and Road, including the great many that distinguish Eurasia, are about to take centre stage.

To grasp the extraordinary opportunities we need visionary strategies and concerted co-operation among governments and businesses, institutions and communities.

Today's gathering is a sure step in that welcome direction.

I wish you all a productive Forum and a promising future in the fast lane of the Belt and Road.

Thank you very much.

Source: http://www.info.gov.hk/gia/general/201711/03/P2017110300773.htm

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