On The Record
HK hones its China edge
December 07, 2011
Financial Secretary John Tsang
Standard Chartered Bank has a long and strong history both here in South Africa and in my home town, Hong Kong. The bank's roots in Hong Kong date back over 150 years.Chartered Bank set up its first office in Hong Kong way back in 1859. Three years later, the Standard Bank of South Africa was founded.
When the two banks, Standard Bank of South Africa and Chartered Bank merged in 1969, they saw huge opportunities to capitalise on the growing trade links between Africa and Asia.
Today that vision is being realised. China is the world's second largest economy and the single largest investor in Africa. South Africa is the newest member of the so-called informal BRICS group of leading emerging economies. And, I believe, Hong Kong is the most dynamic and reliable bridge linking our two nations. Of course, every good bridge needs sound foundations. So today, I shall share with you my thoughts on the main pillars that support is "financial bridge" between us.
First though, allow me to take you back in time to when Standard Chartered established its presence in Hong Kong in 1859.
I do not know for sure what Hong Kong was like back then – my memory stretches pretty far but it does not stretch back that far! However, it is fair to say that it was "under-developed". It is well documented that in 1841, British Foreign Secretary Lord Palmerston was less than impressed by his new acquisition of a small island on the southeastern tip of Mainland China. On first sight, he famously described Hong Kong as: "A barren rock, with nary a house upon it. It will never be a mart for trade". End quote.
Since then, the people of Hong Kong – mostly immigrants in search of opportunities and a better life – have set about proving the naysayers wrong.
Vibrant market
Fast-forward to the present day, our city has transformed into a vibrant market for trade and finance as well as a great place to live and work. Of course, it has not been all plain sailing. There have been two world wars, various health scares, several financial and economic crises as well as the challenges of our transition to a Special Administrative Region of China in 1997.
But Hong Kong has prevailed and, I should add, it has prospered. Today, our city is ranked alongside London and New York as a leading global financial centre. It also serves as the premier international gateway for business into and out of Mainland China and as an international asset management centre.
Although we are being impacted by economic uncertainties arising from the Euro Zone and the US, we forecast our GDP growth for 2011 to come in at around 5%.
Standard Chartered Bank has been part of our city's growth story, and will no doubt continue to be part of our bright future.
Turning now to the bridge-building I mentioned earlier.
China advantage
The first pillar of our financial bridge linking South Africa to Hong Kong and Mainland China is, in fact, a two-for-one deal. We like to think of it as our city's "China advantage" and "global advantage" combined.
Hong Kong's sharpest competitive edge is that it is a city in China, but outside the Mainland.
We are deeply connected to the Mainland by trade, by finance and by innovation as well as a shared culture and common goals. As you can imagine, there are significant benefits of being so closely entwined with a country of China's size, population and potential growth.
But that is only part of the "two-for-one" deal.
Free economy
The other part is that Hong Kong continues to prosper as an open and free economy. We have our own style of capitalism and strong ties to the international community. Hong Kong is the location of choice in Asia for some 7,000 Mainland and overseas businesses that are based in our city.
These companies thrive on our free flows of capital, ideas and information. They depend on our tried and trusted common law legal system which is based on the English system and underpinned by an independent judiciary. And everyone in Hong Kong enjoys our low and simple tax regime.
Salaries tax is capped at 15% and profits tax at 16.5%. There are no withholding taxes, no VAT, no GST, no capital gains tax and no death duties. We operate as a free port with no tariffs for imports, and we don't even have duties on wine in Hong Kong.
This combination of "China advantages" plus "global advantages" is good for our city, good for our nation and good for our partners here in South Africa.
Renminbi hub
This brings me to the second pillar of our hypothetical bridge. That pillar is Hong Kong's role in the internationalisation of the Mainland currency, the renminbi. With our "China advantage" and "global advantage" working in tandem, Hong Kong has a key role in the Central Government's work of promoting its currency in the international arena.
Our first foray into offshore renminbi business was the launch of renminbi banking in Hong Kong in 2004. Since then we have all been on a steep learning curve. Today, deposits in Hong Kong amount to some RMB630 billion.
Our banks, Standard Chartered included, offer a broad range of renminbi services to local and overseas customers, including checking accounts, remittances, savings accounts and time deposits.
Another development is renminbi trade settlement. This scheme was recently expanded to allow firms around the world to settle trade with partners throughout the Mainland using renminbi.
By settling Mainland trade in renminbi, South African firms can reduce exchange rate risks and costs. They can also link up more easily with customers or suppliers in the Mainland who prefer the convenience of renminbi trade settlement.
‘Safe hands’
Currently, over 80% of total renminbi trade settlement valued at over RMB1.7 trillion has been handled by banks in Hong Kong. To put this aspect in perspective about 10% of China's total trade is now settled in renminbi coming from nearly zero a year ago.
Similar to the great Bruce Grobbelaar playing goalkeeper, Hong Kong has proved to possess a safe pair of hands when it comes to renminbi business.
My next pillar for connecting our financial markets is capital-raising.
In 2007, Hong Kong became the first and only place outside the Mainland to have a renminbi bond market. This represents a new funding channel for foreign firms to finance their China operations. Multinational companies including McDonald's and Caterpillar were among the first foreign firms to issue these "dim sum" bonds as a brand new fund-raising vehicle. I encourage South African companies to consider exploring this option.
Up to the end of October this year, there had been 100 renminbi bond issuances with a total value of RMB166 billion. As well as local and foreign firms, supra-national institutions such as the Asian Development Bank and the World Bank have issued renminbi bonds.
Bonds bonanza
The Ministry of Finance in Beijing has issued sovereign bonds in Hong Kong on three separate occasions over the past three years. The latest launch involved RMB20 billion worth of sovereign bonds in August this year.
Another way for overseas firms to connect with wealthy investors in Mainland China and across Asia is to list on our stock market. The Hong Kong Stock Exchange or HKEx, is the seventh largest exchange in the world and third largest in Asia with market capitalisation of around US$2.1 trillion.
We recently added a fresh dimension to our stock exchange by forging an alliance with exchanges in other BRICS economies, including the Johannesburg Stock Exchange as well as bourses in Russia, India and Brazil.
This initiative involves cross-listing our respective benchmark equity index derivatives. We also intend to develop products to track these BRICS exchanges. This will better enable our investors to take advantage of the opportunities to invest in the world's most dynamic markets.
Going global
Currently, almost 1,500 companies are listed in Hong Kong. Of these, over 40% are Mainland firms. In many cases, these companies use Hong Kong as the ideal launch pad to "go global". We have also been attracting companies from around the world to launch IPOs or issue depository receipts.
In just the last couple of years major resource companies and leading international brands have listed in Hong Kong. Our city is particularly attractive for firms in the resource sector because Mainland China is such a huge consumer of natural resources.
Companies from resource-rich countries such as Russia, Mongolia, and Kazakhstan have successfully launched IPOs in Hong Kong. Also, last December, Brazilian mining giant Vale SA became the first company to issue Hong Kong depository receipts. I hope resource companies from South Africa will consider listing in Hong Kong.
Other recent high-profile listings have included top European brand names from Italy and France. As well as attractive valuations, a Hong Kong listing also raises the profile of brands in Mainland China, helping them reach a potential market of 1.3 billion customers.
IPO magnet
In each of the past two years, Hong Kong has led the world for total IPO funds raised. Last year alone, this amounted to US$58 billion. At the end of October, a total of US$26.8 billion has been raised this year. A bit less than last year, but it is understandable given the global economic condition.
I would like to introduce my fourth and final pillar for our financial connectivity. This pillar is important because it represents the core values that have been the cornerstone for our city's transformation from a "barren rock" into Asia's world city.
Our core values are the rule of law, clean and efficient government, level playing field for business and independent judiciary.
These values keep our city strong, honest and vibrant – all the qualities that make a great partnership work.
This fourth pillar, together with our "China advantage" plus "global advantage", our safe hands for renminbi business and great potential for capital-raising will help foster the relationship between our two nations and between the financial communities of Jo'burg and Hong Kong.
Financial Secretary John Tsang gave this address at the Standard Chartered Bank Dinner in Johannesburg.
