Chief Secretary Matthew Cheung

To sustain our competitiveness, Hong Kong needs to consolidate and enhance our strengths and take a forward-looking and visionary approach to position our future development and seek new impetus. And here I am referring to the bountiful new opportunities brought by the new developments under the national Belt & Road Initiative and the development of the Guangdong-Hong Kong-Macao Bay Area in which we will play an active and important role. They will be the linchpin of Hong Kong's continuous prosperity.

Belt & Road Initiative

The Belt & Road Initiative proposed by President Xi Jinping offers what the global economy needs in the 21st century - a way forward that we can all embrace, and a future built on co-operation, mutual benefits and friendship. It is an ambitious plan seeking to promote economic and social co-operation among countries and regions that span across Asia, Europe and Africa. It strategically guides the long-term national development and is clearly the driving engine of the regional and even global economy. At present, more than 270 agreements or deliverables have been entered into among the economies along the Belt & Road corridors. These agreements and projects are cross-border with extensive coverage, ranging from finance, infrastructure, trade and commerce, information technology and digital development to agriculture, poverty alleviation, healthcare, environmental protection and conservation.

According to the Asian Development Bank, it is estimated that Asia will require an infrastructure investment of US$1.7 trillion per year until 2030. The trade volume of the region amounted to US$10.9 trillion in 2016. President Xi Jinping stated at the 19th National Congress of the Communist Party of China that the Belt & Road Initiative should be pursued as a priority and be given equal emphasis to "bringing in" and "going global", with a view to breaking new ground in opening China further through links running eastward and westward, across land and over sea. Speaking at the World Economic Forum last year, President Xi said that China is expected to import US$8 trillion of goods, attract US$600 billion of foreign investment and make US$750 billion of outbound investment in a five-year period. Chinese tourists would make 700 million overseas visits. All these will create a bigger market, more capital, more products and more business opportunities, and certainly broader use of the renminbi in global trade, investment and foreign reserves.

Hong Kong is destined to play an important role in the development of the Belt & Road Initiative. As a highly open economy with extensive connections and international experience, Hong Kong is the freest market, allowing free flow of trade, capital, goods, talent and information while keeping close ties with our motherland.

In December last year, we signed the "Arrangement between the National Development & Reform Commission and the Government of the Hong Kong Special Administrative Region for Advancing Hong Kong's Full Participation in & Contribution to the Belt & Road Initiative".

The arrangement will allow Hong Kong to give full play to our unique advantages under "one country, two systems" to contribute to our country and, at the same time, seize the opportunities brought by the initiative to give new impetus for our economic growth. The relevant measures will help reinforce and elevate Hong Kong's position as an international financial, transport and trade centre, promote partnership between Mainland and Hong Kong enterprises, spawn the demand for Hong Kong's professional services and present our home-grown talents with promising prospects, therefore enhancing the upward mobility of our younger generations.

Finance

As a member of the Asian Infrastructure Investment Bank, Hong Kong has been collaborating with AIIB and other financial institutions around the world to facilitate infrastructure financing along the Belt & Road. The Hong Kong Monetary Authority's Infrastructure Financing Facilitation Office (IFFO) has brought together more than 87 partners from the investment and financial sectors worldwide to join hands in the development.

Infrastructure development and industrial diversification require enormous investment. In April last year, our Securities & Futures Commission set out the eligibility criteria for infrastructure project companies to list on our stock exchange. These criteria provide a clear pathway for Belt & Road projects looking to Hong Kong for equity and debt financing.

With free flow of capital and a deep pool of financial talent, Hong Kong is the ideal place to raise funds for Belt & Road projects. We have a wealth of experience and expertise plus good reputation in carrying out project finance in both public and private markets and a great variety of financing avenues. The Hong Kong Stock Exchange has ranked among the world's top five in initial public offerings over the past 16 years. The funds raised through IPOs in 2017 amounted to US$16.5 billion. We are, of course, also the largest offshore renminbi business hub in the world, with a pool of RMB618 billion by the end of 2017, handling around 76% of global RMB transactions.

We are committed to developing our bond market, fintech, green finance and manpower training and other aspects of financial services. To this end, we have earmarked $500 million for the development of the financial services industry in the next five years.

Alongside our expertise in financial services, we have a deep pool of multi-discipline and multicultural talent across different sectors - in law (and particularly arbitration services), accounting, engineering, architecture, management and consulting. Our world-class professionals stand ready to participate in and lead the big ticket of the Belt & Road projects. As a matter of fact, Hong Kong enterprises and professionals are already participating in quite a number of projects in regions along the Belt & Road. Notable examples include the metro system in Saudi Arabia, airports in Cambodia and Sri Lanka, power plants in Thailand and Vietnam as well as a waste management system in Bangladesh. Incidentally, as an aside, the Hong Kong MTR Corporation is operating part of the rail service in Melbourne, Stockholm, Shenzhen, Shanghai and Beijing and Cross Rail in London. This testifies to our world-class professional and project management capabilities.

Bay area development

Let me turn to the bay area development, which was first detailed by Premier Li Keqiang in his Government Work Report in March last year, and is a key pillar for the Belt & Road Initiative. With a population of 66 million, roughly the size of the UK, and a collective GDP of US$1.4 trillion, akin to that of South Korea or Australia, the economic potential that could be unleashed from increased connectivity and integration within the bay area is beyond imagination. Its air- and sea-cargo throughput leads the whole world, presenting a central passageway for air, land and sea transport linking countries along the Belt & Road.

Hong Kong is a vital and indispensable part of the bay area development. As the gateway for Mainland business to "go global" and the host for over 8,200 foreign and Mainland companies, we are best positioned within the bay area to play the key role in turning the vision of the Belt & Road Initiative into real business opportunities. And these opportunities will translate the bay area development into tangible benefits for enterprises and professionals of Hong Kong, the Mainland and the world.

Last July, we signed the "Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Bay Area" with the National Development & Reform Commission, Guangdong Province and the Macao Special Administrative Region to kick off the bay area development. The State Council will soon promulgate the Development Plan for the Bay Area to provide a blueprint for building a world-class city cluster through complementary co-operation and building synergy among the three places.

The Hong Kong Special Administrative Region Government will actively participate in taking forward the development of the bay area in order to create favourable conditions for diversifying our industries, particularly for promoting innovation and technology development. To this end, as the Chief Secretary for Administration, I am chairing the Steering Committee on Taking Forward Bay Area Development & Mainland Co-operation to co-ordinate cross-bureau policies within the administration and formulate concrete work plans for Hong Kong to capitalise on our unique and huge advantages in the bay area.

In addition, our Constitutional & Mainland Affairs Bureau has set up the Guangdong-Hong Kong-Macao Bay Area Development Office to strengthen our co-ordination with the relevant central authorities, the Guangdong Provincial Government, the Macao Special Administrative Region Government, and relevant government bureaus and departments, and to proactively approach trade associations, professional bodies and relevant stakeholders to co-ordinate effort related to the implementation of the Development Plan for the Bay Area. Additional resources will also be allocated to the office for undertaking research and publicity on the bay area development to assist Hong Kong people and enterprises in seizing new opportunities.

The bay area development will give full play to the strengths of Hong Kong. We are strategically located in the heart of Asia. All Asia's key markets are less than four hours away by flight. With world-class infrastructure and three mega infrastructure projects which will come on stream within this year, our connectivity to the Mainland will be significantly boosted, accelerating the flow of goods, people, capital and information. These three major and important projects are:

First of all, the Hong Kong-Zhuhai-Macao Bridge jointly built by the Guangdong, Hong Kong and Macao Governments will provide a direct link among the three places. It is a strategic cross-boundary project that is unprecedented in terms of scope, scale and complexity. The main bridge of the project will be the longest bridge-tunnel sea crossing in the world, totalling 29.6km in length, including 6.7km of underwater tunnel. It will greatly boost Hong Kong's connectivity with the western part of the Pearl River Delta;

Secondly is the Hong Kong Section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link which will connect Hong Kong to key Pearl River Delta cities and Mainland China's 22,000km high-speed rail network. It will consolidate Hong Kong's position as a regional transport hub and generate enormous economic and social benefits to this Asia's world city; and

Third, the seventh cross boundary link with Shenzhen at Liantang/Heung Yuen Wai in northern New Territories will provide a fast and direct artery to the eastern part of the Pearl River Delta. It will enhance substantially people and cargo flows across the boundary and support the long-term economic growth of Hong Kong.

Furthermore, a third runway project for our airport at Chek Lap Kok is well under way and it is expected to be commissioned fully by 2024. The annual passenger volume is expected to increase from 70 million passengers to around 100 million, while cargo volume will be doubled to nine million tonnes per year. Hong Kong's links with the rest of the world will be substantially enhanced. These mega projects will also strengthen Hong Kong's position as Asia's hyper-connected world city as well as our status as the region's trade, business and logistics hub. Our strengths make us an important hub connecting China to the world as well as the East and the West.

Innovation, technology

Innovation and technology are exciting and powerful economic drivers that help diversify our industries, raise our operational efficiency, generate new business opportunities, inject creative vitality and allow us to outperform amidst keen competition around the world.

Hong Kong can advance the bay area to become an innovation centre for the Belt & Road Initiative. Our extensive international market and transport networks will strengthen connection between the bay area and global markets. Besides, Hong Kong is well versed in international technological trends and technical standards, and offers an enormous base of highly skilled workers, supported by many well-respected and world-class tertiary institutions.

To this end, we are vigorously pursuing a strategy of innovation-driven development, and investing heavily in grooming the next generation of IT talents. We have set the goal of doubling our Gross Domestic Expenditure on research and development as a percentage of the GDP to about $45 billion a year, that is, from the current 0.73% to 1.5% by the end of the current Government's five-year term in June 2022. We have also set aside no less than $10 billion as funding for university research. To give private companies incentives to increase investment in technological research and development, we will provide super tax deduction for expenditure incurred by enterprises on research and development. The first $2 million of eligible research and development expenditure will enjoy a 300% tax deduction and 200% for the remainder. To strengthen our talent pool, we will invest $3.5 billion to boost the quality and quantity of local technology talents, including a $500 million Technology Talent Scheme and an injection of $3 billion into the Research Endowment Fund.

To add further impetus to the development of innovation and technology in Hong Kong, we will allocate $50 billion for developing innovation in the areas of biotechnology, artificial intelligence, fintech and building a smart city.

The current-term Hong Kong Special Administrative Region Government is committed to be a facilitator and promoter in addition to our traditional roles of a service provider and regulator on all fronts, including strengthening links between Hong Kong and the Mainland as well as other countries, elevating our city's status as Asia's world city, attracting Mainland and overseas enterprises and talent to Hong Kong and, in collaboration with relevant organisations and trade representatives, proactively conducting government-to-government interaction dialogue and lobbying.

These new roles will certainly apply to our involvement in the bay area development and the Belt & Road Initiative. We are determined to seize the opportunities arising from the national Belt & Road Initiative as well as the bay area development in order to propel our economy forward.

Chief Secretary Matthew Cheung gave these remarks at the Credit Suisse Asian Investment Conference on March 19.