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Financial Secretary John Tsang
Looking for Asia some 500 years ago – and without some sort of GPS – Columbus and his flotilla found themselves instead in the New World. That set in motion a new global economic order that would play out for centuries.
Indeed, the advanced western economies have been dominating the global economic landscape for a long, long time. While they have their fair share of ups and downs along the way, they were always able to recover from these cyclical regressions and get back to the rising trajectory. However, the traditional economic powerhouses of the West seem to have run out of ideas this time round in the aftermath of the 2008 global financial crisis.
Mr Alan Greenspan, the former Chairman of the Federal Reserve, described in 2008 that the world economy was in a "once-in-a-century crisis". I guess he was surprised, and so did everybody else basically, that the global economy has hardly recovered at all after all these years.
The global economy, as we speak, is still struggling, and the prospect is seemingly bleak. The latest economic data of the US contain mixed messages about the health of its economy, while the economies of the Eurozone and Japan are still worryingly fragile.
And then we have the anxieties over the timing and the pace of the US interest rate hike, the divergent policies among major central banks, the geopolitical conflicts in different regions, as well as the uncertainties arising from Brexit. We seem to have all the necessary ingredients for a perfect storm.
Amid the slow and punctuated recovery of most of the advanced economies in the West, Asia has picked up quickly and has taken over the driving seat of the global economy.
In 1980, developing Asia accounted for 7% of the world GDP at current market exchange rate. By 2015, it had captured more than 20%.
Of the top 500 global companies ranked by Fortune in 2015, 190 were Asian-based; that was up by some 60% from just a decade ago.
Leading the way is the Mainland of China. Since the beginning of its opening up in the late 1970s, the Mainland's economy has ascended in a phenomenal way to become the world's second-largest economy, the largest trading economy as well as the largest manufacturer of goods. China's GDP actually expanded nearly 30 times in real terms from 1978 to 2015.
China is currently the major driving force of the global economy, contributing over a quarter of the world’s economic growth in recent years.
Apart from the Mainland, the economies of the ASEAN countries and India have also expanded, on average, better than 6% per year, far outstripping the performance of major advanced economies in the West.
In its latest report, the IMF has lowered its forecast of global growth in 2016 to 3.1%, with 60% of the growth coming from Asia. And that trend will continue, with growth in Asia expected to average 6.3% a year in the next five years, markedly higher than the 3.7% predicted for the world over the same period.
What we are witnessing, is a perceptible and persistent shift of the global economic centre of gravity moving from the West to the East.
While the prominence of Asia and China in the global economy is being recognised, some observers out there, including a few international credit rating agencies, have been suggesting that the slowdown of China's economy in recent years will create strong spillover effect and add further downward pressure to the global economy that is already weak.
And there are views also that given the close ties between Hong Kong and China, Hong Kong too, is facing a negative outlook.
I do not see it that way. Economies around the world have been facing substantial headwinds in recent years, in fact, since 2008, and China cannot be an exception in this issue. And the slower growth rate of China’s economy is not unexpected and not unreasonable, after the double-digit spurt that it enjoyed in the past 30 years or so. It is normal that the second largest economy in the world cannot continue to grow at that pace.
And its growth target for this year – at 6.5% to 7% – would surely ignite calls for a year-end parade in most countries. With the Finance Minister likely basking in a float of his own, and hoping for just half of that growth rate.
With its large fiscal reserves, I believe that China has sufficient policy levers that can be pulled to guide the economy in moving forward. Apart from the host of monetary measures that it can deploy, China is also adapting a more proactive fiscal policy, putting forward a larger deficit budget in 2016 than the previous year, with a view to supporting enterprises and stabilising growth.
As President Xi highlighted at the G20 Leaders’ Summit staged in Hangzhou last month, China would ensure to deepen its structural reform, to continue to open up its market and to further integrate into the world economy. China is confident and capable of maintaining medium-to-high-speed growth, and it will continue to be the growth engine of the world in the 21st century.
You can see the progress of Mainland’s reform in its changing demand composition. Increasing purchasing power, along with the expanding income of a growing middle class, is transforming China from an investment, export-led economy towards a consumption-driven economy. In the first half of this year, consumption expenditure accounted for more than 70% of the Mainland’s economic growth. That’s an important aspect that we need to recognise.
China has also been successful in catalysing economic growth through the buttressing of innovation and the application of technology in the real economy.
China nowadays is more than just the world's factory. It is also a worldwide leader in e-commerce as well as an international hub for advanced telecommunication technologies and manufacturing. The surge of start-ups in the IT and software sectors, coupled with the rising investment in research and development, will provide further fuel for this new growth engine.
As the role of services in the Mainland grows in importance, so too, does the demand for high-end services. This is creating major opportunities for services providers around the world. And no one is better positioned to take advantage of this transformation than the businesses in Hong Kong.
Hong Kong has been a dynamic and critical player in China’s economic evolution since the late 1970s. We have long been our country’s vital intermediary, channeling foreign investment and capital to fuel Mainland's extraordinary growth.
Hong Kong is also playing a big part in the internationalisation of renminbi.
We are, by far, the world’s leading offshore renminbi business hub, with a mature range of services from trade settlement and foreign exchange trading and hedging, to financing and investment. We count the largest offshore renminbi liquidity pool at some 750 billion yuan at the end of July. And, in the first half of this year, some 70% of the world’s renminbi payment transactions were processed in Hong Kong.
That’s sure to soar in the coming years thanks, in part, to the IMF’s decision to add the renminbi to its SDR basket starting from the beginning of this month. I would say that's a milestone in the Chinese economy’s integration into the global financial system, as well as a providential opportunity for Hong Kong. One you can be sure that we shall run with.
In addition to our renminbi business, other initiatives such as the existing Shanghai-Hong Kong Stock Connect and the upcoming Shenzhen-Hong Kong Stock Connect, as well as the Mainland-Hong Kong mutual recognition of funds arrangement, will help enhance mutual market access between the capital markets of Hong Kong and that of the Mainland, and accelerate the opening-up of China’s capital markets to the world.
Hong Kong, of course, is a dynamic presence beyond the Mainland. Hong Kong is an international commercial, trade and financial centre serving the world.
Indeed, Hong Kong has been attracting investors and capitalists from every corner of the planet who are looking for good investment opportunities and looking to tap the ever-expanding China market. They are here, for opportunities that are simply not available elsewhere in the world.
This is evident in the fact that Hong Kong is the world’s second-largest recipient of foreign direct investment in 2015, next only to the US, according to a UN report. It is evident also from the fact that nearly 8,000 overseas and Mainland companies keep their offices here in Hong Kong. And more of them are coming here every year.
We are doing our utmost to maintain our favourable business environment, which is built on our free and open market, the rule of law and an independent judiciary, our extensive trading and logistics network, as well as our level playing field and simple and low tax regime.
We shall continue to expand our trading and commercial networks throughout the region with the emerging Asian economies. We are aiming to conclude the negotiations towards a free trade agreement between Hong Kong and the ASEAN bloc by the end of this year. The resulting liberalisation measures are expected to help expand prospects of Hong Kong businesses in ASEAN, which is our second largest trading partner with a population of over 600 million people.
We are also readying ourselves to take our place in the grand and visionary Belt & Road Initiative that may well be the most ambitious multilateral undertaking of the 21st century.
The far-reaching scheme, spearheaded by China, seeks to deepen economic ties and infrastructure connectivity between some 65 countries in Asia, Europe and Africa, in the form of railways, highways, ports, power plants, dams and more.
The two corridors of the Belt & Road Initiative encompass two thirds of our planet's population and account for a third of global GDP and a third of the world's merchandise trade.
As an international financial centre, Hong Kong possesses the expertise, the experience and the connections – with the Mainland and the world at large – to serve as the fundraising, financial management and information hub for the Belt-Road projects.
Hong Kong has all it takes to play a central role in delivering as well as in realising the massive potential of Asia and China. I am confident that Hong Kong will play an even more important role in the days to come in the long-term ascendancy of Asia and China.
There is clear synergy and advantages for Hong Kong and the US to further expand our business collaboration, and in seizing the enormous opportunities ahead.
Financial Secretary John Tsang gave these remarks at America China Public Affairs Institute Luncheon in New York.
