The asset-management business is an important growth area for Hong Kong as an international financial centre. In recent years, the development of the asset-management industry has gathered tremendous momentum and I am confident it will continue to gather pace.
By the end of last year, Hong Kong's combined fund-management business amounted to $6.154 trillion - an increase of nearly 40% over 2005, and an aggregate growth of more than 70% over the past two years. It was equivalent to 4.2 times of our GDP in 2006, compared to 3.3 times in 2005.
Globalisation of financial services is the main reason for this rapid growth. International institutional investors are now taking a more global perspective. For many, this has meant choosing Asia as a platform for investment management. And that's because of the rapid economic growth of many nations in the region, especially the Mainland.
Attracting fund managers to Hong Kong will help foster the development of our own financial-services industry. This will encourage the industry to develop new and exciting portfolios and products to entice fund managers to invest their clients' capital. They will also have to identify new investment vehicles. This will help expand the scope of financing activities, and strengthen Hong Kong's position as an international financial centre.
Hong Kong offers many unique advantages for fund houses establishing headquarters or regional offices in Asia. Undoubtedly, one of our most important advantages is our close relationship with the Mainland.
Across the boundary, China's booming economy has led to a rise in personal savings that has generated demand for investment products and wealth-management services. Our cultural and linguistic links, and our expertise in dealing with the Mainland means that Hong Kong is best placed to serve as the preferred asset-management centre for the Mainland in the long run.
QDII scheme a boost for HK
We received a big boost in this area a few months ago when the Mainland expanded the Qualified Domestic Institutional Investors scheme. The scheme allows Mainland commercial banks, securities companies, fund-management companies and insurance companies to invest in products such as stocks and funds outside of the Mainland.
Many of those in the QDII scheme choose Hong Kong. Fund houses are also able to set up subsidiaries in Hong Kong under the Closer Economic Partnership Arrangement with the Mainland. These new measures will facilitate the outflow of capital from the Mainland and provide abundant opportunities for our financial-services industry.
There are also significant opportunities further afield. One growth area is Islamic Finance. This is something the Financial Secretary touched on recently during a recent trip to Malaysia, which has considerable experience in this area.
Middle Eastern investors are increasingly active in international capital markets and they are also showing strong interest in Islamic financial products. The more new products we can offer, the greater the interest in investing here. And, with so much international attention focused on China's rapid economic growth, Hong Kong's position as an international business platform for the Mainland makes our city well placed to attract investments from the Middle East.
Fund-management business encouraged
The government is also taking more steps to encourage the growth of fund-management business. These have included the abolition of estate duty, and the exemption of offshore funds from profits tax. In June this year the Securities & Futures Commission announced initiatives to streamline the licensing processes of overseas fund managers to help develop the sector.
We will continue to provide a business-friendly environment for fund houses. The SFC will continue to liaise closely with the industry, review its regulatory policies from time to time, and streamline procedures to facilitate the launch of new investment products in the market.
Asset management is a high value-added industry. The value-added per person engaged in the industry in 2005 was about $2.26 million - much higher than the corresponding figures for the financial-services industry as a whole.
To capitalise on our advantages to develop Hong Kong into the premier AM centre in the region, we must continue to have highly competitive and professional human resources. This will become even more important with the furtherance of QDII.
This "FSTB & You" column was first published on the Financial Services & the Treasury website.
