1

Hong Kong and Shanghai as Hong Kong and Shanghai as IFC 2020IFC 2020

Lions Club of Metropolitan Hong Kong Luncheon MeetingLions Club of Metropolitan Hong Kong Luncheon Meeting

Julia LeungUnder Secretary for Financial Services and the Treasury

24 September 2009

2

Chinese State Council’s decisionChinese State Council’s decision

• State Council announced on 25 March 2009 a decision to speed up Shanghai as an IFC by 2020 in tandem with the national economic strength and international status of RMB

• “到 2020年，將上海基本建成與中國經濟實力和人民幣國際地位相適應的國際金融中心”

3

Chinese State Council’s decision Chinese State Council’s decision …cont’d…cont’d

• National Development and Reform Commission also released the Pearl River Delta Reform Development Plan

“ 珠三角地區改革發展規劃綱要 2008-2020”

• Improved ties between Mainland and Taiwan

4

Challenges and OpportunitiesChallenges and Opportunities

Challenges• Marginalisation of HK as IFC• Policy bias that favours Shanghai

Opportunities• More relaxation means more businesses f

or all IS IT A ZERO SUM GAME?

5

Indicators of Hong Kong as an International Financial Centre

UK USA Japan HK Singapore Mainland China

Bank assets as a % of GNP/GDP

5.4 times 96% 1.6 times 6.4 times 6.6 times 2 times

Market capitalisation of stocks as % of GNP/GDP

60% 71% 54% 6 times 1.3 times 56%

Intensity of financial activities with 100 as the base in the USA(Ranking)

90.6(2) 100(1) 32.7(3) 13.2(6) 9.9(9) n.a.

Global Financial Centre Index (Competitiveness)

Rating and Ranking

781

1

768

2

611

15

684

4

687

3

538

35

6

Hong Kong’s Strengths as an International Hong Kong’s Strengths as an International Financial CentreFinancial Centre

Sound Supervision and Risk Sound Supervision and Risk Management SystemManagement System

匯聚大量專業人士匯聚大量專業人士

Fair Business Environment chFair Business Environment characterised by the Common Laracterised by the Common Law System and an Independeaw System and an Independe

nt Judiciarynt Judiciary

The World’s Freest Economy

Hong KongHong Kong

Having the Mainland as Having the Mainland as our Hinterlandour Hinterland

Commercial Commercial InfrastructureInfrastructure

Language and Culture; Language and Culture; Quality of LifeQuality of Life

Rich Pool of Rich Pool of ProfessionalsProfessionals

Open Market with High Open Market with High Level of Foreign Level of Foreign

Investment and Free Flow Investment and Free Flow of Capitalof Capital

7

Hong Kong as China’s IFCHong Kong as China’s IFC

China has a unique advantage, having two financial centres to support its rising economic strength

HK plays strategic role as laboratory for Mainland’s pilots on capital account liberalisation and RMB internationalisation

- raising funds for Mainland enterprises

- managing Mainland’s growing private and institutional wealth (QDII funds)

HK and Shanghai to complement each other in development as IFC

Increasing financial integration with Pearl River Delta Region

8

Hong Kong – Equity Fund Raising CentreHong Kong – Equity Fund Raising Centre

The world’s 7th and Asia’s 3rd largest stock market in terms of market capitalisation.

As at end July 2009, the total equity funds raised through initial public offerings so far this year was about HK$27.5 billion, ranking 2nd in the world.

During 2003 to 2008, a total of 405 enterprises raised HK$1014.2bn in IPO in HK, the amount being the 6th largest globally. Of these enterprises, 26.7%(108) were Mainland enterprises, accounting for 68.3% of the total equity funds raised.

Mainland stocks account for 55% of HK exchange’s market capitalization with three of the world’s largest stocks listed.

9

Hong Kong – A Leading Asset Hong Kong – A Leading Asset Management CentreManagement Centre

Combined fund management business amounted to US$1,235 billion (HK$9,631 billion) in 2007, representing a growth of 56.5% compared with 2006. Over 68% of the combined fund management business in Hong Kong is sourced from overseas

The turnover of exchange-traded funds for 2008 hit a record high of HK$1,800 million, showing a 176% increase from that of the previous year, highest in Asia

Asia’s largest concentration of hedge funds, (245), managing USD22bn in assets.

10

Hong Kong as RMB Settlement CentreHong Kong as RMB Settlement Centre

Narrow banking since 2004 (deposit-taking, conversion, remittances and card business)

RMB bond issuance since July 2007 (mainland banks and subsidiaries of HK banks)

RMB trade settlement since July 2009