Saturday, 14 November 2015

Financial services opportunities abound

Chief Executive CY Leung

I want to share with you, from Government's perspective, why we think financial services is a good career, while other speakers will probably cover subjects such as what are there in the financial services industry and how you could get the top jobs.

 

We offer good prospects as a financial centre because we offer the combined advantages of "one country" and "two systems". We are the world's China global financial centre and at the same time we are the country's global financial centre. We have the China advantage compared to other cities, say, Singapore, which is not part of China, and we have the "two systems" advantage, compared to, say, Shanghai, which doesn't practise the Hong Kong system.

 

This is not just what I say as Hong Kong's advantages. On my many overseas visits and meetings with overseas dignitaries in Hong Kong, Government and industry leaders in other countries say exactly this. The combined advantages of "one country" and "two systems" have their envy.

 

There are plenty of opportunities for the industry to take on more young talents. Our traditional services and financial industry are doing well and are growing, but we need to diversify. Compared to many other major financial centres, we are not as diversified. But if you look it the other way, the fact that we are not as diversified as other global financial services centres really means that there is much more room to grow by adding to the industry services that are nascent, that can grow faster than traditional services.

 

So what I'm saying is that over the next few decades, and which is basically the period of your career, we can do more of the same things but in addition we can do new things in the financial services industry.

 

One example is maritime insurance and shipping, or ship leasing and financing. And these are all very highly paid jobs. We do very well by way of investment banking, commercial banking, other types of insurance, but we don't do much by way of maritime financial activities. I will try to cover that later.

 

Premier capital formation centre

Let's look at our current position. We are a premier capital formation centre. Hong Kong is one of the world's largest markets for IPOs - we all know that. Last year Hong Kong ranked second globally and first in Asia in terms of IPO funds raised in 2014. A total of US$29.8 billion was raised.

 

As at the end of October this year, more than 1,800 companies are listed in Hong Kong, including Mainland and foreign companies, and so we are a very useful platform, not just for Hong Kong but also for Mainland and other companies to be listed.

 

We are also a leading asset management centre, and that's relatively, relatively new, compared to, say, IPO activities. The total combined fund management business in Hong Kong has more than doubled in the past five years - more than doubled in the past five years - growing from $8.5 trillion in 2009 to $17.6 trillion last year.

 

The number of corporations licensed - and these are your potential employers - for asset management under the SFC (Securities & Futures Commission) grew by 8.5% year on year to 1,031 corporations in 2014, with overseas investors accounted for over 70% of the fund management business, excluding real estate investment trusts (REITS).

 

The Shanghai-Hong Kong Stock Connect and the Mainland-Hong Kong Mutual Recognition of Funds will further reinforce Hong Kong’s position as a leading asset management centre.

 

Offshore renminbi hub

We are also a premier offshore renminbi centre. Hong Kong is now the world's largest offshore renminbi business hub, offering a full range of services from trade settlement and investment, to financing and asset management.

 

As at the end of September 2015, the amount of renminbi deposits and certificates of deposit reached a total of RMB1 trillion. Hong Kong is the largest offshore renminbi financing and asset management centre.

 

We are the first place outside the Mainland of China to develop a renminbi bond market, commonly known as the "dim sum" bond market. And all these are pretty recent.

 

Over the years, bonds were issued by the Ministry of Finance of the Central Government, enterprises and financial institutions, including McDonald's and Caterpillar in the United States, Unilever and Volkswagen in Europe, and also international financial institutions including World Bank and Asian Development Bank.

 

We have also been handling a lion's share of renminbi trade settlement since its beginning in 2009. Again, this is pretty recent. Renminbi trade settlement handled by banks in Hong Kong amounted to RMB6.25 trillion in 2014, with a year-on-year increase of 63%.

 

According to SWIFT (Society for Worldwide Interbank Financial Telecommunication), renminbi is now the world's fifth payment currency, with Hong Kong being the leading offshore renminbi hub that handles about 70% - seven zero - of global payment in renminbi. And I've also been told by heads of other governments, foreign governments, that they now park part of their foreign reserves in Hong Kong in the form of renminbi, and that's new business again.

 

Thriving insurance industry

We have a booming insurance industry. Hong Kong is one of the most open insurance centres in the world. As at end of October 2015, there were 157 authorised insurers in Hong Kong, and 14 of the world's top 20 insurers are incorporated in Hong Kong. And the business of insurance is not just about selling or issuing life insurance policies; it's much more.

 

As I mentioned, Hong Kong is now a shipping centre. We are one of the largest shipping centres in the world in terms of the number of boxes we process at our container port, but London is also a major shipping centre.

 

But anyone who has been to London realises that London doesn't move boxes around - the River Thames is not big enough for container ships. But how can London be a major shipping centre without a container port? Because it specialises in desk-based activities compared to shore-based activities. It offers the sale and leasing of ships, the registration of ships, the financing of ships, the insurance of ships and all the legal documents, all the legal services to support the activities I just mentioned. And Hong Kong can, and should, in my view, do that.

 

On the basis of what we have, we could transition and elevate ourselves to activities that I just mentioned that London's good at. That would include the leasing of ships, which is a financial services activity, the insurance of ships, which is also a financial services activity, very much on the back of the fact that China is fast becoming a major ship building and shipping nation in the world.

 

Fintech broadens opportunities

And there are major development opportunities ahead. Fintech can enhance operational efficiency of financial institutions and help foster new modes of development for the industry.

 

To spearhead the development of the Fintech sector, the Government's Secretary for Financial Services & the Treasury is chairing a Steering Group on Fintech, which was established in April this year. The steering group has already held four meetings, and is developing recommendations on how to promote Hong Kong as a Fintech hub in collaboration with the regulatory authorities and tapping the minds of individuals in the industries, the academia, and research and development institutions.

 

What are the Government's initiatives to further develop the financial services industry? And this is an important "why" amongst the many other "why"s we think financial services is a good career. The Financial Services Development Council, FSDC, was established by my government in January 2013, and I believe that we need regulations, obviously regulations, for the various sectors of the financial services industry.

 

We need the accelerator, the gas pedal, alongside the brake, and the FSDC engages the industry and formulates proposals to promote the further development of Hong Kong's financial services industry and manpower strategic direction for the development of Hong Kong as an international financial centre.

 

The FSDC has so far published 16 reports - and they are all available on the website and I welcome you to actually download and read them - reviewing and recommending initiatives in various business areas, including offshore renminbi, REITS, international IPOs, private equity, exchange-traded funds and offshore renminbi-denominated reinsurance, as well as the training and manpower supply of the industry.

 

Updating maritime activities

As I mentioned, maritime activities cover, at least should cover, from Hong Kong's perspective, financial services. We are in the process of setting up a Maritime Authority just for that purpose, because we need to upgrade ourselves, elevate ourselves, from what we have, namely largely port activities.

 

We are now looking at the pros and cons of having a statutory Maritime Authority versus a non-statutory Maritime Authority, and there are certain advantages to be a statutory maritime authority, but we are also worrying about the efficiency of our Legislative Council and the prospects of filibustering 拉布 by the Legislative Council.

 

The Government has a role to play to develop and grow the industry. I do not think Hong Kong will be able to exploit to the full the potential we have as a global financial centre by leaving everything to the market. Hong Kong hasn't become one of the largest stock markets in the world, particularly for IPO purposes, by sitting on our hands, by Government doing nothing. Let me just share with you one example.

 

The Hong Kong Exchange was previously known as the Hong Kong United Stock Exchange 香港聯合交易所. And where does the "united" part come from? Where does the word "united" come from? Because we had, before the exchanges were unified, four stock exchanges. Hong Kong, Kowloon, 金銀 and Far East 遠東. And they were unified by an act of the Legislative Council. The Government introduced a bill to the Legislative Council.

 

In those days Government could pass everything it wanted to pass into law by the Legislative Council. The Government introduced this bill and made it mandatorily required that the four exchanges to be merged to become one. And this is the best example where the Government could use its authority to help develop the financial services industry in Hong Kong and also other parts of the industry. And the Government even went as far as providing premises to the Unified Stock Exchange and this is where the trading hall in Exchange Square is.

 

$100m earmarked for pilot programme

To ensure that our talent pool has the capacity and right skill set to meet the growing needs, we have earmarked, Government has earmarked, $100 million in this financial year for a three-year pilot programme to enhance talent training for the two sectors. We aim to implement the pilot programme in phases starting early next year.

 

Quick conclusion: there are plenty of opportunities for Hong Kong and therefore for you, as young students. That said, the competition from the neighbouring economies and challenges ahead should not be underestimated. But having said that, again I would say Hong Kong thrives on competition.

 

Let me just give you one real-life example. This is a big folder that I have put on my bookshelf for 20-something years now. It was the folder used by the symposium on securities market held in Shanghai. There was a symposium jointly organised by the two sides of the Taiwan Strait, namely Mainland, Taiwan and Hong Kong.

 

Again, the date was August 1992. I was one of the speakers. There were 90 participants from Hong Kong, 105 from Taiwan and 72 from the Mainland. Hong Kong and Taiwan were competing for the Mainland securities market, so there were actually more Taiwanese experts participating and speaking at this symposium than Hong Kong had. And there was this great worry on the part of Hong Kong that Hong Kong might actually lose out to the Taiwanese because one of the reasons offered was the fact that the Taiwanese actually spoke Mandarin better than Hong Kong people could.

 

But looking back, now we are in 2015, as they say, the rest is history. Where is Taiwan, compared to Hong Kong, in terms of market share, IPOs, stock-market-related activities, Shanghai-Hong Kong Stock Connect and so on? So let's not underestimate the strength of Hong Kong. A similar story could be told about the competition between Hong Kong and Singapore for a slice of the Mainland Chinese pie.

 

Optimism towards future

I'm optimistic about Hong Kong's future, not just the future of Hong Kong's financial services industry but Hong Kong' economy as a whole. I've been trying to share this fact, rather encouraging fact, with the rest of the community, but it hasn't caught the attention of the media so far.

 

If you look at the last financial year, this was the financial year that ended 31st of March, 2015, Hong Kong Government actually collected record high profits tax from enterprises big and small in Hong Kong. We had a record high profits tax receipt in the financial year ended 31st March, 2015. What did it mean? It meant that businesses in Hong Kong generally speaking were making or made in that financial year more profits than they ever did. And Hong Kong Government also collected a record high amount of salaries tax in that financial year.

 

So among all the things that you read in your daily newspaper, if you still read newspapers nowadays, and on your handphone, you might want to factor in these two bits of statistics.

 

In my opening, I said I'm pleased to see so many young students getting up early on a Sunday morning to join this conference. To be honest, I did struggle to get out of bed myself. Now I should end by thanking Mrs Cha, other organisers and speakers for organising this meaningful event and for giving up their Sunday morning and getting up early for your benefits.

 

This is not about recruitment for their companies. It is about recruitment for Hong Kong as a whole. We should be appreciative and I would suggest to the Financial Services Development Council that they should pass the names, your names, the names of attendees at this conference, to other bodies, including professional bodies and trade bodies, the Banking Association for example, so that you could be invited back to join their functions so that you could get some first-hand experience as to what life and work in a financial services sector could be like.

 

Chief Executive CY Leung gave these remarks at the Career Day organised by the Financial Services Development Council.

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