Why Hong Kong needs a Financial Services Development Council
A speech delivered at a speaker luncheon of Hong Kong Democratic Foundation on 4 July 2013
Good afternoon, everyone. I am delighted to be here – to have an opportunity to talk about the Financial Services Development Council. As you have heard, the title is: Do we need one in Hong Kong? I did not prepare a formal speech. What I will do instead is to give some background of its [Financial Services Development Council] genesis – how it came about, what we are currently doing, and we ask you to question if what we are doing is being done by anyone else here in Hong Kong, and for you to arrive at a conclusion as to whether we need a Financial Services Development Council.
The genesis: when CY Leung was running his campaign, I think his team and some think tanks had proposed to him that Hong Kong needed to have a Financial Services Development Council to help the financial services industry and to think about long term issues. When he raised this idea during his campaign, there were a lot of objections. People said it was duplicative – work was already being done by others; why do we need another council?
Another objection is about ulterior motives and the hidden agenda – that this will become the Hong Kong sovereign fund. I wasn’t part of his campaign, and I wasn’t involved in any activities prior to him being elected as the Chief Executive. When I was approached to take up the task to set up the FSDC, my remit was very clear – there was no mention of the sovereign fund.
Secondly, my given instruction was that the FSDC should be a platform for market participants to express their views about the current situation in the financial market in Hong Kong, what could be improved, what could be remedied, what isn’t being done, what should we be doing – basically it will be a bottom-up approach. A lot of government policies are top-down – the policy bureau thinks about it, sends out consultation papers, and the market will respond. This [FSDC] is quite different. From the outset, it was meant to be a platform for the industry. The small taskforce of five people spent six months canvassing the views of the market on whether we need a council, what they expect it to be and what they expect to get done.
By January this year, it was announced that the council would be set up. We have 22 members, which are representatives from different sectors of the financial services industry, from the traditional banks, insurance, asset management, to the hedge fund, private equity; and from foreign firms to local firms. We believe the membership of the council is broadly representative of the market. We have five committees with a total of 37 or 38 committee members drawn from the market and appointed by the government.
The first committee is the policy research development, which carries the heaviest workload among the five committees. Under this committee are subgroups – we have a joint effort with the academics to look into the future of Hong Kong as an international financial centre. By nature, this is going to be an academic research. It’s a long term research. We’ll look at various factors and compare ourselves with other international financial centres. This project will take five years because of the academic investigation and policy. But we don’t think we have five years to think about the question, it’s way too long.
So other than this, we also have a shorter term project, which is to canvass the market now and put in one piece of document some of the issues that concern a lot of people here, what is hindering [our development] and what is our biggest issue. That is a short and much more concise document which we hope to be done in a few months. We will draw our other work from this basis.
The third task of this first committee is regulatory facilitation. We hear from a lot of market participants that the current regulatory framework has rules that are too stringent, that are out of date, and that are unreasonable and therefore make ourselves uncompetitive. It does no good just telling the government this doesn’t work and that doesn’t work. We want concrete examples, proposals and solutions, so we have a subgroup that works specifically on those, concerning areas such as tax, securities and, futures ordinance and some practices required by the HKMA [Hong Kong Monetary Authority]. We may not necessarily agree with all such suggestions from the market, and will deliberate their merits before providing proposals to the Government. So that is our first committee.
The second committee is mainland opportunities. In HK’s financial markets, mainland entities constitute over 50% of our market capitalisation on our stock exchange and contribute close to 65% of our daily turnover. So by all account, mainland institutions, particularly in the financial area, are very much part of our landscape. The mainland participants are our stakeholders as well as anybody else. They have a stake in our market. In the last 20 years, it was the state-owned enterprises, the red chips and so on that helped make Hong Kong an international financial centre.
If we were just relying on our local companies, we would have been very one-dimensional. When I joined the Securities and Futures Commission in 1991, over 50% of our market capitalisation came from property development companies. There were very few in the manufacturing sector. Of course it represented the kind of economy we were then, but there was not much room for growth as most of the companies that could be listed were already listed. The international institutions had no interest in us because we were small, we were local and we were too one dimensional. With the Chinese companies coming to list in 1993, the international institutions saw that there would be huge potential. So the Chinese enterprises played an important part in the success of the Hong Kong market in the last 20 years.
Now going forward, we have almost exhausted all these state-owned enterprises for listing purposes. In the coming few years there will be the smaller and private enterprises, and they’re not going to create the kind of bonanza in IPO’s that we experienced in the last few years. But then we’re lucky in a sense that the Renminbi is being internationalised – Hong Kong is in a very well-placed position to take advantage of that, not only to help the mainland but also to develop a different dimension of our financial market. We would no longer just rely on the listing and equity side, but we’ll have the entire landscape of the Renminbi internationalisation. We want to develop Renminbi business, products and so on, so that we will be the leading and critical offshore Renminbi centre. There will be more than one offshore Renminbi centre, but we’re the first mover and we have the first-mover advantage. We also have a critical mass Renminbi centre. And that’s the kind of work we have in the future.
We want to look into what else can be done. HKMA has done a lot of work in terms of RMB internationalization, but from the market’s point of view there’re other products that can be developed. We will also look at Qianhai, which everybody is talking about. To be frank, we do not know what exactly Qianhai will do. All the things I’ve heard about are kind of vague, long-term, and visionary. So it’s for this reason that we’re holding a seminar to explore and better understand the market’s views and what opportunities and challenges the development of Qianhai will bring. We want to get a better understanding and see how Hong Kong can benefit from any of these opportunities. There’re people who have doubts on Qianhai – is it going to replicate Hong Kong; will it take over Hong Kong’s or Central’s function? My own view is that, perhaps it’s their aspiration, but I think it takes more than a few years just to build up your track record on the rule of law.
CEPA is another area in which we want to know where to go from here. It’s been ten years – where are we and how do we move forward? So those [policy research development and mainland opportunities] are the two committees.
The third committee is new business. Other than the banks, insurance and asset management – we hear every now and then from our participants that there’re new product areas we should develop but we haven’t done so. An example which is dear to CY’s heart is marine finance. We used to have some marine finance, but in the last twenty, thirty years, it basically gone to London and Singapore. Can we have a marine finance sector? Will it be vibrant? We don’t know, but we’ll have to look into it.
We’re going to do some studies to understand if there is a need and what would be needed – what are some of the conditions; do we have the kind of personnel and professionals to make this into a new business area? And the most important thing is: if you create it, will the business come? All of these things are under the new business committee. And it’s not just the marine finance, there’re other areas that market generates the view [that we should develop].
And the fourth committee is market development. Hong Kong has different institutions and officials promoting Hong Kong. Of course the CE himself, the Financial Secretary, the Secretary for Financial Services [and the Treasury] Professor Chan, the TDC [Trade Development Council], Invest Hong Kong – they all promote Hong Kong in one form or the other. Until now – you may be surprised to hear – there is not a comprehensive plan. Every year, the Financial Secretary will go out for duty visits, and he would be asked to promote Hong Kong. Of course he will do that – it’s part of his job. The HKMA does a lot of road shows, the TDC as well so on and so forth. But there hasn’t been a comprehensive plan.
What we’ve been asked by the government is that the FSDC perhaps can play an overall planning role in terms of identifying product areas we can promote, the geographical areas we haven’t covered; and review what the other people like TDC are doing, and what gaps are to be filled. The FSDC itself does not have the resources, the manpower or the desire to go out and duplicate what these other parties are already doing. But we want to do it together as Hong Kong Inc. So Tthe FSDC may be sending one or two members to be part some of these development initiatives, and we’ll be playing an overall planning role.
Last but not least, the fifth committee is on human capital. We can talk about developing the financial market, but if we do not have the personnel or the professionals who are well-qualified to carry out those new businesses and take advantage of mainland opportunities, it’s no point [talking]. Of course Hong Kong is an international financial centre and an international city – we have a history of embracing foreign professionals, and in recent years Chinese and mainland professionals as well. But there’re cries from local professionals that “We are being crowded out.”
I, for one, do not believe that we should have a protectionism mentailty. But I do believe that the local professionals can do with an enhancement of their competitiveness and competency. The fifth committee of human capital is to link up the universities with what is needed from a practical point of view. Some of the institutions tell us that “We want to hire Hong Kong graduates. But we find that when we compare them with others, their English isn’t as good as the previous generations that we’ve seen, they’re not as broad-minded, they’re not prepared to take the risk; so we will not hire them.” Why is that? So the human capital committee will try to work with the tertiary institutions and perhaps identify areas [which can be improved] such as their curriculum. The FSDC is not going to provide any kind of training.
If you think about it – all five committees and what we’re doing are kind of like an advisory body or a think tank. So far from what we understand, all of these are not being done by anybody. Of course the government often receives proposals and suggestions from the market. But when it does, it needs to spend time and study them and see whether they are feasible from a policy objective, whether they’re doable and whether they’re in Hong Kong’s overall interest.
What the FSDC wants to do is to digest proposals which come from the five committees, debate them and refine them. I’m not saying that every proposal will make it to the government; we’re not a post box. We will add our own value based on the wisdom of the council members, and decide what should be proposed to the government at the end. By the time our proposal reaches the government, it would be a thoroughly studied and analysed proposal with solutions. The government will be in a position to say yes or no, or maybe, or some time later. So we’re helping the government in that regard.
That’s in a nutshell what the FSDC is about. We don’t have a lot of funding, basically it’s because of our local political landscape. So we operate with borrowed personnel: the HKMA lent us a person, the SFC lent us a person, and the TDC lent us a person. So we have three borrowed staff and also a secretariat from the Financial Services [and Treasury] Bureau. With a team of about eight people, we do what we can. We rely a lot on our committee members to contribute. They have their resources – J.P. Morgan, Morgan Stanley – they use their in-house staff to help generate the kind of papers for us, and then we will try to add value.
That is my way of answering the question: do you see there is such a need [to have an FSDC]? Before I conclude, I just want to say that when we were doing the preparation work, we found that Hong Kong had a film development council, an arts development council, a harbour development council, a logistic development council, and of course the TDC, which is the most successful of them all. But there isn’t a financial services development council.
Other people have always said that Hong Kong has done well without one, why do we need one now? I will cite an example: no one can argue that London and New York are not successful as international financial centres. London in particular has a long history of having a successful body, now called TheCityUK, which is a combination of three entities and a private-public partnership. The government funded it and the industry funded it. What TheCityUK does today used to be done by three different bodies, and they were combined into one about three years ago. Mayor Bloomberg of New York has a specific committee on promoting and developing New York further into an international financial centre. These are the two role models that we want to aspire to.
In the Middle East, as far as I know, Abu Dhabi, Kuwait and the the United Arab Emirates all have their financial development authority within their government. And in Europe, Paris has ParisEuroplace; Frankfurt has the Finanzplatz; Luxembourg has Luxembourg Finance; Zurich has the Finanzplatz as well – these were all set up in the 90s.
When I was in the SFC, I had the opportunity to work with some of them when they were first set up. They all wanted a share of the Euro business, that’s why they were set up in the 90s. To this day I still get newsletters from them regularly; I’m still on their mailing list. Of course their role has changed – they all want to get as much business to reinforce themselves as a financial centre in the region. And closer to home, in this region, the Shanghai government has a municipal finance bureau, which does similar things and is part of the municipal government. Singapore goes without saying. Singapore Inc. has always been our role model. They’ve done much better work, have a much more long-term vision and are more cohesive. And Malaysia has one.
So we’re not unique in a sense that we just thought about this idea. And it’s not because other have it, therefore we have to have one [FSDC]. We believe that we are filling a gap. But with so few resources, sometimes we do feel constrained. So with that I will conclude my remark and I’ll be happy to take questions.
Laura Cha (查史美倫)
Chairman of the Financial Services Development Council (香港金融發展局主席)
4 July 2013
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