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Speeches

Speech by the Director-General of Trade and Industry, Ms Salina Yan, at Citi Commercial Bank Asia Client Advisory Council meeting 2017 (English only)
Thursday, July 6, 2017

Following is the speech entitled "Belt and Road - A Connected Future" by the Director-General of Trade and Industry, Ms Salina Yan, at Citi Commercial Bank Asia Client Advisory Council meeting 2017 today (July 6):

Weber, Ashish, ladies and gentlemen,

Good morning.

It's good to be back to a gathering of our capital market friends after spending five years in the Financial Services and the Treasury Bureau from 2011 to 2016 and taking up my new position as Director-General of Trade and Industry in the HKSAR Government last August. Financial services and the real economy are not two separate worlds. In fact, they are closely interconnected. For this reason, I would like to thank Citi Commercial Bank Asia for inviting me to share with you my thoughts on the Belt and Road Initiative, an initiative that offers unprecedented opportunities to all the countries and economies along the Belt and Road and beyond, including Hong Kong.

The "Belt and Road" Initiative - Five Priorities of Connectivity

In autumn 2013, President Xi Jinping proposed to jointly build the Silk Road Economic Belt and the 21st Century Maritime Silk Road - a major initiative called the Belt and Road Initiative spanning the vast regions of Asia, Africa and Europe.

The Belt and Road Initiative is about promoting cooperation among the 60 plus countries and economies along the Belt and Road in the five areas of

  1. policy coordination;
  2. facilities connectivity;
  3. trade and investment facilitation;
  4. financial integration and
  5. people-to-people bond.

It is expected that the successful implementation of the Initiative will tremendously transform the economic and trade landscape in participating countries and markets.

Connectivity is the essence of this visionary initiative. Connectivity is also an area in which Hong Kong has excelled and through which we have developed into an international hub for trade and logistics, as well as a centre for the provision of financial and professional services with an international outlook. Naturally, Hong Kong has plenty experience to share and expertise to contribute when it comes to building connectivity among the diverse economies along the Belt and Road. I shall come back to this later in my presentation.

Creating Value for All

The Belt and Road Initiative looks set to create huge and fresh opportunities to us all. Huge because it covers 4.4 billion people in some 60-plus countries and economies which account for over 30 per cent of the global economic value. Fresh because many of these are emerging markets with untapped potentials for development. Take Mainland China as an example, trade between China and other Belt and Road economies in 2016 exceeded US$3 trillion, and China's investment in these countries has surpassed US$50 billion. Yet, the funding gap is huge. According to the Asia Development Bank's estimate, for example, US$26 trillion is required by 2030 for funding infrastructure in Asia.

For this, the Joint Communique of the Leaders Roundtable of the Belt and Road Forum for International Cooperation issued on 16 May 2017 affirms the need for :

(a) Promoting practical cooperation on roads, railways, ports, maritime and inland water transport, aviation, energy pipelines, electricity, fiber optic including trans-oceanic cable, telecommunications and information and communication technology, and welcoming the development of interconnected multimodal corridors, such as a new Eurasian Land Bridge, Northern Sea Route, the East-West Middle Corridor etc., and major trunk lines to put in place an international infrastructure network over time; and

(b) Maximizing synergies in infrastructure planning and development by taking into account international standards where applicable, and by aiming at harmonizing rules and technological standards when necessary; fostering a favorable environment and predictability for infrastructure investment by private capital; promoting public-private partnership in areas that create more jobs and generate greater efficiency; welcoming international financial institutions to increase support and investment for infrastructure development.

Infrastructure investment aside, the Initiative also creates space for bilateral, triangular, regional and multilateral cooperation to foster trade and economic growth based on the principles of openness and inclusiveness. Specifically, the Communique advocates a universal, rule-based, open, non-discriminatory and equitable multilateral trading system with the World Trade Organisation at its core. It also calls for trade and investment liberalization and facilitation; seeks new frontier of trade growth in areas such as e-commerce and digital economy; and welcomes the development of free trade areas and signing of free trade agreements.

In a recent paper entitled "Making Trade an Engine of Growth for All" prepared by staff of the WTO, IMF and World Bank, it is pointed out that merchandize trade among advanced economies, as a share of total world trade, fell from about 70% in the early 1980s to less than 40% by the early 2010s, as trade involving emerging market developing economies grew rapidly. Along that line, the Belt and Road areas would pose tremendous opportunities for growth.

This brings me to the second part of my presentation about the role of Hong Kong in all these.

Hong Kong - a key link for the Belt and Road

Strategically located in Asia with easy access to different parts of the world, Hong Kong has many things to offer in connecting the different strands of the Belt and Road Initiative. I would highlight three key aspects in particular.

First, trade and investment link. Hong Kong is a free port and free trade is in our DNA preserved in the Basic Law. We are the seventh largest merchandize trading economy in the world. And talking about emerging markets, Hong Kong's trade with the 10 ASEAN economies grew by an average of 3.4% from 2012 to 2016.

To take that relationship further, we are working on a Free Trade Agreement with ASEAN and hope to conclude the negotiations soon. The FTA is in line with Hong Kong's strategic goal of strengthening trade and economic partnership with the ten ASEAN Member States, which collectively is our second largest merchandise trading partner. It will bring more business opportunities and stimulate further growth in the region.

Apart from ASEAN Member States, we have also engaged with Georgia and Maldives, two other economies along the Belt and Road, on free trade initiatives. Our FTA negotiation process with Georgia already comes to the closing stage and the FTA will be signed after completion of the necessary internal procedures. At the same time, we have also commenced bilateral FTA negotiation with Maldives.

Hong Kong has so far signed Investment Promotion and Protection Agreements (IPPA) with 19 economies and has concluded negotiations with Bahrain, Mexico and the UAE. Negotiations will commence or continue with other Belt and Road economies. And we are also in discussion with India on a possible IPPA.

Of course, our first Free Trade Agreement is the Closer Economic Partnership Agreement (CEPA) signed with Mainland China in 2003. With CEPA, our goods and services can enter the Mainland market with preferential treatment. Late last month, both sides signed an Investment Agreement under the framework of CEPA. The Agreement, to be implemented from 1 January 2018, includes the elements of admission of investments, investment protection and investment facilitation. With the expanded CEPA institutional framework, Hong Kong is well placed to connect the Mainland of China with Belt and Road economies and vice versa.

Second, capital market and financial intermediation. As an international financial centre, Hong Kong offers diversified financing channels supported by over 150 international and local licensed banks.

Building on our unique edge of having close trade and economic links with Mainland China, Hong Kong is the world's largest offshore RMB business hub, providing diversified investment, financing and risk management products and handling over 70% of offshore RMB transactions.

Hong Kong is home to the largest offshore RMB liquidity pool in the world, accounting for approximately 50% of the global offshore RMB liquidity with well-established clearing and settlement facilities.

We are also uniquely connected with Mainland's capital market. The Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect were launched in November 2014 and December 2016 respectively, providing direct channels for local and international investors to invest in the Mainland stock markets and Mainland investors to invest in ours.

Adding to these, as you may all know, Hong Kong and the Mainland launched the "Bond Connect" scheme on 3 July 2017 to allow foreign investors to trade Mainland bonds through Hong Kong.

In short, Hong Kong is fast becoming an RMB pricing centre and risk management centre. Our well-functioning and internationally connected stock exchange and capital market can help raise funds through equity, debt and other forms, manage the risks and coordinate different aspects of the investment needs.

You may have already known that Hong Kong became a member of the Asian Infrastructure Investment Bank (AIIB) in early June this year. This will put the spotlight on what Hong Kong can offer as an investment and financing platform - project loans, bond issuance, treasury management, private equity investments and many others.

The Hong Kong Monetary Authority also helps co-ordinate investment in infrastructure projects. The HKMA established the Infrastructure Financing Facilitation Office in 2016 to provide support for stakeholders to invest in infrastructure projects. The Office now have some 60 partners - ranging from multinational financial agencies, development banks, private and public sector investors, to insurance companies and professional service firms - all keen to ride the wave of Belt and Road opportunities.

Third, people and professional connection. Apart from financial needs, there is a strong demand for professional services in regions along the Belt and Road. Hong Kong's professionals can provide quality service in merger and acquisition financing, professional consultancy, legal, construction engineering and management, project planning and development, manpower training and more. Our Mass Transit Railway Cooperation (MTRC) is a good example of how we can expand our project management know-how to other economies to achieve win-win results.

And in November 2016, the HKSAR Government launched a HK$200 million "Professional Services Advancement Support Scheme" to support exchange and cooperation between Hong Kong's professional service providers and their overseas counterparts, including those in Belt and Road countries and economies.

Conclusions

While highlighting the opportunities brought about by the Belt and Road Initiative, I am keenly aware of the hurdles to overcome in order to bring the Initiative to a success. First of all, we are mindful of the great variations in the development stages among the Belt and Road economies. The governments which engage in the Initiative have to actively deal with the issues as they arise. Putting aside geopolitical challenges, businessmen also have to deal with the potential risks related to currency fluctuations, bottlenecks or weak links in infrastructural and logistic support, and issues related to government efficiency, local laws and orders.

While participation by businesses in the Initiative is the key driver for success, governments can help the cause of unimpeded trade and investment flows by removing some of the "roadblocks" through the negotiations of bilateral investment protection agreements and double taxation avoidance agreements with a view to protecting the lawful rights and interests of investors and expanding the scope of mutual investment. The setting up of various forms of industrial parks and economic and trade cooperation zones is also encouraged with a view to promoting the cluster development of various industries in countries along the Belt and Road routes. All of these mean creating business opportunities for corporations in the region.

As always, Hong Kong is open for business to investments from all over the world, and we offer our best to help you capture the massive opportunities arising from the Belt and Road Initiative.

Thank you.

Ends