Tuesday, November 1, 2011
A speech by Hong Kong’s Financial Secretary, John C Tsang, at the Annual Conference of the Hong Kong Investment Funds Association, looked at how Hong Kong's asset management industry can steer a path towards new opportunities during the period of China’s 12th Five-Year Plan.
Firstly, he confirmed that Hong Kong's combined fund management business now exceeds HKD10 trillion (USD1.3 trillion); that currently two-thirds of funds are sourced from non-Hong Kong investors; and that Hong Kong continues to be a preferred location for overseas fund managers in Asia, due to its main advantage of proximity to the Mainland and well-defined status as a global financial centre in the Asian time zone.
As the Mainland continues its reforms and opening up policies, he added that Hong Kong is the ideal testing ground for renminbi (RMB) products. At the end of August this year, total outstanding RMB deposits in Hong Kong amounted to some RMB610bn (USD96bn), almost a tenfold increase since 2009.
In addition, by September this year, there had been 95 RMB bond issues, totalling around RMB160bn, while, in the first eight months of this year, more than RMB1 trillion worth of Mainland trade was settled in Hong Kong (more than 80% of the total trade settled in RMB).
The National 12th Five-Year Plan adopted in March this year, he said, explicitly supports the development of Hong Kong as an offshore RMB business centre and, for the first time, it affirms the function and role to be played by Hong Kong's asset management industry.
Tsang pointed out that, during his recent visit to Hong Kong, China’s Vice-Premier Li Keqiang had announced new initiatives, such as allowing investments in the Mainland equity market through the RMB Qualified Foreign Institutional Investor scheme, and the launch of an exchange-traded fund with underlying Hong Kong stocks on the Mainland.
He was sure that these measures would not only facilitate the development of Hong Kong as an offshore RMB centre, but also help promote the growth of the SAR's asset management industry. Hong Kong’s government will continue to foster a favourable environment for that growth.
Tsang disclosed that, to enhance Hong Kong’s financial infrastructure, the government is preparing legislative amendments to modernize the trust law. It is hoped, he said, that it “will encourage more local and overseas settlers to choose our jurisdiction as the governing law of their trusts and administer their trusts in Hong Kong. We intend to consult the trade on a draft Trust Law Bill in the first quarter of 2012.”
Finally, with regard to Islamic finance, he believed that: “Hong Kong is well-suited to become a vibrant Islamic financial platform and market for Sharia-compliant bonds. This is an opportunity we will continue to pursue. We are working on a bill to provide a level playing field for sukuk vis-ŕ-vis their conventional counterparts in terms of tax liabilities.”
As interest is not allowed by Sharia law, earnings on Islamic bonds are taken as profit, which is subject to being taxed. The government is therefore looking to introduce a bill to offer the same withholding tax exemption as is given to normal bonds on interest paid.
He confirmed that the government aims “to conduct a second round of consultation with major market players on the relevant details of our legislative (Islamic) proposal in the first quarter of 2012.”