Distinguished Guests, Ladies and Gentlemen,

     It is always a pleasure of mine to welcome the Fraser Institute to Hong Kong. Here I must thank the Lion Rock Institute for arranging tonight’s dinner and for its continued work to foster economic freedom in Hong Kong.

     I am of course delighted that Hong Kong has again been ranked by the Fraser Institute as Number One in the world for Economic Freedom. This Gala Dinner is a great way to mark that achievement and to celebrate the benefits of economic freedom.

     Hong Kong has been ranked Number One for more than three decades. We’ll do our best to make it Number One for the next three decades too. We are never complacent in this. This recognition from the Fraser Institute highlights our long-standing commitment to free and open markets. This philosophy has served our city well – in good times and in bad, in times of stability and great upheaval.

     The Fraser Institute last held its Gala Dinner here in 2008, at the height of the global financial crisis. In fact, it was in the same week that Lehman Brothers filed for bankruptcy in the US – a decision that only deepened the sense of gloom that was being felt in world markets at that time.
 
     Three years on, we are still feeling the aftershocks of the worst global financial crisis since the Great Depression. Some economists are predicting a double-dip recession, which I am sure we all hope does not eventuate, but for which we must be well prepared.

     In such testing times, it is important for an externally-oriented economy such as Hong Kong to remain true to our philosophy. That means strong fiscal discipline, low taxes, open markets, free flow of information, goods and capital, clean government and a level playing field for business.

     The fact that we have held true to these beliefs for decades is no doubt one reason why Hong Kong has consistently ranked so highly in the league tables of economic freedom. As the old saying goes: “If it ain’t broke, don’t fix it.”

     At the same time, the Fraser Institute’s report, along with others covering competitiveness, business environment and livability, also identify areas where there is room to improve. Because of our extensive international networks and connections, Hong Kong understands more than most economies the need for constant vigilance to remain competitive and relevant in the global marketplace. And while it is always nice to receive an accolade for a job well done, it is perhaps more useful to look at the areas on which we need to work and to stay ahead of the competition. We will be looking closely at the areas in your report that might need more attention on our part – thanks for the useful reference.

     Despite the global turmoil, Hong Kong today is doing quite well. We are looking at 5% to 6% growth this year in GDP. Trade remains strong, the retail sector is doing very well and our unemployment level is low by global standards – it’s now at 3.2%, almost equivalent to full employment. We do have concerns about higher inflation and asset price bubbles and we are keeping a very close watch on both of these areas.

     Last year, Hong Kong was the world’s third-largest recipient of Foreign Direct Investment flows, and the second-largest FDI recipient in Asia. Second only to the whole of China. We attracted a record US$69 billion. In terms of FDI stock, Hong Kong ranked the highest in Asia last year, with a 30 per cent share, or a little over US$1 trillion.

     Hong Kong and the Mainland of China also continue to invest heavily in each other’s economies – with the realised stock of two-way, inward investment hitting US$800 billion by end-2010. That’s a pretty solid vote of confidence in each other’s future. We are in the future of Mainland China. And Mainland China has confidence in us, Hong Kong.

     This is also a reflection of the important role that Hong Kong has played in the Mainland’s opening up and reform process. This process started in 1978 but has accelerated in recent years as China and the rest of Asia have become the focus of greater investment interest.

     Since 1997, Hong Kong has been able to play a much greater role in this process under “One Country, Two Systems”. This is because the Central Government of China is leveraging all the strengths and advantages that Hong Kong enjoys as a free and open economy to provide a testing ground for the nation’s liberalisation of trade and services.

     For example, under “One Country, Two Systems” Hong Kong remains a separate member of the World Trade Organisation. This has allowed us to sign a free-trade pact with the Mainland of China to provide greater access to this huge market for Hong Kong’s goods and services.

     The Mainland-Hong Kong Closer Economic Partnership Arrangement, or CEPA, was launched in 2004. It has gradually been expanded since then to include more opportunities for Hong Kong manufacturers and service providers to access the Mainland markets, often through pilot programmes in adjoining Guangdong Province.

     We are now working on the eighth round of enhancements to CEPA and our ultimate goal is to fully liberalise trade in services between Hong Kong and the Mainland by 2015.

     Last year we also signed the Framework Agreement on Hong Kong/Guangdong Co-operation. This Agreement further opens the gates to cross-boundary trade, finance and investment with Guangdong Province, which now has a population of 100 million. Not a bad market for starters.

     So, you can see that we are constantly looking for ways to open up trade and investment pathways and to improve our business-friendly environment.

     Market freedom lies at the heart of Hong Kong’s role as China’s global financial centre and the development of the offshore Renminbi market. This exciting development will have a huge impact on Hong Kong’s financial sector. It is paving the way for the gradual and greater use of Renminbi for international trade and investment.

     But the reason this is possible in Hong Kong is because it is underpinned by the same fundamentals required for a global financial centre to flourish – sound and transparent regulations, a freely convertible currency, superb real-time, multi-currency settlement infrastructure, low and simple taxes, a tried and trusted legal system, the free flow of information and a critical mass of world-class talent in finance, equities, banking, insurance and corporate law.

     Around 180 banks are currently using Hong Kong’s Renminbi clearing platform. This includes branches of overseas banks as well as overseas branches of Mainland banks which together form a Renminbi payment and settlement network covering over 30 countries. This year the total value of trade settling in Hong Kong is likely to go over 1.5 trillion Renminbi. The savings of Renminbi in Hong Kong has already exceeded half of a trillion. The market is going at an accelerated pace. The strength of Hong Kong in this system is apparently getting momentum. It is going to be the most important powerful tool as Renminbi becomes liberalised and international convertible currency.

     The development of a Renminbi bond market in Hong Kong has also gathered pace since the first launch in 2007. In just the first half of this year, there were 38 Renminbi bond issuances in Hong Kong totaling 43 billion Renminbi – more than all the bonds issued last year. In other words, this year we are going to at least double what we did last year.

     Ladies and gentlemen, these are just some of the ways that Hong Kong’s commitment to economic freedom benefits not just our city but also our nation and our business partners around the world.

     Our clean and efficient government continues to look for ways to cut red tape, eliminate outdated regulations and safeguard property rights. In recent months, business registration, customs clearance and arbitration services have all been streamlined to enhance our business-friendly environment. Just now we got a reference to the introduction of minimum wage in Hong Kong being a handicap. Let’s see how carefully it has been fashioned in a way that while we introduced minimum wage policy this year, unemployment rate continues to decline, indicating the wisdom and appropriateness of our policy.

     So, economic freedom is part of Hong Kong’s DNA. We value the Fraser Institute’s recognition of Hong Kong’s endeavours and we look forward to seeing you back in Hong Kong again and again.

     Thank you very much and have a great evening.

Honourable Vice-Premier Li Keqiang, ladies and gentlemen,

Good morning. First of all, let me thank the Vice-Premier and the delegation for joining today’s forum, fully demonstrating the Central Government’s support and care for the Hong Kong Special Administrative Region (SAR). On behalf of the HKSAR, I would like to extend our warmest welcome to the Vice-Premier and the delegation.   

The forum today focuses on the National 12th Five-Year Plan and the development of economic, trade and financial co-operation between the Mainland and Hong Kong. And the name of the forum, “Sharing Opportunities for Common Prosperity”, highlights the interactive, mutually beneficial and complementary relations between the HKSAR and the Mainland under the National 12th Five-Year Plan.

Under the concept of “One Country, Two Systems”, Hong Kong enjoys many advantages as a Special Administrative Region of the People’s Republic of China after our reunification with the country. Our resilient financial system, simple tax regime, free foreign exchange, robust judiciary and regulatory systems, transparent and efficient market operation, and an elite pool of talents have all helped Hong Kong develop into the international financial, trade and shipping centre of today.

As regards our relationship with the Mainland, we have been providing funds, skills, experience and talent for our country’s modernisation and  development over the past 30 years. As at the end of June 2011, accumulative realised investment from Hong Kong had reached US$492 billion, representing 44 per cent of the country’s total investment from the outside. Hong Kong is also the gateway for the Mainland to “go global”. Half of the country’s external direct investment was made in Hong Kong or other regions in the world through Hong Kong. 

As an international financial, trade and shipping centre, Hong Kong benefits from its close ties to the motherland. As at the end of July 2011, 616 Mainland corporations were listed in Hong Kong, representing 42 per cent of the total number of our listed companies and 55 per cent of the total market capitalisation. While Hong Kong is an important fund-raising platform and international trade window for Mainland businesses, the Mainland is our biggest trade partner. According to Mainland statistics, the import and export trade between Hong Kong and the Mainland exceeded US$230 billion in 2010.

Through co-operation between the two places, Hong Kong continues to contribute to the rapid development of the country while thriving in all areas. 

Our close ties with the motherland, the “One Country, Two Systems” and the rapid development of our country together form the unique advantages of Hong Kong. This year, we are most excited to see a dedicated chapter on Hong Kong and Macao in the National 12th Five-Year Plan, which signifies the country’s resolve to maintain Hong Kong’s prosperity, stability and further development. The dedicated chapter highlights the Central Government’s support for Hong Kong in various aspects.

First, the country’s support in consolidating and enhancing our competitive advantages, including our position as an international financial, trade and shipping centre, and support for our development as an international asset management centre and an offshore Renminbi (RMB) business centre, increasing our impact on a global scale.

With the staunch support of the People’s Bank of China and other Mainland ministries concerned, our offshore RMB business has made good progress since last year. In the first half of 2011, settlement of trade deals in RMB conducted through Hong Kong banks reached over RMB800 billion, or around 80 per cent of the total RMB trade settlement in the Mainland. The development of our RMB bond market is equally encouraging. In the first seven months of this year, a total of around RMB70 billion of bonds, including RMB20 billion of sovereign debt, have been issued by entities around the world, already 95 per cent more than the issuance for the whole of last year. All of this tells us that Hong Kong is taking take shape as a premier offshore RMB business centre and serves as an important platform for the development of RMB business around the globe.

Second, the country’s support in nurturing and helping Hong Kong’s emerging industries to extend their scope of co-operation and services in the Mainland. This will help us further improve the structure of our industries. 

Third, the deepening of economic co-operation between the Mainland, Hong Kong and Macao. This includes continuing the implementation of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), carrying out the Framework Agreement on Hong Kong/Guangdong Co-operation to establish a financial co-operation zone in the Pearl River Delta region with Hong Kong’s financial system taking the lead, and encouraging the Guangdong services industry to open up to Hong Kong through “early and pilot implementation” for gradual expansion to other places as well. These measures help Hong Kong expand its economic hinterland, promote further integration of the services industries across the boundary, and enhance the overall competitiveness of the region. 

In addition to specifying the position of Hong Kong in the strategic development of the nation, the chapter dedicated to Hong Kong and Macao also points out the direction of co-operation between Hong Kong and the Mainland in the 12th Five-Year Plan period, which caters for the needs of the current situation as well as the future development of Hong Kong. 

With the blueprint of the National 12th Five-Year Plan, the country aims to expedite the transition into a new mode of economic development by boosting internal consumption, promoting the services industry and emerging industries, and encouraging urbanisation, innovation and technological advances under an extended “go global” strategy. All of these policies will bring us immense opportunities. 

Take the development of the services industry as an example. With our profound experience and knowledge in the area, we are well positioned to promote the development of the services industry in the Mainland. The National 12th Five-Year Plan aims to enhance the importance and standard of the services industry. The Mainland counterparts should not only work on the quantity, but also strive to raise the quality to meet the requirements of the international markets. In this respect, the services industry in Hong Kong is presented with unprecedented opportunities. Our entrepreneurial, can-do spirit is our key to success. We must make the best of these opportunities to create a favourable environment for our services industry to enter the huge Mainland market. 

Hong Kong is blessed to enjoy the advantages of “One Country, Two Systems”, our geographical location as China’s southern gateway, the support of our Mainland compatriots and our passionate, hard-working people who give their best for Hong Kong. All these advantages will be further strengthened under the direction of the National 12th Five-Year Plan.

The forum today gives us a better understanding of the opportunities brought about by the National 12th Five-Year Plan in economic, trade and financial co-operation between the Mainland and Hong Kong. By making the best of our interactive, mutually beneficial and complementary relations, I am sure we can create a common prosperity and a brighter future for all our people in the years to come.

Thank you.

Chinese version on next page.

Albert (Frank), Peter (Lawler), Bob (Armstrong), distinguished guests, friends, ladies and gentlemen, 

Good afternoon.

It is my great pleasure to join you here for lunch in beautiful Toronto.

It is always good to be here in Toronto.  In some ways, this city seems like a second home to me.

I have had the opportunity of visiting Toronto on a number of occasions, for business and for pleasure.  I was here for the G20 Summit just over a year ago.  That was strictly business, of course, and the atmosphere felt so different then.  I am glad to see the real Toronto again.

A few years ago, I was here purely for pleasure, as father of the groom.  My son married a wonderful girl from Toronto.  Her family still lives here.  The wedding reception took place not too far from here at the Royal York Hotel.  I return this time for my first visit to Toronto as a proud grandfather.  Perhaps this explains some of the extra grey hairs on my head!

Of course, our family’s story is not a unique one.  Although many thousands of miles (7 800 miles/12 600 kilometres) separate Hong Kong and Canada, relations between our two communities are especially strong and go back many decades.  If you include Hong Kong people with Canadian citizenship, almost 300 000 Canadian citizens live in Hong Kong and more than 100 Canadian firms have offices in our city.

The Canadian Chamber of Commerce in Hong Kong is one of the largest of its kind outside North America.  It has over 1 100 members.  Here in Toronto, Hong Kong has an Economic and Trade Office.  All these help keep two-way channels of communication between us wide open.

This is important because we all know that the secret to a successful long-distance relationship is good communications as well as shared values and mutual respect and understanding. 

Over the years, our strong cultural, economic and financial links have stood the test of time, not least through the recent global financial crisis.

Today, I want to communicate to you some of the ways that businesses can strengthen even further this enduring relationship.  I can assure you that this is a great time to take a fresh look at the opportunities in Hong Kong, in Mainland China and throughout Asia.

This brings me to the main theme of my talk: Hong Kong’s Role in China’s 12th Five-Year Plan – Opportunities for Canadian Business.

The National 12th Five-Year Plan was adopted in March this year.  The Plan provides a clearly defined blueprint for the economic and social development of our nation up to 2015.

For the first time, The Plan devotes a full chapter to Hong Kong and nearby Macao.  This is significant because it underscores Hong Kong’s role in, and opportunities arising from, our nation’s development.

On July 1, Hong Kong celebrated its 14th Establishment Day Anniversary.  This also happens to coincide with Canada Day.  That makes it a double celebration for the large Canadian community in our city, including members of my family.

There have been significant developments since Hong Kong’s reunification with Mainland China in 1997.  However, economic and social stability and continuity have been the cornerstones of our enduring success.

For example, an independent judiciary continues to underpin our common law legal system.  Our legal system is based on the English system and similar to that in Canada.  We continue to maintain our own low and simple tax regime, our own financial system and our own unique style of capitalism.

Hong Kong is ranked number one in the world for economic freedom by Canada’s Fraser Institute and by the Heritage Foundation in the US.  Canada is also ranked in the Top 10.  This reflects our shared economic values and commitment to maintaining open markets and free trade.

Hong Kong’s business-friendly environment is built on free flows of capital, information and ideas.  Our liberal immigration policies encourage a free flow of talent.  All this is guaranteed under the “One Country, Two Systems” formula for our reunification with the Mainland.

While Hong Kong has retained its unique characteristics, our city’s inclusion in the 12th Five-Year Plan highlights our close integration within our nation.  This is a two-way street.  On the one hand, Hong Kong benefits greatly from being part of the world’s fastest growing large economy.  At the same time, our city is a well-established international business and financial centre in its own right.  As such, Hong Kong contributes to Mainland China’s economic reforms and opening up to the rest of the world.  Hence, Hong Kong contributes to the economic prosperity of our nation.

The 12th Five-Year Plan sets out specific areas where Hong Kong can contribute most effectively to our nation’s overall development.  Not in any particular order, these areas are: as an off-shore centre for business using the Mainland currency, the Renminbi; as China’s global financial centre; as an international asset management centre; as an international centre for trade and as an international shipping centre.  The Plan also underscores the Central Government’s commitment to maintaining the long-term prosperity and stability of Hong Kong.  All this is solid proof that Hong Kong is not on the sidelines of China’s economic development; we are right in the thick of the action. 

Importantly, the Plan also pledges support for Hong Kong’s emerging sectors and for closer co-operation between Hong Kong and the Mainland.

So, what does this mean in terms of “Opportunities for Canadian Business”?

First and foremost, it means that businesses in Hong Kong must innovate and upgrade their products and services.  This is the best way to take full advantage of our closer integration with the Mainland.

One area is financial innovation.  China’s rapid growth has been a mainstay of Asia’s economic recovery.  It has also given our nation more financial clout on the international stage.  However, the Mainland maintains a closed capital account and imposes restrictions on investment.  Here enters Hong Kong.

In 2010, Canadian direct investment in Hong Kong was valued at almost CAD$6 billion (CAD$5.78 billion).  That is about 72 per cent higher than that for Mainland China and more than double the amount invested in Japan.

As China’s global financial centre, Hong Kong has been a testing ground for the liberalisation of the Mainland currency, the Renminbi.  Today, Hong Kong is the offshore centre for Renminbi banking, Renminbi trade settlement and the issuance of Renminbi bonds.

Canadian firms can raise capital for their Mainland operations by issuing Renminbi bonds in Hong Kong.  Last year, fast food giant McDonald’s became the first foreign company to issue Renminbi-denominated bonds.  Then follow Caterpillar and others.  A variety of enterprises, including the Asian Development Bank, have also since followed suit.  I encourage Canadian firms to test the waters in this area.

Canadian firms doing business in the Mainland can also take advantage of our Renminbi experience by using Hong Kong as the centre to settle trade using Renminbi.  Renminbi trade settlement was introduced by the Central Government in 2009 and expanded last year.  Canadian companies can now settle their Mainland trade in Remninbi with 20 Mainland provinces and cities.

Another opportunity for Canadian companies is to list on Hong Kong’s stock market.  Once again, our biggest advantage is the China factor.

The great thing for overseas companies listing in Hong Kong is that they can attract wealthy institutional investors from Mainland China and throughout Asia.  At the same time, a Hong Kong listing helps firms to raise their profile in the Mainland and promote their brands across our nation’s vast markets.  We offer attractive valuations while maintaining robust listing rules.  For example, companies must comply with a three-year “profit test” before they can launch an Initial Public Offering (IPO).

In each of the past two years, Hong Kong has led the world in funds raised through IPOs.  Last year, IPO funds raised in Hong Kong reached US$58 billion (CAD$55.7 billion).  This included SouthGobi Energy Resources which is owned by Canada’s Ivanhoe Mines.  The company raised about US$440 million (CAD$423 million) through its secondary listing in Hong Kong.  Other resource firms from Russia, Brazil and Switzerland have also listed in Hong Kong over the past year or so.  Hong Kong is particularly attractive for overseas resource companies because our nation is a major consumer of natural resources, and places like Canada are major producers.

Beyond the resource sector, companies from Britain, France, Japan and most recently Italy have listed in Hong Kong.  They cover a broad range of sectors from financial services to fashion. 

Our stock market is already the second largest in Asia by market capitalisation and the sixth largest in the world.  At end-May, market cap was around US$2.8 trillion (CAD$2.7 trillion).

I have already mentioned some of our shared values in terms of providing a stable business-friendly environment.  These include our tried and trusted legal system, open capital markets and free flows of information and talent.  Our low taxes include salaries tax capped at 15 per cent, and profits tax at 16.5 per cent.  There is no capital gains tax in Hong Kong, no inheritance tax, no VAT and no GST.  We don’t even have any duty on wine.

Last month, Hong Kong and Canada began considering an avoidance of double taxation agreement.  This would further streamline the taxation procedures between us and boost profits for businesses and investors. 

Another way for Canadian businesses to benefit from Hong Kong’s close integration with Mainland China is through our unique free trade pact.  We call this the Mainland-Hong Kong Closer Economic Partnership Arrangement, or CEPA for short.  CEPA was launched in 2004 to help open up Mainland markets to Hong Kong firms.

The best part is that CEPA is nationality-neutral.  Overseas companies, including Canadian firms incorporated in Hong Kong, can enjoy the same advantages as local firms.  This includes the “first mover” advantage, tariff-free entry for goods produced in Hong Kong to the Mainland and enhanced access to markets in 44 services areas.

It is one way for Canadian firms to add value to their operations and reach increasingly affluent Mainland consumer markets.

Ladies and Gentlemen, these are exciting times for our city, for our nation, and for our overseas investors.

Last year, our economy grew by a healthy 7 per cent.  It expanded 7.2 per cent in the first quarter of this year compared to the same period in 2010.  We have forecasted a full year GDP growth of between 5 and 6 per cent this year.

Our bilateral trade with Canada expanded almost 13.5 per cent last year compared to 2009.  Trade between us reached CAD$4.4 billion in 2010.  Also last year, more than 10 per cent of total trade between Canada and Mainland China was routed through Hong Kong.  This trade amounted to some CAD$3.7 billion.

Given the deep connections between Hong Kong and Canada, our shared values and mutual respect and understanding, Hong Kong will continue to be a highly effective springboard for Canadian firms with an eye on the vast markets in Mainland China and in the Asia time zone.

I hope that you will come and visit us in Hong Kong soon. That way, you can see for yourselves the huge opportunities for Canadian business in our neck of the woods, and help take our long-distance relationship to a whole new level.

Thank you very much.

各位多倫多香港社區的朋友、各位香港商會及僑團的領袖：

大家好！

很高興相隔一年，再次來到多倫多，又有機會同大家聚首一堂。上次來加拿大參加G20峰會，來去匆匆，沒有時間看看加拿大的最新發展。其實，在G20峰會期間，我們簡直是不可能看到甚麽，所以我十分高興我們可以再次看到多倫多這個美麗城市的真正面貌。這次抽時間到東岸幾個主要城市走走，為加港合作發掘新機遇，亦看望看望大家，探望一些老朋友，認識一些新朋友。

華人是加拿大最大的少數族裔群體，佔總人口約4%。在多倫多，華人更佔人口的9%。其中，來自香港的華人最多。我知道很多加拿大籍華人，對香港事務十分關心。最近，我聽講大家特別關心那個發放六千元的措施，我相信我們駐多倫多經濟貿易辦事處的同事會樂意解答大家的問題。我亦希望可以借今天的機會，向大家簡單介紹一下香港在經濟方面的最新情況。

香港經濟今年第一季的表現比預期強勁。本地生產總值按年實質增長7.2%，增幅高過2010年全年的7%增長。在就業和收入情況持續改善帶動下，香港的本地消費市道繼續向好，私人消費開支強勁，第一季的實質增長達到7.6%。營商信心維持正面，大型企業對短期業務前景看法保持樂觀。

香港今年的全年經濟增長勢頭是良好，但是香港經濟和全球經濟一樣，仍然面對不少大環境的因素，包括美國經濟復蘇進程不穩定、歐元區個別國家受主權債務問題困擾。北非中東的局勢持續不穩及日本的核電洩漏問題。但長遠而言，我對香港經濟繼續保持繁榮，充滿信心。

我的信心除了來自香港人歷來敢於接受挑戰、自強不息的精神，也來自中國內地對香港經濟的支持。內地今年通過的《十二五規劃綱要》，  就香港特區的未來發展開闢獨立篇章，明確支持香港成為離岸人民幣業務中心，為香港金融業的未來發展指明方向。

香港自2004年開始積極推出的人民幣服務。經過七年來不斷發展，在人民幣貿易結算、融資以及資產管理三方面業務的互相帶動下，已逐漸形成人民幣業務平台，亦已建立起有關的金融基建和支付系統。

自中國內地在2009年7月推出跨境貿易人民幣結算安排以來，以人民幣結算的貿易佔總體貿易額比例亦已經由2010年上半年的0.7%上升至今年第一季的7%。我預期在各方面的大力推廣之下，  更多國家和海外企業會認識到人民幣結算的好處，而且選擇以人民幣去支付部分過去只能夠以美元或其他第三國貨幣作結算的貿易，推動中國外貿以人民幣結算的比例持續上升。在這良好勢頭之下，  香港的離岸人民幣業務平台將會進一步發揮作用。

加拿大和香港的經貿交往十分密切，去年有超過304億港元的貨物經由香港轉口到中國內地。大家可以積極考慮透過香港的人民幣結算平台進行貿易，減低匯率波幅的影響。

除了金融業發展之外，中國內地整體經濟亦不斷發展。以過去十年為例，內地國內生產總值由2000年的1萬2千億美元增加到2010年的5萬9千億美元，是十年前的五倍。而香港作為海外企業進入內地市場的窗口地位亦不斷增強。我鼓勵大家抽空到香港和內地走一走，看看這些數字所帶來的實際變化，並且把握機遇，透過香港進入內地市場，拓展業務。不少回流港人已經利用這個途徑締造了一個又一個的成功故事。我們駐多倫多經濟貿易辦事處會繼續在這方面為大家提供支援。

最後，祝願大家身體健康，家庭幸福。

多謝大家！

Good afternoon to you all.  It is indeed a pleasure to be back to this wonderful city.  Hong Kong and Toronto have been enjoying close friendship.  Among the 2.5 million population in Toronto, about 400 000 (4%) come from Hong Kong.  Really I do not know anybody in Hong Kong who does not have a relative or friend in Toronto.  May I thank the Hong Kong Canada Business Association and our Toronto Office for organising this luncheon, which provides a valuable opportunity for exchanges between the two places.

Today I would like to speak briefly on how we position Hong Kong as an international financial centre (IFC).  The financial services sector is one of our major economic pillars, accounting for 16% of our GDP and 6% of our workforce.  We have achieved quite a lot, and aspire to achieve even more.

A snapshot

To start with, let me give you an update on our post-tsunami development.  Hong Kong economy has bounced back four quarters in a row.  By the first quarter of 2010, GDP has largely recouped all the lost ground in the 2009 recession.  Given the current economic momentum in Hong Kong and in the region, and barring any major external shocks, real GDP growth for 2010 as a whole may exceed our earlier forecast of 4-5%.  But of course latest news on European woes has brought uncertainties.

To reflect, Hong Kong has weathered the tsunami relatively well when compared to many economies.  The Government acted swiftly, reassuring the industry and the public that the necessary measures would be taken to mitigate the crisis.  Our financial system has remained relatively stable.  The stock market stays robust.  Our clearing and settlement system remains smooth and efficient.  No financial institution in Hong Kong required a bail-out.  Our banking sector remains healthy and well capitalised.  For example, the capital adequacy ratio of our locally incorporated banks is 16.9%, far above the Basel standard of 8%.

There is however no room for complacency.  We spare no effort to sharpen and capitalise our strengths in positioning ourselves as an IFC.  These include [our simple and low taxes, free flow of information and capital, a stable and fully convertible currency, a predictable and certain regulatory regime, a versatile and flexible workforce, as well as a free economy buttressed by the rule of law and an independent judiciary.

IFC Strategic Positioning – Market Development

During the financial tsunami, a new economic order has emerged, with Mainland China playing a more prominent role in the international financial arena, and the centre of gravity moving more to the East.  Hong Kong is participating in and facilitating this process, and as a result, further strengthening our position as an IFC.  Our strategic focus is on three key areas, namely offshore Renminbi (RMB) business, asset management and capital formation.  Let me walk you through these briefly.

Hong Kong as an offshore RMB centre 

First, Hong Kong as an offshore RMB centre.

China has announced its policy goals for the internationalisation of RMB.  It has to map out its strategies with care to avoid undermining its financial security.  Through the development of offshore RMB business in Hong Kong, Mainland China can make use of Hong Kong as the preferred testing ground for RMB reforms before the capital account becomes fully open.  We believe this is the best way to promote the use of RMB outside the Mainland in an orderly manner.

Banks in Hong Kong can now offer a range of RMB services, including RMB deposit-taking, loans, bonds issuance and trading, and trade settlement and related services.  At the end of April 2010, the outstanding RMB deposits in Hong Kong totalled RMB 80.9 billion.

Hong Kong is the first and only place outside Mainland China that has developed a RMB bond market.  Since 2007, there have been 13 RMB bond issues in Hong Kong, totalling RMB 38 billion (including RMB 6 billion of sovereign bonds launched for the first time in 2009).  The RMB Trade Settlement Scheme was launched in July 2009, fully leveraging our RMB settlement and clearing platform, which is the most effective and largest outside the Mainland.  Under this scheme, we provide RMB trade settlement services for enterprises in the Mainland trading with Hong Kong and ASEAN members.

To further develop Hong Kong as an offshore RMB centre, we have adopted a three-prong approach -

-     First, attracting RMB liquidity.  Since last February, the RMB Trade Settlement Scheme has been expanded to cross-border trade in services.  We seek to cover more enterprises in the Mainland and other trading partners as we go forward.

-     Second, developing more RMB denominated products.  These would require joint efforts with the market in issuing corporate bonds, ETFs and other funds, insurance policies, etc.

-     Third, allowing more RMB market players to perform an effective intermediation role.  These would require modification of existing regulations governing transfer of RMB between accounts in Hong Kong.

With greater liquidity, more products and more market players, we expect to anchor a critical mass of RMB business in Hong Kong.

Hong Kong as an asset management centre 

Second, Hong Kong as an asset management centre.

We have a sizeable fund management business, over 64% of which is sourced from overseas investors.  We are an attractive location for overseas fund managers to conduct asset management business.  We have no tax on sales, capital gains or dividends.  We have abolished estate duty and exempted offshore funds from profits tax since 2006.  Further fiscal incentives for the fund management industry were announced in our Budget in February this year.

After the financial tsunami, the strong rebound of China’s economy has spearheaded the overall economic recovery of Asia and created abundant investment opportunities in the region.  Asia is now the bright spot in the eyes of global institutional investors.

More global institutional investors are giving greater weight to Asia in their investment portfolios.  At the same time, there is a growing demand for wealth management services for Mainland investors.  Hong Kong is well placed to serve both, with our access to the Mainland and international markets.

To further promote our asset management business, we shall continue to step up our marketing efforts, enhance market quality and facilitate market development, which I would talk about in a moment.

Hong Kong as a capital formation centre 

Turning to Hong Kong as a capital formation centre, we were the most active market for IPO funds raised in 2009.  We raised US$31.3 billion through IPOs, putting us as number one in the world. A total of 73 companies were newly listed on HKEx.  They included Mainland companies, as well as overseas companies with business operations in China.  They are attracted by our liquidity, valuations, access to international investors, and corporate governance.

We are committed to broadening the source of listed companies.  To this end, our stock exchange has accepted a number of new jurisdictions as issuers’ place of incorporation and tailor-made IPO vetting practices for overseas companies to facilitate their listing.  Over the last few months, we have seen newly listed companies coming from Russia, Canada, France and the UK, in addition to the Mainland.

We shall continue to attract quality overseas companies to list in Hong Kong by streamlining the listing process.

For example, HKEx has just implemented a set of improved Listing Rules for mineral and exploration companies last week.  Our aim is to bring such Rules more in line with international standards, and to ensure that investors will be provided with material and reliable information.

IFC Strategic Positioning – Market Quality

In parallel, we attach importance to upgrading our regulatory regime to ensure market quality.  We believe that only a quality market can be a sustainable market in attracting quality products and players.

Here, I would highlight a few financial market reform initiatives that are in different stages of implementation in Hong Kong.

Strengthening Investor Protection

First, strengthening investor protection.

Under our current system, financial regulators have full power to handle complaints against the conduct of market intermediaries, but not monetary disputes with their clients.  We have therefore proposed setting up a Financial Dispute Resolution Centre to help aggrieved investors to have such disputes with financial institutions settled through a simple and quick resolution mechanism.  We have just consulted the public and are drawing up conclusions for implementation.

To further improve the transparency of our stock market, we are consulting the market on a legislative proposal to oblige timely disclosure of price sensitive information by listed companies.  We are committed to cultivating a continuous disclosure culture among the directors and senior management of the issuers.

We are also tightening the regulation of the sale conduct of financial intermediaries.  New measures include requirements to clearly segregate banks’ business in deposit-taking and securities investment for retail clients; to audio-record the sales process; to disclose commissions and fees in the sale of investment products, and to introduce a cooling-off period for unlisted structured products.

Better Safety Nets

Second, better safety nets.

Starting from January next year, the compensation ceiling under our Deposit Protection Scheme will be raised five times higher to HK$500,000, or nearly C$65,000 at 7.6.  This will tie in well with our exit from the 100% deposit guarantee introduced at the height of the tsunami in late 2008.

At the same time, we propose to establish a Policyholders’ Protection Fund for the insurance sector to improve insurance market stability and safeguard the interest of policyholders if an insurer defaults.  We aim to consult the public later this year.

Modernising Legislative Framework

Third, modernising legislative framework.

We recognise the need to update our laws to allow them to evolve with market needs.  For instance, we are modernising our company law to enhance corporate governance, facilitate business operation and save business costs.

We are also reviewing our trust law to strengthen the competitiveness of our trust service industry.

With growing interest in China-related products, Hong Kong is well placed to tap the opportunities of Islamic finance.  We are changing our laws to facilitate the issue of Islamic bonds in light of their special share-pain-share-gain features.

These are some ongoing efforts to ensure that our legislative framework is user-friendly for market participants.

Evolving International Standards

Fourth, as an IFC, Hong Kong has the duty to fulfil international obligations and comply with international requirements.

For example, we are preparing legislation to enhance our anti-money laundering regime by imposing customer due diligence and record-keeping requirements on financial institutions, in line with the standards set by the Financial Action Task Force (FATF).

We have amended our law in March to facilitate information exchange between our tax authority and their counterparts overseas, in line with standards set by the Organisation for Economic Cooperation and Development (OECD).  This has enabled us to enter into comprehensive agreement for the avoidance of double taxation with more economies (CDTA).  We have signed 11 CDTAs and expect more to come.  CDTAs help relief tax burden on individuals and enterprises and eliminate uncertainties over tax liabilities.  They will therefore help improve the business environment and facilitate flows of trade, investment and talent between Hong Kong and the rest of the world.

Last but not least, we will ensure that our regulatory regime is in keeping with the evolving international standards.  We are monitoring developments on the G20 front, including new regulations for systemically important financial institutions, OTC derivatives, hedge funds and credit rating agencies.  These would have an impact on market players in Hong Kong who serve clients overseas.  This is also part of the mission of my visit to the United States and Canada – to find out more about the latest regulatory landscape and consider need for adjustments to our own regime.

Closing

With my brief update just now, you could probably visualise how our financial services sector will develop further in the areas of offshore RMB business, asset management and capital formation, with the support of quality services on par with international standards.  We see great potential for Hong Kong to flourish as an IFC with unlimited potential, provided that we continue to leverage and sharpen our strengths.

Ladies and gentlemen, I welcome you all to play a part in it.  If you are looking for investment opportunities, Hong Kong is the prime location especially for tapping into Greater China.  If you are looking for business expansion, Hong Kong is your definite choice for your regional foothold.  If you need assistance in this regard, I am sure colleagues in our Economic and Trade Office here are more than happy to help.

Now, let’s open to the floor.  I’m most delighted for your questions and feedback.  Thank you very much.

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Asia is becoming more and more important as a region, while at the same time more integrated within itself and with the rest of the world. For historical reasons, we were divided by colonial history and regional conflict. But trade has become the integrating factor, with intra-Asian trade now accounting for about 55% of total Asian trade.

Intra-regional foreign direct investment accounts for 60% of the region’s total. So, we are truly investing in each other’s futures. But intra-regional financial integration is lagging. We are more financially integrated with London and New York than we are with each other. East Asian economies are net exporters of capital and have placed our surplus savings in the West.  Perhaps it is time to put some of those savings to work in our own backyard.
The current crisis has highlighted, in stark detail, the extent to which all of our economies are linked together. It has made us much more inter-dependent and also much more vulnerable when crucial parts of our networks experience trouble. Who would have thought that the securitised mortgage of an over-stretched home owner in Miami would have such a huge impact on an exporter of IC boards in Singapore, or photocopiers in Japan, or lorry drivers in Hong Kong? But that’s what happened, and now we need to look for ways to prevent that from happening again.

Thanks to our self-insurance, in the form of higher foreign exchange reserves and the lessons learnt from the last crisis, we were more ready for this tsunami. The economic fundamentals in Asia are much better now than they were 12 years ago. But there is no room for complacency.

Much deeper and broader-based financial integration in East Asia is important for a number of reasons. It will reduce the region’s vulnerability to external shocks and capital withdrawal. It will help us – and the world – to better absorb volatility. It will help us develop our capital markets, which will reduce the over-reliance on banks. And, it will broaden the world’s financial system by reducing the over-reliance on the US and European markets.

Some time in the future, we may need to look at the prospect of establishing an Asian currency regime as one of the building blocs of the global currency system. Just as the euro took years, Asian financial and monetary integration will take years, if not decades. A pre-condition for such integration must be deeper intra-regional financial co-operation. Only by planning and strategising now about the best way to tackle large volatile capital flows can we smoothly integrate major Asian currencies into the regional and global financial systems.

The right way forward is to build what is non-controversial – Asian financial infrastructure based on global best practices and standards. For example, the regional credit rating agencies have to be upgraded and regulated according to global standards. Similarly, India and China have closed capital accounts. What happens when the rupee and renminbi become freely traded? How will that affect global financial markets? And, what will it mean for Asia?  To prepare for the next lap, we need to build stronger Asian institutions. We should embrace the work of groups such as APEC and ASEAN, particularly in areas that will make cross-border trade and investment easier.

We cannot build the Asian region without strong partnerships. Certainly, Hong Kong and Singapore will be in the thick of the action. As leading financial centres in the region, both cities have major roles to play.
Because both cities are paragons of the benefits of free trade within a rules-based system, we must work together to push for more open markets, more access for business and greater alignment of rules and regulations.

There is much we can do together, both regionally and internationally. Working in international forums, we can together push to strengthen these multi-lateral institutions so that more Asian economies can reap the benefits of free and open trade. We can work together to support and encourage those regional economies that lack the capacity or expertise to implement the necessary financial sector reforms to their systems. We need to help each other to improve the global public good.

Of the US$3.3 trillion in cross-border portfolio investments from East Asia, some 62% went to the US and Europe, and only 9% stayed in East Asia. This pattern holds true for cross-border bond holdings and bank claims.

Hong Kong and Singapore are well placed to develop much stronger, more innovative and more resilient financial markets to handle these investments in Asia. We had a great start with the Asian Bond Market Initiative, but we can build on this by supporting the development of a regional infrastructure funding market.

Another example is financial regulatory reform. Currently, there are major reforms at the policy and structure level in Singapore and in Hong Kong, but they are disparate. Our financial regulatory agencies can join forces to help strengthen this area to the whole region’s benefit.

As China and India begin to open up even more, including the internationalisation of their currencies, both Hong Kong and Singapore will have roles to play. It is in our own and our regional interests to ensure that the opening up of the capital accounts of these huge regional economies will happen in a stable manner.  More of our academic and research institutions, as well as regulatory agencies and financial institutions, should proactively look for ways to work with each other and with regional counterparties to further the regional integration agenda.

Asia generally has developed excellent hardware, but lags behind the West in software and services, areas where Singapore and Hong Kong have comparative advantage and experience. In Hong Kong, for example, we have identified six areas where we enjoy a competitive edge for further development – educational services, medical services, testing and certification, environmental industry, cultural and creative industries and innovation and technology.

We are not abandoning our long-held belief in “Big Market, Small Government”. We are simply playing to our comparative advantages.

Whether Asia makes it to the next level – despite our enormous potential – must be a collective effort. No Asian economy can do it on its own. Hong Kong and Singapore, as two leading cities in the region, should work together with our partners in the region to ensure that we build a successful Asian Century. None of us wants to be witness to the Century of Lost Opportunity.

When I first arrived in Canada to establish the Hong Kong Economic and Trade Office in Toronto in 1991, you were fully engaged with the United States and Mexico to conclude a North American Free Trade Agreement.  In the last two decades, free trade has been established among many regions and, as a result, brought about more economic growth and prosperity.

Free Trade

In Hong Kong, over the decades we have espoused multilateralism, but we have also had some experience with regional free trade.  Between 1997 and 2003, Hong Kong’s economy suffered from the recession brought about by the Asian Financial Crisis.  Unemployment exceeded 8 per cent; real estate and stock values depreciated by more than 50 per cent.  Eventually, it took SARS to bring Hong Kong’s economy to rock bottom.  But thereafter, we rebounded.

In 2003, after SARS subsided, Hong Kong entered into a free trade arrangement with the Mainland of China.  We called this arrangement the “Closer Economic Partnership Arrangement” (CEPA).  This was made possible because China gained accession to the World Trade Organisation (WTO) in December 2001.  Also by virtue of the Hong Kong Basic Law, our mini-constitution, after 1997, we could retain our WTO membership as “Hong Kong, China”.  So, very uniquely, we have a free trade agreement within “One Country”, because we have “Two Systems”.

This free trade agreement has put Hong Kong in a very favourable light internationally.  Hong Kong was the first economy to conclude such an arrangement with Beijing.  As a result, between 2003 and 2008, the number of regional headquarters and offices established in Hong Kong increased by 20 per cent to over 3,800.  In the meantime, because CEPA allowed Mainland residents to come and visit Hong Kong as individual travelers, the tourist traffic from Mainland to Hong Kong increased substantially.  Previously, they could only come as part of packaged tour groups.  In 2008, we had over 29 million tourists visiting Hong Kong; about 60 per cent (i.e. almost 17 million) came from Mainland China.

Also, between 2003 and 2008, Hong Kong’s GDP increased by 35.4 per cent  in real terms.

Financial Tsunami

The progress we made in the last six years in strengthening our economy has prepared  Hong Kong well for withstanding the impact of the global financial tsunami.  The Hong Kong Government holds substantial reserves.  Our fiscal reserves stand at HK$530 billion, and our exchange fund reserves at HK$1,380 billion. 

Also, because our banks and financial institutions had survived the Asian Financial Crisis in the 1990s, their balance sheets are relatively more healthy than their United States or European counterparts.  Their business practices are more prudent.

Thus, no banks in Hong Kong have failed, nor have any required Government capital injection.

The financial tsunami has had some impact.  Unemployment increased from a base of 3.2 per cent last year to 5.3 per cent currently, but this has begun to stabilise.

Co-operation with Mainland China

Aside from the current economic situation, since I manage the Mainland Affairs portfolio,  I should bring you up-to-date on the prospects of Hong Kong’s further co-operation with the Mainland. 

 After the commencement of the “Four Modernisations” in 1978, China has made tremendous progress in the last 30 years.  China is now the third largest economy in the world.  Further down the road, it may overtake Japan as the second largest economy.  Hong Kong has invested extensively and particularly in the Southern China.  Currently, there are over 100,000 Hong Kong factories and companies employing over 10 million workers in the Pearl River Delta and in Guangdong. 

The coastal regions of China are particularly well-developed.  In the provinces of Fujian and Guangdong, the per capita GDP exceeds RMB30,000.  By comparison with the West and with Hong Kong, the cost of living is still relatively low in the Mainland.  Thus, in PPP terms, these per capita incomes would have quite an impressive purchasing power.

In the light of the financial tsunami, the Mainland authorities have taken many steps to sustain economic growth for 2009 at eight per cent.  Governors of various provinces we have met recently have affirmed that they are on track of meeting this target. 

This is important to the Mainland, because they rely on sustained growth to provide employment to the six million university graduates every year.

This news of sustained growth also bodes well for Hong Kong, because this means that our extensive investment in the Mainland will continue to have prospects for a healthy return.

Looking further afield for the next 20 or 30 years, we need to map out a broader strategy.  The Central Government has provided Hong Kong with precisely that opportunity. 

In January this year, the State Council issued a document called the “Framework for Development and Reform Planning for Pearl River Delta Region”.  The essence of this document is to facilitate closer co-operation between Guangdong and Hong Kong to ensure that Hong Kong’s professionals and service industries will gain even better access to the Mainland market. 

For example, under the supplemental agreements to CEPA concluded in 2008 and 2009, subject to certain conditions, our accountants, doctors and lawyers can already gain access to the market in Guangdong.  Subject to successful implementation of these measures in Guangdong, we intend to broaden our involvement in the service industries in other regions of Mainland China. 

Our strategy is very simple.  At the moment, about 90 per cent of Hong Kong’s GDP is composed of services.  We wish to take two steps to extend our horizons. 

Firstly, we need to go beyond our local Hong Kong market of 7 million people to the 50 million in Guangdong’s Pearl River Delta. 

Thereafter, we intend to extend the market for our professionals and service providers to cover over 400 million people in what we call the “Pan-Pearl River Delta” comprising nine provinces in southern and western China.  Since 2004, we have already established an economic co-operation forum with these nine provinces.

Pursuit of Universal Suffrage

So much for economics and Mainland relations – a word about the prospects for democratic development in Hong Kong. 

Those of you who have followed Hong Kong’s public affairs will know that the Basic Law stipulates that the ultimate aim of Hong Kong’s electoral systems is to elect the Chief Executive and the Legislative Council by universal suffrage. 

In 2007, when Mr. Donald Tsang stood for election as the third term Chief Executive, he undertook that he hoped to forge consensus within the community on the issue of universal suffrage within the new term of office, so as to implement universal suffrage as soon as possible. 

On July 11, 2007, the Administration published the Green Paper on Constitutional Development.  Following three months of pubic consultation, in December 2007, the  Chief Executive submitted to Beijing a report basically proposing that  a universal suffrage timetable be adopted. 

Beijing responded positively and decided that the Chief Executive may be elected by universal suffrage in 2017 and that thereafter, in 2020, all Members of the Legislative Council may also be returned by universal suffrage. 

This was a momentous development for Hong Kong.  For over 20 years, we have been debating about the direction and pace for rolling forward democracy in Hong Kong.  Now that we have a universal suffrage timetable, the stage is set for Hong Kong to mature as a democratic jurisdiction over the course of the next decade. 

Both the Government and political parties in Hong Kong have a clear responsibility to turn this into a reality for the people of Hong Kong.

In the meantime, the Hong Kong Government would also wish to bring Hong Kong’s electoral system to a mid-way point in 2012.  We are preparing for another round of public consultations in the fourth quarter of this year, focusing in particular on the Chief Executive and Legislative Council election proposals for 2012. 

We need to consider various options, for example, the possibility of increasing the number of seats for the Legislative Council from the current number of 60.  This would broaden the scope for political participation for young and aspiring politicians.  We hope that this will pave the way for implementing universal suffrage in 2017.

Conclusion

In concluding, I would like to emphasise three points. 

Firstly, Hong Kong has always been a free society, an open economy and a jurisdiction governed by rule of law. 

Secondly, I firmly believe as we move towards universal suffrage, between now and 2017, Hong Kong will mature even further as a civilised and democratic community. 

 Thirdly, with further co-operation with the Mainland hereafter, our position as the pre-eminent international financial centre in Asia will be strengthened. 

I would encourage our Canadian friends to continue to invest in Hong Kong.  By so doing, you will also be investing in Canada’s future.

Ladies & Gentlemen,

It gives me great pleasure to represent HKETO to join this Forum.  You may ask – why HK?  Why is HK involved in this?

First of all, HK is a green city.  40 % of HK land is designated and protected as country parks. 

We also have many environmental initiatives.  And that should be of interest to Canadian businesses like you.  

In terms of investment, we have pledged close to 5 billion Canadian dollars on infrastructural projects directly related to our environmental drives in the next 5 years.  Some examples of these projects – a district cooling system for a redeveloped area where the old Kai Tak airport was, a sludge treatment facility, and an integrated waste management facility. 

Separately, HK and Guangdong have also agreed to develop the Pearl River Delta region into a green quality living area.  It is a blueprint endorsed by the central government in Beijing.  HK is now working with Guangdong, and we will collaborate in the areas of clean air, clean energy, cleaner production, etc.   HKG has already set aside C$14 billion to support HK firms operating in the PRD to introduce cleaner production measures.   The Guangdong provincial government, as well as the municipal goverments of Shenzhen, Zhuhai, and Guangzhou, are all setting aside budgets and introducing similar schemes to enhance energy efficiency and to have cleaner production.  

The vision of this green PRD quality living area is underpinned by a number of measures that open market access for HK companies.   In turn, the free trade and open market environment in HK will facilitate participation by services providers from overseas, like companies from Canada.  These measures include the Mainland and HK Closer Economic Partnership Arrangement (CEPA), which enables qualified HK service providers to operate in the Mainland.  And any foreign companies can get qualified after they register and operate in HK for the required number of years, or they can get into joint partnership with a HK company.

Beijing also recently announced that Hong Kong companies can take part in China’s Clean Development Mechanism, or CDM, projects. It is estimated that, worldwide, these CDM projects will generate by 2012 over C$35 billion of additional capital flow from developed countries to developing countries through transfer of CERs.  As Mainland China is the largest host country of CDM projects, it is estimated that roughly C$12/13 billion of these capitals will land in China. Hong Kong companies can now access this vast and fast-growing market either solely on their own or in partnership with foreign companies that are more experienced in CDM projects or the technology concerned. 

As you can see, there are huge opportunities in HK and Mainland China for Canadian green products and service providers.   Today’s event is therefore timely, providing a great opportunity for environmental companies to explore and understand the huge potential market in China.   And for the small and medium sized enterprises, I want to remind you again – HK is very experienced in China trade, and we have 250,000 Canadian passport holders in HK who understand well the systems in China and Canada.  So, my ending message is – Hong Kong is always there for you.  

Again, welcome to this forum.  I congratulate the TLI-Mandarin School and Summer Hill Group for organizing this event and wish you all a very successful and fruitful forum.

Please click here to download the presentation.

Canada’s Economic Future: Why China Matters

This morning I want to talk about Canada/China relations. And I want to make linkages to Canada’s relationship with Hong Kong.

To fully appreciate the China factor today requires a broad global and historical perspective.

China’s history goes back thousands of years and it is a history rich in science, art, literature, philosophy, mathematics, astronomy, navigation, international commerce and discovery.

It’s a history of world leadership that clearly predates the purported European ‘discovery’ of the Americas.

Indeed it is now increasingly clear that European explorers such as Columbus, Magellan, Cook, Vancouver and others explored the Americas more than half a century after the Chinese…and actually used maps previously drawn with incredible accuracy by earlier Chinese explorers and navigators.

If you haven’t read Gavin Menzies book ’1421,’ and the sequel ’1434′, they make for compelling reading on the extent of Chinese exploration of the world and the spread of knowledge and influence that went with it.

As we reflect on the enormous pace of change taking place in China, we should put it in the context of a country that is some 5000 years old.

As Canadians, we sometimes forget we are part of nation that is a youthful 142 hundred years old.

Think of how we struggle with change in this country, then imagine the massive change the last 30 years have brought to China.

And when we speak of China as an emerging economy…an emerging power…we are really referring to China’s re emergence as a global power.

While it’s been a dramatic re emergence, it is still only partially to the position of global leadership China enjoyed at some points in the great span of world history.

While Chinese ships visited our Pacific shores nearly 600 years ago, people of Chinese origin have also contributed significantly to the building of Canada since our birth as a nation. Today, over a million Chinese people in all walks of life form a vital part of the great Canadian mosaic.

At the same time, Canadians were contributing to the re emergence of China.

Canadian missionaries gravitated to China in the nineteenth century, but it was the great humanitarian work of Dr Norman Bethune that earned him, and Canada, an iconic place in Chinese history.

And in 1970, Canada was the first major industrial nation to give diplomatic recognition to China after the cultural revolution.

For several decades Canada enjoyed a reputation, a brand and a relationship with China that was special and unique in the world community.

Unfortunately, that may have been the high water mark. While there has been an ebb and flow to Canada/China relations over the years, both countries would today quietly admit the relationship has not met the lofty expectations of those early years.

Mark Mullins of the Fraser Institute has written     an excellent monograph on Canada’s trade and investment performance with China.

His message is clear.

Whether we look at merchandise trade, services trade, outgoing foreign investment or incoming foreign direct investment, the story is much the same. While economic linkages are growing, they are falling well short of where we could and should be.

Disturbingly, we are also falling behind other trading economies with which we compete, like Australia.

While some 80 per cent of Canadian goods exports go to the US, only about 2 per cent of our merchandise exports go to China, compared to some 14 per cent for Australia, for example.

On the services side only about 1.2 per cent of our exports go to China. When you think of China’s needs and the specialized professional skills we have in abundance, results like this are very discouraging.

I believe the most influential driver of global trade and competitive success is direct investment. Yet less than 1 per cent of Canadian foreign direct investment goes to China, and less than 1 percent of Chinese foreign investment comes to Canada.

Investment is how internationally competitive value chains and networks are established. With investment go flows of information, technology, finance, as well as skilled managers and other highly trained people.

Investment is a tangible manifestation of trust, commitment and partnership between two countries and their people.

Unfortunately, there is no shortage of voices who speak negatively of trade with China.

Some say, Canada’s trade deficit with China means that China gains more from trade with Canada than we get in return.

It’s an outdated mercantilist argument, the inference being that trade with China is inferior to trade with countries with which we run a merchandise surplus (eg. the United States).

Often added for good measure are condemnations of China’s environmental record, inadequate protection of intellectual property, human rights abuses and stalled democratic reforms.

I find these arguments unconvincing.

To begin with, mercantilism has long ago and repeatedly been discredited.

Imports are in many ways as important to Canada as exports. In many cases imports are critical inputs to Canadian rooted value chains.

Substantial amounts of electronic and industrial equipment are imported from China, for example, much of which enables Canadians to achieve efficiency and cost savings essential to their personal or business needs.

Switch countries for a moment. We run a trade deficit with Chile because Canada is a dominant investor in their mining industry, and we import substantial amounts of ores and concentrates to support our global supply chain leadership in that sector. Should we condemn our trade relationship with Chile?

Imports also embody technology. Never forget, over 95 % of the world’s technological innovations and discoveries are not Canadian. And those numbers aren’t likely to swing in our favour anytime soon.

Gaining access to massive international pools of scientific and technological progress is done in part by importing the products (goods and services) that embody these advances.

Protection of Intellectual Property…it is true that China does not have a history of strong   intellectual property protection. But those protections are gradually being established and improved.

And make no mistake, China will be a far more prolific creator of intellectual property over the next 30 years than most industrial countries….Canada included.

China now produces, and will continue to produce, scientists, mathematicians and engineers in far greater numbers than most industrial countries.

Every year thousands of Chinese are educated in the world’s leading universities, and tens of thousands more are being educated in a Chinese post secondary system that is undergoing a massive expansion and modernization.

The reality is, China now has a powerful and growing interest in protecting its own intellectual property assets.

Let us also remind ourselves that in the eyes of the US, the world’s most prodigious producer of intellectual property, Canada is also seen as seriously delinquent in terms of protecting intellectual property rights.

As my mother would have said ‘people living in glass houses should not throw stones’.

Of course when all else fails people will attack China’s record in terms of human rights and the advancement of democracy.

Yes, we all know China has some distance to go to achieve the standards we enjoy in Canada. But it is equally true that China’s liberalizing reforms of the past 30 years have taken more people out of poverty, and enabled more economic progress, than any country in the history of the world.

Would we like reforms to continue? Of course we would. And we need to engage and encourage China to go further. But give credit where it is due.

I would say the same on the environmental front. We need to engage, encourage and demonstrate…demonstrate leadership in what we do and how we do it.

In my experience China is eager to learn and adopt best technologies and practices.

Let’s spend a few minutes on why China is strategically important to Canada.

The global geopolitical order is changing in     fundamental ways.

Globalization has changed the game. As Thomas Friedman has so thoroughly documented, the ‘world is flat’ and, in many respects, distance is dying.

Knowledge and information are cheaply and instantly available in virtually every corner of the world.

If knowledge is power then the flat world is an empowered world.

Countries once developmentally stuck are suddenly empowered to get in the global value creation game.

If you talked about BRIC’s 15 years ago people would conclude you were referring to a building material.

Today we think Brazil, Russia, India and China…four countries that have become synonymous with game changing, super competitive economies.

15 years ago the G-7 was an exclusive club of the world’s leading economies, which together were able to determine the direction of the international community on the big issues. And Canada had the honour of being a member.

Today, the G-20 may not even be broad enough to accommodate the critical players on the world stage.

Even multilateral organizations like the WTO and the UN depend on a much broader, more diverse, consensus to advance the big issues of the day.

The uni polar world of US domination is giving way to a multi polar world of more broadly distributed power and responsibility.

And no country is more on the ascendancy than China.

Chinese modernization and development have changed the entire paradigm of what it takes to be a competitive leader in today’s world.

Even in the current economic crisis, where do people turn for a ‘white knight’? You guessed it.

China has the cash reserves and liquidity to make or break financial and currency stability.

China is looked to for rapid and substantial economic stimulus that will benefit the rest of the world.

China is looked to help strengthen international financial institutions like the IMF and the World Bank.

And China is seen as a key to resolving the WTO/Doha stalemate.

Few today seriously doubt that China will be a key global player for as far as we can see into the future.

And few would doubt the importance of Canada increasing our engagement with China as part of our trade and foreign policy.

That is why I am so pleased to see Lawrence Cannon and Stockwell Day investing time and political capital in China on behalf of the Government of Canada.

Canada has serious competition to be a senior, respected, middle power in the emerging global order. We more than ever need partners and allies to help support and advance our interests.

China should be an important part of our approach to international relations… diplomatically, politically and economically.

And I believe Canada/China economic interests intersect in compelling ways.

Canada is a huge land and water mass. We are resource rich and technologically advanced…but sparsely populated. We have no hope of continuing to grow our standard of living in the absence of strong linkages to the major and dynamic economies of the world.

Currently, some 80 per cent of our exports go the US under NAFTA. But protectionism and American security issues are creating serious long term strategic risks in North America.

Canada has no choice but to develop additional markets across the Atlantic and Pacific.

No region offers greater potential for the future than the rapidly expanding markets of Asia, particularly China.

We need China’s markets for our merchandise. We need mass markets to commercialize our new technologies, our innovative products, and our specialized service offerings.

And we need an internationally diversified customer base for our energy and natural resource products.

We also need to import the increasingly high quality, cost competitive products China has become so proficient at producing.

And we need to collaborate with China on R and D, or we will be left in the dust as China drives forward with a science agenda that dwarfs anything Canada can do.

But the benefits run both ways. China can  benefit from Canada’s product and service offerings, as well as our strategic advantages as a highly efficient Gateway into the heart of the North American marketplace.

As we grow and develop Canada’s partnership with China our strategy will have to be multifaceted, but diplomatic and political engagement must be right at the top in terms of priority and intensity of effort.

After a strained period in the relationship I do believe we are back on a positive trajectory. The intended visit by our Prime Minister needs to occur soon, and I believe it will set a positive, harmonious tone to build on for the future.

But there is so much more to do.

Realizing opportunities in China, indeed in Southeast Asia more generally, should involve Hong Kong as a key element.

Hong Kong has a substantial Canadian presence, both in terms of people which share Canadian and Hong Kong roots, and in terms of business opportunities and potential partnerships.

Hong Kong has an advanced and familiar common law system as a result of a hundred years of British Colonial rule.

Hong Kong is ranked as the jurisdiction most open and easy to do business of any in the world. It is an entrepreneurial, dynamic and beautiful city where the English language is widely spoken and both Asians and westerners work and enjoy life together.

With a vibrant stock exchange and financial services sector, combined with enhanced empowerment from Beijing, Hong Kong increasingly functions as a financial bridge between the Chinese and international economies.

While Hong Kong is part of China, it is a Special Administrative Region with unique semi autonomous governance arrangements.

As Canada is a Gateway to North America, Hong Kong is a gateway to China. An evolving special trade arrangement, the Closer Economic Partnership, ensures a relatively open border with China.

And the transportation and logistical system rooted in Hong Kong ensures highly competitive connections between China and the global marketplace.

All of this has contributed to Hong Kong becoming a vibrant conduit and staging location for businesses trading with China, investing in China and sourcing products from China.

Low taxes, a reliable, predictable  legal system, good living conditions, a strong financial services sector, and world class transportation and logistics all combine to make Hong Kong an essential part of the China strategy for many  businesses.

Dozens of Canadian companies have a presence there, and Canadian direct investment now totals some 6 billion dollars.

Accordingly the Canadian Chamber of Commerce in Hong Kong is the largest, and most active, outside of Canada.

Big global companies can and do operate directly and successfully in mainland China, but they tend to be companies with scale and critical mass. Companies that can afford the soft costs, the patience and the specialized people that it takes to manage in the Chinese marketplace.

China is a complex market. Perhaps more correctly, China is a series of interconnected regional markets, where dealings with national and local government can be complex.

Although smaller companies can and do succeed, it generally requires more extensive language, cultural and other skills than approaching the market through Hong Kong.

In Hong Kong you will find a more familiar business environment, opportunities for partnership and both people and government agencies keen to see you to succeed.

As you know Canada has a great consular service capacity in Hong Kong.

And don’t forget, here in Canada we have Hong Kong Economic and Trade Offices in Toronto and Vancouver, as well as the excellent support offered by the Hong Kong Canada Business Association.

Let me wrap up with a few concluding remarks.

We are at a generational watershed.

The international economy is in crisis at a time when the geopolitical global order is itself undergoing fundamental change.

How countries like Canada respond to these changing circumstances will have a profound effect on the health and competitiveness of tomorrow’s economy.

I have said elsewhere that we should tackle the crisis by urgently focusing on a comprehensive strategy for competitive success 5 years from now.

That needs to include an aggressive strategy for expansion of trade and containment of protectionism.

The trade component cannot be a long term program. It needs to be seen as something urgently and immediately required now. Execution may take time but intense engagement needs to be now.

Finally, we should apply a competitiveness filter to Canada’s stimulus package. Our package should be sculpted to use scarce fiscal resources on acceleration of initiatives that will enhance our competitive position as the economy recovers.

Canada can never spend its way to recovery, but we can ensure that as the global recovery takes hold, Canada is positioned as a competitive leader in the world economy of tomorrow.

On the trade front we have a massive challenge to turn the tide of US protectionism. But even that is not enough.

We need a North American trade offensive. We need a substantially stronger collaborative framework for trade, energy, the environment.

And we need a border security strategy that supports a stronger, more integrated, North American economy while meeting common security needs.

Today I have advocated an energetic engagement with China as a complement to an enhanced platform of North American economic and security integration.

China and Canada have an enormous opportunity for strategic engagement geopolitically, economically and diplomatically. After a promising start in the 20^th century, our relationship has reached a plateau well short of the summit.

It’s late in the game and we are overdue for a broad based strategy of engagement.

Hong Kong can play a vital role in such a strategy.

We need Canadian businesses, our Chinese community, our federal and provincial leaders focused and fully engaged.

If we fail now to capitalize on the massive and growing opportunities in China, and if the scourge of US protectionism continues, generations of Canadians will pay a painful price.

The time for engagement is now. Let’s get behind it. Let’s build the foundation to an economic future we can be proud to pass to future generations.

Thank you.