Speech by the Commercial Secretary to the Treasury.
Thank you Jack So for the kind introduction, and for all your work and the work of the Hong Kong Trade and Development Council in organising this event. It’s a pleasure to be here to address such a distinguished and large audience.
And I would like to say a special thank you to Donald Tsang not just for the comments he has just made, but also for his years of distinguished public service.
I believe that this may be your last official visit to London as Hong Kong Chief Executive and I know everyone here would want to join me in recognising and congratulating you for all that you have done to support Hong Kong’s political and economic development over your tremendous career.
Under your leadership, Hong Kong has continued to grow from strength to strength. Preserving the values, rights and freedoms which make this unique part of China such a success and which continue to attract trade and investment from across the world, not least from the UK.
I have to confess that I tend to become nervous and weak-kneed in the Chief Executive’s presence - and Jack So being here only reinforces my discomfort.
I should perhaps explain.
In 2000, when the Chief Executive was Financial Secretary and Jack So was Chairman of the MTRC, I was one of the lead bankers on the company’s privatisation and IPO.
There were three lead banks on this transaction and always a huge fight about which bank was to present what in our meetings with the Government.
Well, you can imagine what happened when we had to meet the Financial Secretary to present the slightly bad news that the IPO price range might not be quite as high as we had all indicated when we had pitched for the business.
Suddenly, the other two banks were tongue-tied and unable to speak and yours truly was left to deliver the good news.
I had one of the most uncomfortable half hours of my banking career after I had given the news. But, the Chief Executive and Jack So then went on to complete a hugely successful and important privatisation. And for all the nervousness this brings back to my mind, it was one of the most enjoyable and rewarding deals of my former banking life.
Now as the Chief Executive said himself, the UK and Hong Kong remain as strong economic partners as ever.
In 2010, Hong Kong was the UK’s second largest market for goods in Asia, our 12th biggest market globally and UK exports to Hong Kong have grown by 23% in the first six months of the year alone.
And in terms of investment, nearly half of all UK investment in Asia is in Hong Kong, and around 80% of Hong Kong investment in Europe comes to the UK.
And we have every interest in building on these links as the UK continues on its path to economic recovery through a renewed focus on export and investment, capitalising on the opportunities present in Hong Kong and Asia as a whole.
Indeed, we all know that Asia has weathered the recent financial crisis and economic downturn much better than we have in the West.
The Hong Kong banking sector, one of the world’s leading financial centres, has escaped the ravages of the global financial crisis virtually unscathed.
Hong Kong’s economy still sprints ahead to the envy of many Western economies.
But at the same time, Hong Kong is not immune to the anxiety that wrapped global markets over the summer.
Across the world, equity markets in America, Germany, France, China and indeed Hong Kong, exhibited a degree of volatility not seen since 2008. The ongoing crisis in the Eurozone and the historic downgrade of US debt by Standard & Poor’s fuelled the fire.
And, of course, the UK is also not immune to the harsh winds.
But in one vital respect, the UK is sheltered from the storm.
While political leaders elsewhere have struggled to take action on sovereign debt, our Coalition Government has been decisive. While political indecision has fuelled anxiety and uncertainty elsewhere, we have taken the difficult, and often unpopular, decisions to tackle the record peacetime deficit that we inherited.
When we came into Government the UK was borrowing one pound for every four pounds that it spent. That was completely unsustainable. And Standard & Poor’s had the UK on negative watch.
We had to take decisive action to balance the books. And the decisions we have taken will eliminate the structural current budget deficit by 2015.
That has meant that Standard & Poor’s have taken us off the negative watch, and it has resulted in UK gilt yields falling to near record lows in recent weeks to levels not seen for 300 years.
This is a huge vote of confidence in the Government’s plans to get ahead of the curve and deal with the deficit. It’s a huge vote of confidence in the UK’s debt that sets us apart from the Eurozone.
And it means that our households and businesses can take advantage of low interest rates as they balance their own books and invest.
Fiscal consolidation is the absolute pre-requisite to growth. If we had failed to act, rising debt would merely result in higher taxes, higher inflation and higher interest rates, stifling any chance of an economic recovery.
Instead, we have already seen our approach bear fruit over the last year with the creation of 520,000 new private sector jobs, a continued increase in manufacturing output, and continued growth in our exports. And we fully expect growth to continue through the rest of this year, and into 2012.
But we need to work tirelessly to help our businesses across the economy…to embed a recovery based on private sector enterprise, investment and export.
Earlier this year we published our Plan for Growth which set out our plans to realise this ambition.
It includes reducing corporation tax to 23% by 2014, the lowest rate in the G7…securing agreement from the UKs biggest banks to provide £190 billion in credit to businesses in 2011… and identifying £200 billion of infrastructure investment to support growth in sectors such as construction, but also encourage growth in new and high growth industries in the digital and online sectors.
Of course, this level of infrastructure investment presents an excellent opportunity for international investors in the UK as we look to increase private sector investment in infrastructure. In that regard I very much welcome the huge investment in UK infrastructure already made by the Cheung Kong Group and I hope to see many more Hong Kong and Chinese companies taking advantage of these opportunities. It was a focus of discussions with Vice Premier Wang Qishan during his talks in London last week.
And at the same time, UK infrastructure investors and companies must look East. With the Hong Kong Government, as we have heard, planning over £29 billion of infrastructure investment, British businesses in Hong Kong and those within the UK are well placed to take advantage of these opportunities given our vast experience and expertise in the area.
But across the business spectrum, all UK businesses must look East to pull through these difficult times. Just as Asia’s strong and sustained growth has acted as a linchpin for trade during the economic downturn, it will continue to be the driving force of a global recovery.
Hong Kong’s strengths as a trading partner are self apparent. For the seventeenth year in succession the Heritage Foundation has named it the world’s freest economy. Low and simple taxation, combined with few barriers to trade make Hong Kong an especially attractive destination for new business.
But as well as opportunities in Hong Kong itself, as the Chief Executive has already said, Hong Kong also offers unparalleled access to the Mainland market.
Indeed, over 300 UK companies have already chosen to base their regional or global head quarters in Hong Kong.
Companies that seek to establish themselves in Hong Kong now, will reap the rewards for years and decades to come as they expand to new and growing markets on the Mainland, and across Asia as a whole.
In this respect, we would probably all agree that it is only a matter of time until mainland China’s remarkable economic development to become the world’s second largest economy is matched by the emergence of Renminbi as one of the world’s premier international currencies.
The Chief Executive has set out how Hong Kong is playing a hugely important and pioneering role in this process. The figures he quoted earlier on the rise in offshore Renminbi deposits, trade settlement and bond issuance are a testament to the innovation, depth and sophistication of Hong Kong’s financial markets.
We firmly believe that the development of the offshore RMB market in London should complement Hong Kong’s role and will bring substantial benefit to both financial centres.
The joint statement by Chancellor George Osborne and Vice Premier Wang Qishan last Thursday, welcoming the private sector interest in developing the offshore RMB market in London and setting out a programme of co-operation between the UK and mainland Chinese authorities is an important step in realising this potential.
But important, too, is the readiness of the UK and Hong Kong authorities to work with each other, and with the authorities in the mainland, to ensure the appropriate interbank settlements infrastructure is in place to support the market’s growth, that information sources about the market’s growth are developed, and that any financial stability risks are properly assessed and controlled.
This offers tremendous opportunities for our most enterprising and innovative businesses and financial services to expand their horizons. And I am very encouraged that the Hong Kong authorities see this opportunity for both London and Hong Kong very much as we do.
In the last decade, the UK has paid insufficient attention to international trade and the opportunities it provides not only us, but our trading partners. This Government is committed to changing this. We are committed to putting international trade and investment at the very heart of our economic recovery.
Events like this today are critical to rebalancing the UK economy away from the debt fuelled consumption of the last decade.
And they offer you, the businesses here today, the chance to expand into new markets and seize new opportunities for growth.
I encourage you all to make the most of the Think Asia, Think Hong Kong seminar, to seek out the contacts and opportunities that can help take your businesses to the next level. As the Chief Executive has already said, the Hong Kong Trade and Development Council can offer you the advice and direction to forge connections with partners in Hong Kong and Mainland China.
And I also encourage you to take advantage of the expertise and contacts for the Hong Kong market that UK Trade & Investment can offer. UKTI has an extensive network of offices in the UK and staff in the British Consulate General in Hong Kong, and many are here today and can provide you with the tools you require to be competitive in the market.
I look forward to working with you all in the months and years to come to reshape our economic future.