CY Leung: Hong Kong Is “Your Super-connector to China”

By CY Leung, Chief Executive of Hong Kong

(Mr. C Y Leung delivered this speech at a luncheon in Cambridge, Mass., hosted by the Hong Kong Economic and Trade Office, New York on May 5, 2015. Representative of attended this luncheon.)

Distinguished guests, ladies and gentlemen, colleagues,

Good afternoon. I’m very pleased to be with you today in Boston, my first official visit here, one I’ve been looking forward to for a long time. I am even more interested in visiting Boston when I read, a few weeks ago, that Boston had been named one of the world’s most livable cities in the Mercer 2015 Quality of Living rankings.

Of course, the people of Boston don’t need me or Mercer to tell them that they’ve got a good thing going: a city renowned for its community spirit; a city long celebrated as an international powerhouse in education; a city fast-emerging as a global business and technology hub.

Our relations with the United States are strong and longstanding. Our relations with Boston are promising. And now that Cathay Pacific Airways has launched its direct passenger service between Hong Kong and Boston – and we know how convenient direct, non-stop flights are, a good 8-hour sleep, two or three movies, and a few drinks on board are all you do to get to Hong Kong – I look forward to expanding ties between our two cities.

Last year, the US was Hong Kong’s second-largest trading partner, after only Mainland China. Our bilateral merchandise trade came in at more than US$70 billion in 2014. Massachusetts’ exports to Hong Kong hit nearly US$1 billion last year, ranking it ninth among US states. Boston, no doubt, contributed the lion’s share of that.

And, for a city of just over seven million, we punch well above our weight: in 2013, Hong Kong was the US’s 18th largest trading partner. The US was our fifth-largest source of inward direct investment, as well as our 10th-largest destination of overseas direct investment.

Photos from the luncheon(by Victor Chen,

Let me add one more piece of telling economic statistic here. Last year, some US$49 billion worth of US trade with Mainland China was routed through Hong Kong. That’s about nine per cent of your total trade in goods with the Mainland. And we helped make it happen.
Mr Leung exchanges views with representatives of Boston business chambers and local leaders at the luncheon.

Indeed, there is much Hong Kong can offer US business looking to the Mainland for opportunity. We are your super-connector to the Mainland of China. That’s thanks largely to our “one country, two systems” arrangement. It means that, while Hong Kong is part of China, it is also distinct from other cities in China, as we practise the other “system”. It gives us unparalleled advantages as a common platform between the United States and China – in business, trade, finance and more. When I say more, I definitely include science and technology which is the reason for my visits to Harvard and MIT on this short trip. And these “one country, two systems” advantages are unique to Hong Kong. When you are in Hong Kong, you are in China. But then Hong Kong is a city that practises “the other” system which is distinctly different from the rest of China.

Similarly, we have what Mainland China needs to go out to the world with its trade and investment. For more than a century, Hong Kong has maintained the best business network with the Mainland of China.

Money, information, trade and people all flow freely in and out of Hong Kong. Our communications and logistics first-class. Our tax system simple – by the way our personal tax return is a simple form of four pages printed in large fonts. By the way, our profits tax ceiling is 16.5 per cent – last year we had the highest profits tax revenue. I know it is hard to comprehend, but I have been told that the lower the rate, the more you collect.

And we believe in letting business do what it does best. We believe also in competition. So individuals and corporates from all over the world can compete with locals on a level playing field. And you do not have to worry about government owned competitors – because we do not, as a government, own businesses, unless of course you happen to be in the theme park business since, I have to confess, we do own part of Disney in Hong Kong.

That’s why, for the past 21 years running, the Washington-based Heritage Foundation has ranked Hong Kong number one in its Index of economic freedom. It’s why, too, nearly 7 600 Mainland Chinese and foreign based companies keep offices in Hong Kong. That includes well over 1 300 US companies.

Hong Kong is not any international financial centre, we are China’s international financial centre, and the world’s China financial centre. We serve as a launching pad for China’s new reform measures, and so we have first-mover advantages – to share with US businesses.

The Renminbi, the Mainland Chinese currency, is a prime example of our super-connector role. Eleven years ago, we took the opportunity to internationalise the Renminbi. Today, Hong Kong is by far the world’s largest offshore Renminbi hub. Through cross-border trade and direct and portfolio investment, Hong Kong connects Renminbi markets on the Mainland and around the world, expanding the circulation, and convertibility, of the Renminbi.

In 2014, banks in Hong Kong managed Renminbi trade settlement exceeding RMB 6.3 trillion, an increase of more than 60 per cent over the previous year. Hong Kong banks now handle some 70 per cent of global Renminbi payments.

US companies are welcome to issue Renminbi bonds in Hong Kong. We have seen considerable expansion in the range of issuers. They include such multinationals as McDonald’s, which issued Renminbi bonds in Hong Kong to finance their Mainland operations.

The Shanghai-Hong Kong Stock Connect is the most noticeable of Hong Kong’s super-connector roles between Mainland China and the rest of the world. Under the scheme, running smoothly since its launch in November last year, investors in Hong Kong, and from around the world, can invest, directly, in more than 500 Shanghai-listed shares through the Hong Kong Stock Exchange. And Mainland investors can trade in about 280 Hong Kong-listed shares – again, directly – via the Shanghai Stock Exchange. Just how well is it doing? Well, just a few weeks ago, both northbound and southbound turnover enjoyed record-breaking trading days, with the highest combined daily turnover reaching approximately US$5 billion, and that’s daily turnover!

We’re in this super-connector role for the long haul. Shanghai-Hong Kong Stock Connect is only the beginning. Up next is the Shenzhen-Hong Kong Stock Connect, which we expect to be up and running later this year.

Our super-connector role is about more than finance. We have a free-trade agreement with Mainland China known as the Closer Economic Partnership Arrangement (CEPA). CEPA gives Hong Kong companies tariff-free access to the Mainland for goods produced in Hong Kong. It also offers Hong Kong service suppliers preferential access to the vast and rapidly growing Mainland market.

CEPA is nationality neutral. American producers and services companies are welcome to partner with Hong Kong companies to take advantage of CEPA. You can also set up manufacturing operations in Hong Kong to realise CEPA’s benefits.

We’ve also just implemented a services agreement with the very prosperous Guangdong Province just across the boundary. The agreement gives Hong Kong companies full liberalisation in services trade with Guangdong. And it’s the first step in opening up the entire Mainland to liberalised trade in services with Hong Kong.

China’s Central Government, by the way, formally established a free trade zone in Guangdong just last month. Guangdong already receives about one third of Hong Kong’s outward direct investment in the Mainland. And the new Guangdong free trade zone is certain to provide countless opportunities to our business and investment there.

Hong Kong is a staunch supporter of free trade. We are now finalising a free-trade pact with the Association of Southeast Asian Nations, ASEAN, with its more than 600 million consumers in 10 member nations.

On innovation and technology, Hong Kong is also your super-connector to the Mainland of China.

Our R&D comparative advantages are rooted in the rule of law and our independent judiciary. Yes, your intellectual property is safe and secure in Hong Kong. We are also blessed with world-class tertiary institutions, 21st century technology infrastructure and solid technology cooperation with the Mainland on all levels.

We’ve got talent, too. Alongside our distinguished academics, Hong Kong researchers and inventors made a splash at the recent International Exhibition of Innovations of Geneva. They picked up 13 gold awards, five silvers, and a “Grand Prix”.

The “Grand Prix” was awarded to Vitargent, a Hong Kong-based biotechnology company. Vitargent developed technology using fish embryos to test for toxic substances in a variety of consumer products, from food and medicine to cosmetics, plastics, drinking water and just about any other substance that the human body may come into contact with.

Vitargent is among the many technology start-ups, and established companies, in our Hong Kong Science and Technology Parks Corporation. Indeed, more than 30 US tech companies are now located in Hong Kong Science Park. They cover a great range of promising areas, from software development and biotechnology, to LED lighting, integrated circuit design, semiconductors and electric vehicles.

We welcome more US companies to join them, along with such major US technology players as Google, Twitter, Digital Realty Trust and CenturyLink Technology Solutions in Hong Kong. Our information and communications technology infrastructure and our liberalised telecommunications market open up a wealth of opportunity for e-commerce, wireless/mobile, digital-content creation and service, cloud computing, and much more.

According to a recent Jones Lang Lasalle report, Boston ranks second in the country for technology employment. Clearly, Boston, you have the talent, and the drive, to make a difference in Hong Kong – and through Hong Kong, all of China. I invite you to build your businesses, and start your start-ups, in Hong Kong. Where the future is already up and running.

Ladies and gentlemen, my schedule only allows me to spend one day in Boston. It seems that I am going to miss Fenway Park and its famous Green Monster on this trip. I hope that, in the not-too-distant-future, I can come to Boston again, and enjoy, like all of you, a Boston Red Sox game.

Thank you.

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