India - Hong Kong Business Expectations

Speeches

24 Sep 1997

India - Hong Kong Business Expectations

David Carse, Deputy Chief Executive, Hong Kong Monetary Authority

(Speech at The Indian Overseas Bank Symposium)

Ladies and gentlemen,

  1. I am very pleased to have been invited to address you today at this symposium on India Hong Kong Business Expectations.
  2. Nineteen ninety seven is a landmark year for both Hong Kong and India. In Hong Kong's case, we have had the historic resumption of sovereignty by China. India, meanwhile, has been celebrating the 50th anniversary of its independence. So now is an opportune time to consider how the economic and business relationship between Hong Kong, China and India can be developed to the benefit of all concerned.
  3. Of course, the relationship is already an important and strong one. Let me say a little about how I see things from the Hong Kong viewpoint. As a starting point, let's consider the trade relationship. India is one of Hong Kong and China's major trading partners. This relationship is very long-established, dating back over a hundred and forty years to the times of the British East India Company. In recent years there has been sharp growth in trade, with growth of twenty to thirty percent per year. In 1996, India Hong Kong trade reached around 2.7 billion US dollars. Hong Kong's main exports to India are manufactured goods and machinery, while its main imports from India are manufactured goods, chemicals, food and livestock. India China trade has been growing at a similar rate in recent years, although it remains only about half the size of India Hong Kong trade. Most of this trade relates to primary raw materials. China's main exports to India are organic chemicals, mineral fuel oil, and raw silk, while its main imports from India are rock and mineral ores, cotton yarn and fabric, and iron and steel.
  4. A point to note here is that not only is trade progressively increasing, but it is also progressively diversifying. There are a number of contributory factors. A number of major Indian corporations have established offices in Hong Kong, cementing its role as the gateway to China. Indian entrepreneurs have established joint ventures with mainland Chinese partners. And Indian and foreign banks in Hong Kong have created special India desks or trade development desks to take care of Indian business in general and India related trade in particular. All of these factors have contributed to the growth in the volume and variety of trade.
  5. Let's move on to consider how this trade is financed. Of course, a key role here is played by the Indian banks in Hong Kong, which finance a significant proportion of the import/export trade between India, Hong Kong and China by means of letters of credit and the negotiation of export documents. A number of local and foreign banks are also active in this area. It should also be noted that the ethnic Indian business community has a hand in a very significant share of Hong Kong's total trade, and not just trade between India, Hong Kong and China.
  6. But trade finance is not the only role of the Indian banks in Hong Kong. Many of the Indian banks have been in Hong Kong for thirty or more years, and have very well-established customer bases and lines of business. As well as trade finance, they also play an important role in facilitating investment in India, particularly on the part of non-resident Indians. And the provision of private banking type services to affluent members of the Indian community here in Hong Kong is an increasingly important business activity of the Indian and some banks in Hong Kong.
  7. The Indian and other banks in Hong Kong are also playing an increasing role in the mobilisation of foreign currency funds for corporations back in India. With the ongoing liberalisation in India, more and more Indian corporations are looking outside India for the mobilisation of resources by such means as syndicated loans and bond and FRN issues. Hong Kong, by virtue of its developed financial markets, the presence of the world's top banks, and its competitive environment - as well as being in the same time zone as India - is uniquely positioned to handle this business.
  8. As also in the case of China, there are also large infrastructure financing needs in India, and the banks will have an important role to play in the mobilisation of these resources. According to one estimate, investment by Hong Kong companies in India currently stands at around 350 million US dollars, but is forecast to treble in the near future, with big infrastructure and hotel projects in India attracting sharply increased investment from Hong Kong. There is also likely to be increased investment from Hong Kong in the Indian stock market.
  9. These trends seem likely to be accentuated in the coming years as India continues its program of economic liberalisation, Indian financial markets are deregulated, and the operations of Indian banks are progressively liberalised.
  10. Looking ahead, the six Indian banks in Hong Kong are well positioned to take advantage of the future growth of trade between Hong Kong, China and India, and the likely growth in external financing for Indian corporations.
  11. The Indian banking system - again, like that in China - is currently undergoing significant change. The Basle capital adequacy norms have been adopted, as have tougher norms on income recognition, loan valuation and classification, and provisioning. Interest rates have been deregulated. Competition from private and foreign banks has increased. The banks are having to learn to adapt to a much more market-driven, deregulated and competitive environment. Interestingly, of course, this is just the sort of environment in which they have been operating in Hong Kong for many years. I hope that the lessons they have learned from operating in Hong Kong, and the management and market expertise they have developed thereby, will be of benefit to the banks in making the adjustment.
  12. It is worth noting that, at a time when many banking sectors in the region are under pressure, the Indian banking sector, like that in Hong Kong and Singapore, has been drawing favourable comment. Indeed, recent assessments of the Indian banking system have been very positive, highlighting the strength and stability of the sector. This undoubtedly reflects very favourably on the measures being taken by the Indian authorities and the banks themselves.
  13. Another effect of liberalisation, of course, is that it is also opening up greater opportunities for foreign banks to do business in India. A number of top international banks, such as HSBC and Standard Chartered, have been part of the banking scene in India for very many years. The foreign banks are major players in the areas of corporate finance and private banking, both of which are likely to be growth areas in the years ahead. With trade business increasing, the financial requirements of Indian entrepreneurs and corporations becoming more sophisticated, and the financial markets being liberalised, it is clear that foreign banks will continue to play an important role in the Indian financial system. One area, for example, in which they can contribute to the further development of the Indian banking sector is in bringing into the market their expertise in hedging techniques and in risk management. This expertise will be valuable to Indian corporations and banks alike.
  14. As far as business here in Hong Kong is concerned, I am sure that bankers and businessmen alike will continue to find this a good market in which to do business. Hong Kong is and will remain a major international financial centre. It will continue to be open and free market-oriented. And it will continue to welcome bankers and businessmen from all around the world to do business and make money here.
  15. I'd like to close by making a few points about the commonality of interests between Hong Kong, China and India. Whenever anyone talks these days about the countries which are going to be the economic powerhouses of the next century it is always the same two names - China and India - which are mentioned. Both have great potential for growth. Both are currently going through the difficult process of economic reform and liberalisation of the economy and banking and financial markets. Both economies are steadily improving as these measures foster a faster pace of economic development.
  16. At the same time, the countries are steadily forging closer relations on all fronts. Trade volumes are steadily growing, with Hong Kong as the facilitator or middleman.
  17. As the economies of the two countries develop there will undoubtedly be great scope for increasing trade and other business relations. The challenge for entrepreneurs, businessmen and financiers will be to identify and make the most of these opportunities. Hong Kong stands ready to play a full part in this process.
  18. Thank you.
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Last revision date : 24 September 1997