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,
- I am very pleased to have been invited to address you today at
this symposium on India Hong Kong Business Expectations.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Thank you.