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Keynote Speech at the Opening Ceremony of Asian Financial Cooperation Association in Beijing on 24 July 2017

by Norman T.L. Chan, Chief Executive, Hong Kong Monetary Authority

24 July 2017

The Honourable Vice Chairman Chen Yuan, Chairman Guo Shu-qing, Chairman Tian Guoli, President Jin Liqun, Governor Veerathai, distinguished guests, ladies and gentlemen,

It gives me great pleasure to join you today at the grand opening of the Asian Financial Cooperation Association (AFCA), which marks a new chapter of cooperation among financial institutions and industry associations in Asia.  I would like to extend my heartfelt congratulations to the founders of AFCA for their foresight and commitment in promoting closer regional financial cooperation. 

I remember that in late 2015, Chairman Tian Guoli told me about the plan to set up AFCA, I immediately conveyed my full support as I truly believe that this is a meaningful and productive project.  Now, I am pleased to note that key industry bodies in Hong Kong, namely the Hong Kong Association of Banks, Hong Kong Institute of Bankers and Treasury Markets Association, have joined as founding members of AFCA.

The setting up of AFCA is both timely and necessary.   In just 20 years ago, Asia was shaken by a financial crisis that tarnished the once buoyant Asian Tigers and Dragons.  Fault lines and cracks in the Asian  economies and financial systems were exposed and magnified by the crisis.  The resulting pain endured by many Asian economies was hard to describe but we have all learned some useful lessons from our mistakes and have sought to remedy the weak spots after the crisis.  Most of us in Asia have strengthened our macroeconomic management and fiscal policies.  Our banking and financial sector has been upgraded and our capital markets, which are still not yet very well developed, have been reinforced.  All these reform efforts have paid off as can be demonstrated by the fact that most Asian economies came out from the subsequent and bigger Global Financial Crisis relatively unscathed. 

While the West is still slowly recovering from the trauma caused by the Global Financial Crisis, Asia has resumed its momentum of growth.  Asia is the home for about 4.5 billion people or 60% of the world’s population, but it only accounts for 30% of the world’s GDP.  Asia, especially China, has become the main driver for global growth, contributing to 46% of the world's growth over the last decade.  However, there is an obvious gap in the functioning of Asia’s financial system.  This can be demonstrated by the fact that many Asian economies have huge surplus savings and they are keen to look for productive and profitable investment opportunities but cannot find enough bankable or investible projects in the region.  At the same time it is estimated that there is an enormous demand of over US$1 trillion a year in infrastructure investments in the region alone.  Clearly something is missing that causes this wide gap between savings and investments.  This is a structural problem on which all of us in Asia must try hard to overcome if we wish to catch up in promoting the living standards of our people. 

The task in front of us is how to channel or mobilise the huge amount of savings from the surplus economies to the deficit economies.  This clearly involves cross border flows of debt and equity capital as well as technology.  The official sector has been doing a lot of work in this regard, notably in the setting up of the Asian Infrastructure Investment Bank and the Belt and Road Initiative.  However, the official sector cannot do it alone and the private sector must also play its part and collaborate with the official sector.  In this regard, I believe that AFCA can play a unique role in furthering regional and international collaboration in financial intermediation in this process.

Specifically, there are a few things that AFCA can do well.  First, it can articulate more effectively the Asian voice to the policy makers, standard setters and regulators when the international financial reform agenda and new regulatory standards are being debated and formulated.  We know that, for example, the Institute of International Finance (IIF) has been very proactive in providing useful industry feedback and views on the international financial reform agenda.  There is no reason why AFCA cannot contribute to the  process by injecting the relevant Asian views and perspective. Second, AFCA could seek to identify legal or policy barriers to cross border financial flows and propose ideas or solutions to overcome such barriers.  Third, AFCA could help promote professionalism, sound risk management practices and good corporate culture, which will help enhance the safety, soundness and ethical standards of the private sector financial firms.  On the point of culture, I strongly believe that no matter how hard a regulator tries to impose rules and standards from the outside, there is no substitute for good corporate culture in achieving long term profitability and sustainability of any financial firm.  It is a lot easier to preach good culture and ethics if the industry body as a whole share this objective and join the public sector in its promotion amongst its members. 

Ladies and gentlemen, Asia is very different from what it used to be 20 years ago.  In 1997, the combined GDP of emerging Asia including China was merely US$3 trillion, but now its GDP is US$18 trillion.  While Asia has been the growth engine for the world in recent years and will remain so in the years to come, the benefits of growth have not been evenly shared within the region.  Some economies have found it tough to catch up because they lack the necessary capital and technology in developing the basic infrastructure that will enable them to move forward.  It is now time for Asia to do a lot more to promote infrastructure investments, without which the bottlenecks will impair economic development and trade within the region.  This is why once the Belt and Road Initiative was announced, it has been met with overwhelming response from so many key stakeholders.

I am sure that AFCA will be able to serve as the catalyst as well as facilitator in helping bring the financial sector in Asia to a higher level.  Finally, let me wish AFCA every success in its future work.  I can assure AFCA that Hong Kong will offer full support to the Association in its future endeavours.  Thank you once again for inviting me to this memorable event!  

Last revision date: 24 July 2017
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