Welcome Address
Speeches
13 May 2008
Welcome Address
Eddie Yue, Deputy Chief Executive, Hong Kong Monetary Authority and Executive Board Chairman, Treasury Markets Association
(Speech at the Hong Kong Showcase on Islamic Finance, 11 – 12 May 2008, Dubai and Jordan)
Ladies and gentleman,
- It is with great pleasure that I welcome you all to the Hong
Kong Showcase on Islamic Finance, presented by members of the
financial services industry in Hong Kong, and jointly organised by
the Hong Kong Monetary Authority, the Hong Kong Treasury Markets
Association and Hong Kong Trade Development Council, which is being
held over two days in Dubai, UAE and Amman, Jordan.
- I would first like to thank Her Majesty Queen Rania Al-Abdullah
of Jordan, who is hosting the Islamic Financial Services Board's
Annual Summit, the Central Bank of Jordan, and of course the IFSB
itself, for graciously agreeing to allow us to organise this event
under the auspices of the Annual Summit.
- This forum is indeed an excellent opportunity for the
regulators, industry practitioners and investors in the Gulf region
and Hong Kong to share new perspectives in the rapidly expanding
area of Islamic finance, which transcends national borders and is
fast penetrating global financial markets. Today we will be
focusing on what Hong Kong has to offer and where it fits into this
changing global financial landscape.
- What I would like to do in the next ten minutes or so is to
give you an overview of the current landscape of Islamic finance in
Hong Kong from the perspective of both a financial regulator and a
market facilitator, and tell you about how we could help promote
this initiative from the Hong Kong Monetary Authority (HKMA)'s
point of view.
Why does Hong Kong wish
to develop Islamic finance?
- First, allow me to share with you some thoughts in how we see
the relevance of Hong Kong to the development of Islamic finance in
Asia. From its early phase of development in the 1980's, Islamic
finance has grown tremendously and undergone a rapid transformation
in less than two decades. Today, it has gained widespread
recognition, not just among investors of the Muslim faith, but also
among other investors who see Islamic finance as a new investment
alternative. Islamic finance is therefore no longer characterised
by its uniqueness, but rather seen as an integral part of the
international financial system.
- This brings remarkable opportunities for Hong Kong, as a
frontrunner in international finance, which possesses key strengths
in financial intermediation on an international scale to bring
together investors and fund raisers from different parts of the
world. With that we see great potential for Hong Kong to take on
the intermediary role for Islamic financial products, just as it
currently does for conventional products to a high degree of
sophistication across all asset classes.
- Our contacts with investors and financial institutions in the
Gulf region have also reinforced our belief in promoting the
development of Islamic finance in Hong Kong. This has in fact been
articulated as a key policy initiative set out by the Chief
Executive of the Hong Kong Special Administration Region in his
2007 Policy Address. In other words, it is now official Government
policy to develop Islamic finance in Hong Kong and our commitment
to this is beyond doubt.
- Being a major international financial centre in Asia, Hong Kong
should seek to become an important player in the booming Islamic
finance arena by providing a platform for Middle East investors to
access investment opportunities in the Asia Pacific region. Hong
Kong can also leverage on its experience, innovation and market
diversification to serve as a capital-raising centre for Middle
Eastern issuers to tap the funds made available by the high savings
rate in Mainland China.
- Some people have expressed scepticism about how Hong Kong could
play a role in these segments of the market. But market players in
Hong Kong have answered this scepticism by quickly introducing our
first Shariah-compliant product. In late 2007, we witnessed the
first Islamic fund introduced by a local bank in Hong Kong. The
fund is an index-tracking fund which tracks the performance of the
Dow Jones Islamic Market China/Hong Kong Titans Index. In December
last year, the Hong Kong Mortgage Corporation signed a joint
venture agreement with Cagamas Berhad, Malaysia's national mortgage
corporation, to establish a company to develop mortgage guarantee
business in Malaysia and other parts of the world. Earlier this
month, a new Dow Jones Islamic Market Index came to the marketplace
to track China-related equities listed in the Hong Kong stock
exchange, further enriching the Islamic index infrastructure in
Hong Kong. These initiatives clearly demonstrate the dynamism of
Hong Kong's financial systems in responding to an emerging market
opportunity.
Is the timing
right?
- Some observers have questioned whether it is a bit late for
Hong Kong to develop Islamic finance, when some other financial
centres in the region have already made a head start. It may be
true that Hong Kong has started the development only recently, but
so long as the demand is there, it's never too late for Hong Kong
to contribute to this vibrant and growing sector. The Islamic
financial sector we believe has huge headroom for growth.
- Hong Kong can also learn from the experience of other
established centres, and co-operate with them to grow the market.
In deed, there is no better time than now to contribute to the
development of Islamic finance. This region is in possession of a
significant part of the global oil reserves and has topped the
world in the accumulation of wealth. The abundance of oil-driven
liquidity generates a huge appetite for investments that cannot now
be satisfied within the Gulf area alone. Such investments can be
found in the emerging markets of Asia, especially in China.
- Although the dynamics are somewhat different in China, its tale
of economic growth is as legendary as that of the Middle East.
China has experienced a huge inflow of funds in search of growth
opportunities and at the same time the Mainland authorities have
been gradually opening up the country's outward investment. As a
Special Administrative Region of China, Hong Kong plays a pivotal
role as the IFC of China in the course of financial liberalisation.
Not only has it acted as a conduit for Mainland companies accessing
international markets through IPOs, but also one of the largest
sources of foreign direct investments for Mainland China. With the
continuing financial liberalisation on the Mainland, Hong Kong is
positioned as the most attractive destination both for investing
into China and tapping China's funds.
What are the challenges
for us?
- Opportunities aside, we are of course aware that Hong Kong also
faces challenges in developing Islamic finance. It is a fact that
Hong Kong's Islamic community is not big, but we are confident that
the development of Shariah-compliant financial markets can take off
even in environments in which the domestic Islamic community is
relatively small, simply for the fact that investors nowadays are
looking beyond domestic boundaries and traditional finances as
financial activities gravitate towards the Middle East and China.
Indeed Hong Kong's relatively small population does not seem to
undermine in any way our performance in the conventional financial
and capital markets. Therefore we are not positioning ourselves as
a market that can match the supply and demand of Islamic products
from domestic angle. Our objective is to make Hong Kong a platform
for international intermediation activities for Islamic
finance.
What can we offer to the
Islamic investors?
- Hong Kong's advantages lie in its strategic location, highly
developed financial markets and infrastructure, and a
business-friendly free-market environment. We are strategically
located at the heart of Asia with a broad hinterland that gives
investors unique access to virtually every market in the Asia
Pacific time zone. Almost all Asian countries are within reach by a
three-hour flight from Hong Kong.
- What makes Hong Kong a natural destination for Islamic funds is
our deep and highly liquid capital markets. Almost all of the most
actively traded financial instruments are available for exchange in
Hong Kong, and this gives Islamic investors a much wider choice of
where to place their funds.
- More importantly, when it comes to investing in China, Hong
Kong is about the only natural choice. Hong Kong has the largest
and deepest Chinese equity and debt markets outside Mainland China.
We are the first and remain the only major international financial
centre that has banking business and financial products related to
the renminbi. The development of a local renminbi bond market which
started in the middle of last year has firmly positioned Hong Kong
as a pilot market for China's continuing financial market
liberalisation. Hong Kong is the ideal gateway for Middle Eastern
investors who are keen to capitalise on the Mainland's rapid
economic growth.
- International investors can gain exposures to different sectors
of China through the Hong Kong platform. For example, for investors
wanting to access China's property market, they can make use of the
Real Estate Investment Trusts listed in Hong Kong with underlying
exposures to properties in Mainland China. There has also been
encouraging innovation in combining sukuk with China equity
exposures - what I refer to was the launch of an exchangeable sukuk
linked to the underlying shares of a Mainland China company listed
in the stock exchange of Hong Kong. The exchangeable sukuk, which
is listed on our stock exchange as well, attracted a high
subscription from Middle Eastern investors and reaffirmed the keen
demand for investment opportunities with China growth prospect
through the Hong Kong platform.
- In terms of infrastructural support, many leading international
banks have geared up for Islamic finance products and many of them
have a very strong presence in Hong Kong. Our market players are
therefore well-equipped to leverage on the expertise in other parts
of the world in structuring Shariah-compliant products and meeting
the needs of even the most demanding Islamic financier. Hong Kong's
success factors lie not only in our premier location and
versatility, but also in possessing the talent and infrastructure
to become the conduit to facilitate the capital flows between the
Middle East and Asia.
What more should be
done?
- Notwithstanding the strong fundamentals of our financial
markets and infrastructure, we are conscious of the need for
greater efforts to be made to establish a level playing field in
the conduct of Islamic finance business vis-à-vis conventional
activities. This includes a review of tax laws in Hong Kong. The
HKSAR Government is now conducting a review of tax laws to ensure
that Islamic financial transactions will not be disadvantaged
simply because of their special structure to cater for compliance
with the Shariah law.
- Apart from that, we are also focusing our efforts in three
major areas.
- The first involves efforts to connect the Hong Kong platform
with financial institutions and investors interested in Islamic
finance. That involves the need to raise the international profile
of Hong Kong's platform for Islamic finance. The presentation of
this flagship Showcase in both Dubai and Jordan is an important
milestone in advancing the city's profile and heightening
awareness. Of equal importance is that, through this forum, we can
establish complementary and mutually beneficial relationships for
players in our financial markets.
- The second area is our efforts to deepen market knowledge in
Hong Kong about Islamic finance products. In this regard, the
Treasury Markets Association can play a significant role in
providing an avenue for open and useful discussions and the sharing
of experiences from experts in this field, thereby enhancing the
knowledge of our local market players.
- Third, we are working hard to forge closer international links
through co-operation with Islamic finance centres and
organisations. Establishing business links is particularly
important in face of the challenges brought by the integration of
Islamic finance with the international financial system. In this
regard, I am pleased to mention that Hong Kong has formed a working
group with the Dubai International Financial Centre Authority to
promote the mutual development of Islamic finance and financial
market infrastructure.
Closing
remarks
- In closing, I would like to point you to an analogy often made
between the rise of Islamic finance and the renaissance of the Silk
Road. Let's remember the Silk Road, in ancient times, was China's
link to the outside world and a route for trade and exchange of
art, music, culture and religion. Today, Hong Kong is right at the
heart of the New Silk Road, standing astride East and the West, and
providing a gateway to business and financial opportunities. We
have already painted a picture of how the financial regulators and
industry associations will strive to promote the development of
Islamic finance in Hong Kong, and we hope very much that the
enormous forces of the market will make the New Silk Road as
prosperous and significant as the old one.
- Thank you very much.