Norman T.L. Chan, Chief Executive, Hong Kong Monetary Authority(Welcoming Remarks at IMF-HKMA Joint Conference)
Good morning, Deputy Managing Director Zhu Min, Counsellor Jose Vinal, Ladies and Gentlemen,
It gives me great pleasure to welcome you to this Conference jointly organised by the IMF and the HKMA. The theme of this Conference is “The Future of Asia’s Finance”. In order to predict the future, one must understand and learn from the past. If we don’t understand where we are and what has brought us here, it is very hard to predict where we will be in the next 5-10 years.
2. Asia’s finance is now at a crossroad. We have to decide where we want to go and how to get there. This is not the first time and won’t be the last that Asia’s financial markets are facing this situation.
3. The last time Asia was at a crossroad was 1997/98 after the eruption of the Asian Financial Crisis. In the two to three decades before mid-1990s, Asia produced a couple of economic miracles: the emergence of the Four Asian Dragons and four Asian Little Tigers, all of which went through phenomenal economic growth and significant rise in living standards. However, unlike the developed economies in the West, Asia’s growth in this period was propelled mainly by bank finance. Massive amounts of capital, mostly in the form of external bank borrowings, flew into Emerging Asia during this period. In 1997, total amount of international bank lending to Asia amounted to US$840bn. Most of these external finance were denominated in US dollar and with rather short tenor. Of course we now understand this kind of external finance is very risky as it entails currency mismatch and maturity mismatch. But these risks were simply ignored or brushed aside while everybody was enjoying the Asian boom prior to 1997. Then the bubble burst and the crisis-hit Asian economies all learnt very important lessons in a bitter way by paying a heavy price.
4. Since the Asian Financial Crisis the Emerging Asia has implemented many structural reforms and has now re-emerged as stronger and more resilient economies.
5. As a result, Asia, once again, has gained centre stage and, until the last year or so, become the preferred destination of international capital flows. Unlike the 1990s, the structure of finance in Asia has changed because external bank borrowings, although still quite significant, have been overtaken by bond borrowings. Around 80% of bond issuance in the last three years in major Emerging Asian economies was denominated in domestic currency, thereby reducing currency mismatch risk for the borrowers. Moreover, the average tenor of the newly issued bonds has steadily been lengthened to 6.3 years in 2013, which would mitigate the risk of maturity mismatch and short term roll-over risk.
6. It therefore seems that the Asian banking and financial markets are moving along the right track and we should congratulate each other for this accomplishment. However, I am not entirely sure if Asia can afford to feel complacent because I believe Asia’s finance is still facing many short-run and longer term challenges. In the interest of time, I would just highlight two key challenges.
7. In conclusion, I would say that today’s Conference is very timely as it will discuss the key challenges facing Asia’s finance in the future. Asia is now at a crossroad and we must work together to choose the right path. I have no doubt that this Conference will contribute useful insights and advice on this very important subject. Thank you.