IUMI 2014 Hong Kong Conference Building Expertise for a Changing World Keynote Address by the Hon Mrs Laura Cha Chairman of Financial Services Development Council, Hong Kong 22 September 2014 The Shift to Asia and its Implications Good morning Ladies and Gentlemen, I would like to thank IUMI for inviting me to speak to this distinguished audience today. I want to welcome the IUMI back to Asia since you were in this part of the world in Tokyo in 2006. I am also happy to see the IUMI holding its Annual Conference in China for the first time. Shifting of Major Trade Flow to Asia The Conference s theme of Building Expertise for a Changing World is timely. As the momentum of the world economy continues to shift from the West to the East, four of the five busiest inter-regional trade routes now involve Asia. According to IMF s forecast, Emerging and Developing Asia will largely maintain its 6-7% annual economic growth in the medium term, much ahead of the 2% expected for advanced economies. That will translate into further rise in Asia s importance in global trade and cargo flow. I don t need to tell this audience that ship building activities now 1
takes place overwhelmingly in Asia. According to various statistics, Asia accounts for some 90% of the global order book in terms of tonnage, led by Mainland China and South Korea. With the favourable trends in both cargo volume as well as ship manufacturing, ownership and management, it is therefore natural for providers of marine-related services to increasingly put their focus on the Asian market. Mainland China, among the various Asian markets, offers particularly bright prospects for marine-related services, including insurance. After opening up to the world market a little more than 35 years ago, the Mainland economy is now the second biggest in the world and the largest merchandise trader globally. Many Chinese shipping companies, like China Merchants, COSCO, China Shipping Container and OOIL, are world leaders. I understand that the IUMI has been putting tremendous efforts in enhancing members understanding of the Mainland China market. Statistics on Mainland s marine insurance premium has been included in IUMI s Global Marine Insurance Report since its 2011 edition. And the figures are indeed impressive Mainland China accounted for over a quarter of premium in Asia Pacific, neck-to-neck with the Japanese market. The development in the Mainland Chinese market will have great impact on the Asian market given the country s size and growing clout as well as its drive to forge close collaborative relationship with trading partners around the globe. Emergence of the Renminbi as a Trading Currency With the increased trading clout of China, so has the prominence 2
of the Renminbi as a trade currency. Hong Kong has been the testing ground and key participant in the Mainland s internationalization of shipping, trade and finance every step of the way. No doubt you are familiar with how Hong Kong became the entrepôt of handling Mainland China s import of raw material and exports of consumer goods, then moved up the value chain to become the manager of trade flow into and out of the Mainland, and gradually became the venue of choice for key Mainland enterprises fund raising and listing. It is the use of HK s as a financing platform by Mainland enterprises that secured our position as the top five global equity initial public offering market every year for more than a decade. Hong Kong s development as an integral part of Mainland s economy growth is also part of Central Government s policy. As you may know, China issues a macro development plan for the country every five years. The 12th Five-Year Plan for the National Economic and Social Development covered 2011-2015 and emphasized among other major issues, the Central Government s support for Hong Kong to consolidate and enhance its position as an international financial, trade and transport and shipping centre. To fulfill such policy directive, and in line with the internationalization of RMB, Hong Kong became the first place where RMB was used outside the Mainland. In the early 2000 s, there was some small-scale cross-border usage of Renminbi in trade and retail transactions. In fact, many Hong Kong shops were prepared to accept Renminbi from Mainland tourists in order to attract their business. Banks in Hong Kong also started engaging in Renminbi business in 2004, initially offering 3
deposit-taking, currency exchange, remittance, and debit/credit card services primarily to personal customers. Yet notwithstanding the burgeoning volume of exports and the rising reputation as the world s manufacturing powerhouse, RMB played a miniscule role in the invoicing of merchandised trade for the Mainland. This is rare among major trading blocs. On a practical level, following the reform in Renminbi s exchange rate system from a peg to the US dollar into a managed floating rate regime in 2005, manufacturers began to face currency exposure mismatch in their revenue and cost. Currency risk was added to the to be managed list for factory owners and merchandisers. In 2009, a Renminbi trade settlement pilot scheme commenced operation in HK. Under the scheme, cross-border trade transactions between five cities in the Mainland China, Hong Kong, Macao, and ASEAN countries are eligible for settlement in RMB, although only a handful of pilot enterprises in the Mainland were eligible to participate. In 2011, the Renminbi trade settlement pilot scheme was extended to cover the whole of Mainland China. Today, all trade and other current account transactions between the Mainland and other parts of the world can be conducted in Renminbi. Progress so far has been significant, as more and more Mainland manufacturers and traders became receptive to using Renminbi to settle their trade so as to alleviate their exposure to currency risk. With barely five years since inception, the latest figures under the scheme suggest that some 20% of Mainland s external trade transactions are settled in Renminbi in 2013 (versus just 2% in 2010). Hong Kong has been the major centre to serve this Renminbi flow. Renminbi trade settlement handled by banks in Hong Kong amounted to RMB3.8 trillion in 2013, ten-folded that in 2010 and versus Mainland 4
China s volume of Renminbi trade settlement at RMB4.6 trillion in the same period. Apart from trade settlement, the Renminbi is also becoming a viable investment unit outside Mainland China as part of the currency s internationalization process. Renminbi-denominated investment products available outside the Mainland now include bonds, shares, exchange-traded fund, unlisted mutual funds, real-estate investment trust, life insurance policies and currency futures, with varying risk profile to suit the different needs of investors and institutions. Most of these investment products are offered only in Hong Kong, which has the world s largest offshore Renminbi liquidity pool, valued at over RMB1.2 trillion. There are two implications that are relevant to marine insurers. First, Mainland China enterprises inclination to conduct business with overseas counterparts in Renminbi is increasing. This could well include insurance services. Second, there is expanding channels for deploying the Renminbi funds received from insurance premium in the offshore market. We hope to see more product and services innovation to serve such evolving needs from Mainland enterprises. No doubt industry players in Hong Kong will be most happy to work together with our partners from the Mainland and overseas to explore the ensuing opportunities. Shifting of Mainland Enterprises Weight onto the World Arena Demand from Mainland Chinese enterprises to manage risk arising from their overseas transactions and exposure will only increase, as they are in the process of going-out. Under the going out policy, the Chinese Government is encouraging some of its state-owned enterprises, 5
which have accumulated substantial amount of capital, to increase their participation in the global markets and make investment overseas as their next phase of growth. Mainland China enterprises are already familiar with operating in Hong Kong, having made full use of our position as a global business hub, multi-currency and multi-channel funding platform, as well as liquidity and treasury management services. Hong Kong is positioning itself to provide one-stop service to help manage regional and global business operations and risks for Mainland enterprises. These represent further value-added services in addition to supporting their fund raising and investing activities as well as helping them to better align with international practices. For international insurers, Hong Kong offers itself as a one-stop destination to reach a growing population of clients with burgeoning needs for high quality services, in insurance and beyond. Development of the offshore Renminbi market and supporting Mainland China enterprises going-out are in fact among key subjects being studied by Hong Kong s Financial Services Development Council (FSDC). The Hong Kong Government established the FSDC in January 2013 to engage Hong Kong s financial services industry, and to formulate proposals for the further development of our industry, as well as the further development of Hong Kong as an international financial centre. The FSDC has over 50 members who broadly represent different segments of the financial services industry. We encourage the industry to develop more Renminbi denominated financial products and to establish effective benchmarks for pricing the products. At the same time, the industry here could leverage its experience and knowledge of international 6
business practices to attract business from the increased cross-border use of Renminbi and the demand for services arising from Mainland enterprises overseas expansion. We also welcome international insurers to set up and expand their operations in Hong Kong in order to seize the growth potential of our market. Together we will consolidate Hong Kong s position as a platform for first-class global financial services. Conclusion Ladies and gentlemen, thank you for giving me this opportunity to share with you views on the eastward shift of activities, the emergence of RMB as a trade currency, and the changing face of Asia. I sincerely hope that IUMI will continue to organize conferences in our region and bring expertise in marine insurance services to help us with the ever-changing environment in trade and marine businesses. I wish you a fruitful conference and, for visitors from the Mainland and overseas, a pleasant stay in Hong Kong. Thank you. 7