Bauhinia Foundation Research Centre
Thought Leaders Forum 2010 - Hong Kong’s Changing Roles
under the National 12th Five-year Plan
“External Use of RMB”
Hong Kong’s Contribution to
China’s Reform and Liberalisation
Mr. Norman T.L. Chan
Chief Executive, Hong Kong Monetary Authority
8 December 2010
China’s reform and liberalisation
Hong Kong’s role and contribution
 To plan for the future, there is a need to
understand the past and the present
 Hong Kong has played an important and
irreplaceable role in the country’s reform and
liberalisation over the past 30 years
 Hong Kong’s contribution will continue and
increase over time
2
Hong Kong as the key intermediation
platform for Mainland’s trade
Re-exports and offshore trade of Mainland
USD billion origin intermediated through Hong Kong
800
100
Offshore trade conducted through Hong Kong (lhs)
Re-exports conducted through Hong Kong (lhs)
700
%
90
80
600
70
500
60
Re-export and offshore trade
conducted through Hong Kong as a
share of Mainland's trade (rhs)
400
50
40
300
30
200
20
100
10
0
0
84

86
88
90
92
94
96
98
00
02
04
06
08
During 1980-90’s, Hong Kong was the key re-export port for Mainland’s trade. With improved port facilities in
the Mainland, Hong Kong has transformed itself into an offshore trading centre. Nowadays, about 30% of
Mainland’s trade (including re-exports and offshore trade) is intermediated through Hong Kong.
3
Contribution of trade intermediation
services to the Hong Kong economy
HKD billion
Contribution of China-related trade
intermediation services to Hong Kong
800
% GDP
40
Offshore trade earnings (lhs)
Re-export earnings of China origin (lhs)
700
35
600
30
As a share of Hong Kong's
GDP (rhs)
500
25
400
20
300
15
200
10
100
5
0
0
89

91
93
95
97
99
01
03
05
07
09
The fast-growing Mainland economy has provided an impetus for the development of re-export and
offshore trade in Hong Kong. Over the past 20 years, gross earnings from Mainland-related trade
intermediation services increased from an equivalent of 9% of GDP in 1989 to 34% in 2009.
4
Hong Kong is the largest source of
Mainland’s foreign direct investments
FDI to Mainland China
USD billion
%
120
100
(lhs)
Hong Kong
Virgin Islands
Japan
US
Others
90
100
80
Share of Hong Kong (rhs)
70
80
60
60
50
40
40
30
20
20
10
0
0
86

88
90
92
94
96
98
00
02
04
06
08
Since the opening up and reform of the Mainland 30 years ago, Hong Kong has been the largest
source of Mainland’s foreign direct investments (FDI). While the share of Mainland’s FDI coming
from Hong Kong was once on a decline, it has rebounded and accounted for half of Mainland’s total
in 2009.
5
Hong Kong as a bridge for
Mainland enterprises investing overseas
USD billion
80
(lhs)
Outward direct investments from
Mainland China
Hong Kong
Other Asia
OFCs
Australia
%
80
Others
70
70
60
60
50
50
40
30
40
Share of Hong Kong
(rhs)
30
20
20
10
10
0
0
03

04
05
06
07
08
09
Hong Kong also serves as a “window” and a “bridge” facilitating outward direct investments (ODI)
by Mainland enterprises. In 2009, Mainland’s ODI increased to US$57 billion, of which 60% was
invested in Hong Kong or through Hong Kong to overseas.
6
Hong Kong as a key fund-raising
platform for Mainland enterprises
Cumulative amount of funds raised by Mainland
%
enterprises in Hong Kong stock market USD billion
70
800
Other enterprises (rhs)
Mainland enterprises (rhs)
60
700
600
50
Share of Mainland
enterprises (lhs)
500
40
400
30
300
20
200
10
100
0
0
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
*As of October, 2010.

Hong Kong’s stock market provides an efficient fund-raising platform for Mainland enterprises. In the
past 20 years, Mainland enterprises raised a total of US$360 billion, accounting for more than half of
the funds raised in the Hong Kong stock market. Hong Kong continues to play this role today.
7
Hong Kong as a springboard for Mainland
banks to develop overseas business
HKD billion
Source of growth of Mainland banks
operating in Hong Kong
HKD billion
2,200
2,200
20% of total bank assets in Hong Kong
2,000
2,000
1,800
1,800
1,600
1,600
Assets of Mainland banks
in Hong Kong
1,400
Organic
growth
1,400
1,200
1,200
1,000
1,000
800
800
Mergers & Acquisitions
600
600
400
400
200
200
0
0
99

00
01
02
03
04
05
06
07
08
09
Hong Kong has been the prime location for Mainland banks to expand their business overseas.
During the past 10 years, the asset size of Mainland banks operating in Hong Kong increased rapidly,
reaching HK$2 trillion or 20% of total bank assets in Hong Kong at the end of 2009.
8
Hong Kong’s competitive edge as global
hub for wealth and assets
International investment positions:
assets and liabilities
USD trillion (% GDP)
USD trillion (% GDP)
7
7
Assets
Liabilities
6
6
5
5
2.9 tn
(57%)
4
4
3
1.8 tn
(37%)
740 bn
(352%)
680 bn
(138%)
3
440 bn
(247%)
2
1
1
0
0
Japan

2
China
Hong Kong
Switzerland
Singapore
As at end-2009, Hong Kong’s international investment position (IIP) assets reached US$2.6 trillion
or 12 times of GDP. Meanwhile, the net IIP assets stood at US$740 billion or 3.5 times of GDP.
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Huge potential for RMB as a currency
for trade settlement
Mainland’s trade with major
trading partners
%
9
USD billion
3,000
8.8%
8
2,500
7
Others
22,059
6
2,000
US
5
Mainland's trade as a
share of world total (lhs)
4
EU
3
1,500
1,000
Asia
1,172 (53.1%)
2
500
1
0
0
95

96
97
98
99
00
01
02
03
04
05
06
07
08
09
Mainland China is the world’s second largest trading economy after the US, accounting for 9% of
global trade. Of which, Asia accounts for more than half of Mainland’s trade. Hence, the potential
for RMB as a currency for trade settlement is huge.
10
Asia is Mainland’s largest trading partner
Korea
2003: 20 bn
2009: 54 bn
(+167%)
Figures represent Mainland’s exports in US dollar.
Figures in ( ) represent the growth rate.
Japan
2003: 59 bn
2009: 98 bn
(+65%)
ASEAN
2003: 31 bn
2009: 1,06 bn
(+244%)

Growth of Mainland’s exports to Asia has been robust. During 2003-09, Mainland’s exports to Japan,
Korea and ASEAN increased by 65%, 167 and 244% respectively. This suggests that there is ample
scope for a wider use of RMB for trade settlement in the region.
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Mainland’s trade with regions outside Asia
is also growing strongly
Eastern Europe
2003: 12 bn
2009: 40 bn
(+231%)
Figures represent Mainland’s
exports in US dollar.
Figures in ( ) represent the
growth rate.

Central Asia
2003: 2 bn
2009: 17 bn
(+710%)
Australia
2003: 6 bn
2009: 21 bn
(+230%)
Latin America
2003: 12 bn
2009: 57 bn
(+380%)
In recent years, Mainland’s exports to regions outside Asia has been increasing significantly. During
2003-09, Mainland’s exports to Australia, Eastern Europe, Latin America and central Asia rose by two
to seven times. With the rapid expansion of Mainland’s trade with the emerging economies, there is
also ample scope for a wider use of RMB for international trade settlement.
12
China is the key source of growth
of global economy
Sources of global economic growth
100%
Others (12%)
Japan (2%)
Euro zone(5%)
80%
US (10%)
BRIC exChina (16%)
60%
Emerging
Asia (19%)
40%
20%
70%
38%
China (35%)
0%
2000

2006
2010
2015
As projected by the IMF, more than one-third of global growth would be contributed by Mainland
China by 2015. It is expected that the importance of Mainland China in the global economy and
financial system will also increase accordingly.
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External use of RMB
Prospects of HK as an offshore RMB centre
 Hong Kong is an established international financial centre,
and also an important centre of capital and funds
 With Mainland as the hinterland and its international links,
Hong Kong is the ideal window, springboard and testing
ground for the external use of RMB
 Given the rapid growth of China’s cross-border trade and
investment flows, there is huge potential for the Hong
Kong offshore RMB platform to contribute and support real
economic activities in China and the region
 The offshore RMB market in Hong Kong is also linking up
with the sizable onshore financial market in the Mainland,
paving the way for China to link up with the international
capital markets
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