Hong Kong must move with the times by making itself an efficient platform for Mainland financial intermediation.

Governor Zhou made it abundantly clear that, in terms of the financial environment in which Hong Kong operates, times are changing and changing fast. He made six important points. First, the savings rate on the Mainland is high by international standards and increasing, in contrast to a zero savings rate in the United States. I take this to mean that there is an exceedingly large amount (relative to GDP) of domestic savings on the Mainland to be mobilised and channelled into the hands of those raising money to finance activities that promote economic growth and development. The question is how this should be done.

Second, there has been a net inflow of foreign direct investment into the Mainland and, presumably because there is plenty of liquidity, the Mainland authorities are beginning to encourage domestic savings to "move out". I take this to mean that there is more than enough money around: so much that it is storing up potentially difficult tasks for monetary management if the undesirable monetary consequences of high savings combined with capital inflow are to be contained. There is therefore a need for a policy shift away from a preference for capital inflow to encouraging domestic savings to "move out". The questions here are many - the crucial ones are again how to do it; what sequence to adopt in capital account liberalisation; how the associated risks are to be managed; and, I suspect, how to manage the political process.

Governor Zhou's third point was that the net international investment position (NIIP) of the Mainland has changed. I take this to mean that the NIIP is now significantly positive and increasing, which is a fact. Along with the earlier points, this suggests to me that the changing times may well involve a modification of foreign direct investment (FDI) policy, or at least the emphasis placed on it. Indeed, Governor Zhou made the fourth important point which is that "some have suggested views on FDI that are different from before"; and the fifth which is that "some on the Mainland have criticised (the raising of money by Mainland enterprises through) IPOs overseas", to the extent that "the background for Hong Kong's role as an international market for the Mainland to raise foreign capital is changing", which is his sixth point. This brings into question the sustainability of Hong Kong as an IPO centre for Mainland enterprises.

So times are indeed changing, but I think, without I hope sounding complacent, that we in Hong Kong are well prepared and positioned to move with the times, in order to maintain the status of Hong Kong as an international financial centre. It is clear to me what our new emphasis should be, in addition to what we are doing already. This is to try and play a meaningful role in mobilising the domestic savings of the Mainland, both in channelling them into the hands of fund-raising entities on the Mainland and in facilitating their "moving out". It is also clear to me what our strategy should be. For financial services that have to be provided on location, for example retail banking, we should try to improve access by Hong Kong financial institutions to the Mainland. For financial services that do not need to be provided on location, for example those of capital markets, we should improve the infrastructure of the Hong Kong financial system to make it better able to match the needs of those on the Mainland who have money to invest with the needs of those who want to raise money.

While we in Hong Kong prepare and position ourselves to move with the times, including for example the development of renminbi business in Hong Kong, (or more precisely developing our ability to handle financial transactions in renminbi), there are pre-conditions crucial to our success. We await with considerable enthusiasm favourable developments on those fronts. If I may be allowed to use a Cantonese slang expression to conclude: just "let the horse come through" ("horse" in Chinese has the same sound as "chips", which is a slang term for "money").