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

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Introduction

Moving with the Times Hong Kong must move with the times by making itself an efficient platform for Mainland financial intermediation. A number of journalists with specialised interests in financial developments in Hong Kong asked for my interpretation of the "move with the times" speech delivered by the Governor of the People's Bank of China, Zhou Xiaochuan at the Annual Dinner of the Hong Kong Association of Banks on 30 September 2005. The "move with the times" comment was made by Governor Zhou in relation to maintaining the status of Hong Kong as an international financial centre. We should of course all move with the times and be alert to changes taking place around us if we do not wish to be left behind. This comment has a universal application and is particularly important when times are changing rapidly. Those with the ability to anticipate changes and prepare for them stand a much higher chance of success. ...read more.

Middle

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. ...read more.

Conclusion

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"). ...read more.

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