It’s a great pleasure to be here in Hong Kong and to be part of today’s discussion. I am particularly pleased to have had the chance to meet some of you earlier and hear your experiences of doing business in Hong Kong, and from here with mainland China.
It’s impossible not to be impressed by the energy and dynamism that one sees and feels in Hong Kong. And it’s a tribute to that energy and imagination that this compact city has built such an important financial centre – ranked third on the Global Financial Centres Index produced by the City of London. A trading port that developed thanks to the exceptional depth of its harbour is still powering trade thanks to the depth of its capital markets. The world’s second largest IPO market, Asia’s third largest stock market and a vibrant foreign exchange market: Hong Kong is a shining example of what an open economy can achieve.
Hong Kong looks out on the world. And we in the European Union see you as an important partner. Our joint trade in commercial services is worth 20 billion euro a year. The EU is Hong Kong’s largest investor after mainland China and Hong-Kong is one of the top ten investors in Europe. A large share of EU-China investment flows through Hong Kong. So it’s no coincidence that close to 2000 European companies choose to run their regional operations from this springboard to the Asian continent.
This is a strong trade and investment relationship with great potential to be driven further in both directions. For me, part of the purpose of coming to Hong Kong is to listen to your ideas as to how we might be able to do that. But it is also to tell you a little more about the European Commission’s approach; say a few words about what we’re doing to support growth and investment in Europe; and finish with how we might strengthen the EU- Hong-Kong – mainland China relationship even further.
The Commission of which I am a member started work a year ago. Everything we do is approached with the priority of jobs and growth in mind. We want a Europe that is open for business and open to investment. We have recently agreed a comprehensive trade and investment strategy that commits us to be more effective and transparent in our approach. It includes a commitment to a strategic engagement with Asia.
We’ve pressed ahead with free trade agreements, not just with the United States but also with Vietnam, Japan and now New Zealand. Our recent free trade agreement with South Korea is ambitious and we’ve also completed one with Canada. Building on the investment agreement negotiations underway with mainland China, we want to explore the possibility of launching negotiations on investment with Hong Kong.
Back in Europe, we are committed to legislating less and legislating better to give businesses and investors the stability they need to plan ahead. Last year we introduced one fifth of the amount of legislation that was typically brought forward under the previous Commission. Within months of coming into office we launched a €315 billion plan to support investment. Above all, we’re pushing to unlock the single market’s full potential. We have set out a clear plan for this and launched three single market projects: in energy, in the digital economy and in my own area of capital markets. Bigger markets, more competition, more trade and investment are at the heart of our approach.
Europe needs investments – up to 2 trillion euro by 2020. We need investment to upgrade and modernise; to adapt to a low carbon world; and to adjust to an ageing population. But to continue to attract that investment, we’re conscious Europe needs to be somewhere it’s simple to do business: a single market that’s growing and offering a good return on your Hong Kong dollar or Renminbi.
That is what is driving me forward in my work to build a single market for capital – what we are calling a Capital Markets Union. Europe’s commitment to a single market for capital is longstanding: it dates back over fifty years. But we are making a major new push to strengthen and deepen it. Europe, as you know, has traditionally had a financial system very dependent on banks. Europe’s economy is about the same size as America’s, but our equity markets are less than half their size. In the US, SMEs get about five times as much funding from the capital markets – or non-bank financing – as they do in Europe.
A bigger role for capital markets, to complement bank financing would give European business a bigger choice of funding. By bringing down cross border barriers, we can create opportunities for successful businesses to sell into bigger markets while reducing operating costs. That is true for European businesses operating within the EU, but also for businesses and investors from outside the EU who want to do business and invest there. And by reducing dependence on one source of funding well-regulated capital markets can also increase financial stability.
I recently published a Capital Markets Union Action Plan that is broad in sweep and ambitious in scope. It takes a long term, step-by-step approach to eliminate legal and administrative costs to cross-border operations across Europe.
As a priority, it focuses on removing barriers to small firms raising money from capital markets, and how we can better connect information on investment opportunities in SMEs to investors the world over. We will improve the system that allows investment funds to operate across the EU. And over a longer period, we will tackle entrenched cross border barriers to the free movement of capital, ranging from differences in nation laws on insolvency, tax and securities through to obstacles arising from a fragmented market infrastructure.
We have already announced some immediate measures to build early momentum. We are taking steps to revive our securitisation markets and to make it more attractive for investors like insurance companies to invest in long-term infrastructure projects by lowering the capital requirements associated with these investments by about a third. We also want to make it easier for companies to raise capital on the public markets. So another early action will be a major overhaul of the legislation that governs the issuing of prospectuses.
I am keen to anchor CMU in the international financial system and global standards. As we press ahead, I will continue to work closely with the Financial Stability Board and the International Organisation of Securities Commissions. But as we leave the crisis behind us, when considering legislation I am keen to consider its impact on jobs and growth.
That is why as part of the CMU action plan – and in line with G20 and FSB work – we are having a look at the cumulative impact of the legislative reforms we have introduced over the past five years. If you legislate at speed, as we had to during the financial crisis, you cannot expect to get every bit of regulation right. So now we are checking that when you look at this legislation in the round there have been no unintended consequences, that we have got the balance right between managing risk and supporting growth.
As Europe works to strengthen the contribution its capital markets can make to our economy, I know that Hong-Kong is also working to develop its capital markets. I am interested in the new Shanghai-Hong-Kong Stock Exchange Connect. It’s now nearly a year old and I understand there are calls for the scheme to be expanded to Shenzhen-listed stocks. This initiative has the obvious potential to improve access to funding and enable investors to play their part in supporting Chinese growth that continues to offer great opportunities. I am also paying close attention to new initiatives to link the Shanghai Stock Exchange with the London Stock Exchange and the Deutsche Borse.
Mutual Recognition of Funds between mainland China and Hong Kong which allows eligible funds to be distributed in both markets, is another development that we are following closely. The basic principle that investors in Hong Kong and mainland China enjoy the same investor protection and compensation rights, and have to disclose the same information, is not dissimilar to principles we strive to apply across the single market in Europe.
But just as we in Europe are keen to open our markets, it is important that these positive developments – that will increase the size and depth of markets – also increase competition.
With this in mind we are of course particularly keen for EU funds to be able to continue to offer their services to investors seeking to diversify their investments. I understand that Hong Kong is hard at work developing standards for a new investment fund that takes inspiration from Europe’s successful UCITS model. This competition should be positive, but we are keen to see UCITS recognised for the well regulated platforms that they are in the mutual recognition agreement between Hong-Kong and mainland China.
I want us to strengthen still further our trade cooperation in financial services. To do that, we must keep up work on the agreements that make EU-HK trade relationship easier. And that we continue to do this in line with international practice and standards to maintain strong and transparent regulatory regimes.
I am pleased that the EU has granted equivalence to Hong-Kong Credit Rating Agencies; and that we have also recently recognised Hong-Kong’s regime for central counterparty clearing houses. We must now quicken the pace and reach an agreement on the sharing of data for derivative contracts to improve transparency and informed investment decisions. And mutual recognition agreements on prudential legislation and audit systems could reduce the legislative burden on firms wanting to establish themselves on either side of the Eurasian continent.
Such issues are important in today’s international, integrated markets. I am therefore keen to see how we can improve international cooperation and coherence between regulators in the EU and Asia-Pacific. So I would like to work with IOSCO, the International Organisation of Securities Commissions, to explore what we can do to strengthen our cooperation in this area.
The constructive, open and pragmatic relationship the EU shares with Hong-Kong is one I am also keen for us to continue building with the mainland as we strengthen our strategic partnership. The EU and China share the same interest in increasing competitiveness and productivity. I believe the EU, Hong Kong and mainland China all share the approach that financial services need to be put to work to support the wider economy. As long as trade, openness and increased competition remain central to our agendas, there is a great opportunity for more investment and more growth. This is an opportunity that I would like to work with you to seize.