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K.C. Chan
HK's advantage as a financial center
By Joy Li
Published: Jul 15 2011 11:51
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Indonesia, Malaysia, the Czech Republic, Russia — for the past two months K.C. Chan has maintained a rigorous schedule, traveling from place to place, raising awareness in the marketplace of Hong Kong's unique role on the global financial frontier.

The footprints along his path, and the road not yet traveled, help to shed some light on Chan's convictions and his mission.

"For me, Hong Kong's strength is definitely international connectivity. We must make sure we build on that strength," the city's secretary for financial services and the treasury told China Daily in an exclusive interview.

Time magazine, in an issue published in 2008, coined the term "Ny-lon-kong" for a cover story on globalization. The story declared that cities such as New York, London and Hong Kong are "linked by a shared economic culture", making them "exemplars of globalization".

"At that time, I said Time magazine had been so kind to Hong Kong and that it saw the potential for Hong Kong. New York is serving the US economy, London half of Europe. At that time, Hong Kong was the very distant third in terms of financial market size and importance," Chan said.

In terms of the economic hinterlands the three regional hubs and global icons serve, Chan's perception was not about being humble, but being realistic.

"These days I think Hong Kong is still trailing behind New York and London, but in 10 years, our vision is that 'Kong' should be equal with 'Ny' and 'Lon' thanks to China's rise, because we serve the world's second largest economy," said Chan, adding that it is not just Chinese investors, but a lot of international investors who come to Asia trying to raise funds through Hong Kong, which has made the city flourish.

In the 12th Five-Year Plan, a chapter is dedicated to Hong Kong, promising support for Hong Kong being an international financial center and, specifically, a testing ground for the yuan to go global.

Assuming a central role in the internationalization of the yuan, Hong Kong is developing an offshore yuan market at an impressive pace within a short period of time. Since July 2010, the signing of the revised clearing agreement for renminbi business in Hong Kong has helped to build steam for the development of an offshore yuan market. Yuan deposits in the local banking system surged sixfold, accounting for about 9 percent of the city's total deposits. Eighty-six percent of China's cross-border yuan trade settlement is done through Hong Kong. Yuan-denominated bonds, nicknamed "dim sum bonds", have grown virtually from zero to around 55 billion yuan in the past year.

"The reason that Hong Kong is a good offshore market is that we are quite sensitive to the national policy and we understand the role gradualism plays in mainland policy making," said Chan.

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