Henry Tang, the financial secretary, has overseen the implementation and expansion of the Closer Economic Partnership Arrangement, a 2003 pact which makes it easier for Hong Kong businesses to invest in the mainland.
He has supervised the introduction of looser visa rules for Chinese visitors to Hong Kong and he has won concessions to allow Hong Kong banks to do some business in the renminbi, the currency on the mainland.
Forging closer links across the border will continue to be a theme of Mr Tang’s term under Donald Tsang, who became chief executive earlier this year. In an interview with the Financial Times, Mr Tang maps out his vision for this partnership.
“Looking at Hong Kong’s development as a complement to ... China’s development, they are in a process of a very vast and very rapid economic transformation. I ask myself: what do they need in the future?
“What they need is world-class, sophisticated financial services, and this is something that we can provide. We can provide, with the set of software that we have and the infrastructure that we have and the law that underpins it.”
Financial services, which accounts for 12 per cent of the territory’s gross domestic product, has underpinned Hong Kong’s economy for decades. The former British colony is the first port of call for mainland Chinese businesses listing overseas. This distinction allowed it to raise more capital than Tokyo or London in 2004.
But being home to so many mainland Chinese companies brings its own risks as well. As the number of Chinese companies listing on the Hong Kong stock exchange has risen in the last two years, so has the number of investigations of financial irregularities that extend across the border.
In August, the Securities and Futures Commission released a series of proposals on reforming the listing process to better protect investors.
“We want to ensure that Hong Kong is a high quality marketplace with clean environment, clean meaning both clean in the sense of an uncorrupt environment, but also in the sense of regulatory agencies that are world-class,” Mr Tang says.
Mr Tang also wants to deepen the links with the mainland by allowing Hong Kong banks to do more with the renminbi. In his March policy address, he outlined three ways to enlarge this business: diversifying the renminbi assets and liabilities of Hong Kong banks; providing renminbi services for trade and current account transactions between Hong Kong and the mainland; allowing debt denominated in renminbi to be issued in Hong Kong.
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Mr Tang says he still hopes to achieve his aim of expanding these business lines, but declines to say when that might happen. “I hope to have good news by the next budget,” he says.
How much he will be able to achieve depends partly on Beijing and partly on the political calendar.
One of Mr Tang’s other goals has been to start a public consultation on the introduction of a goods and services tax to broaden Hong Kong’s tax base.
The consultation, originally scheduled to start shortly after Mr Tang’s budget address last March, has been postponed for political reasons. The sudden resignation of Tung Chee-hwa as chief executive and his replacement by Mr Tsang in a two-year term has forced the government to reconsider its priorities.
“In view of the change in the chief executive, I felt it is important for me to consult the chief executive and to ensure that the chief executive is satisfied that we are not putting unduly too many items on the plate in the remaining term of this government until 2007,” says Mr Tang.
During his term, Mr Tsang must push through important legislation that will dictate how the next chief executive will be chosen and the legislature formed in 2008 – a process that is likely to top the government’s agenda for the next two years.
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