In stead of coming up with new initiatives, the government said Wednesday it will continue to rely on its four pillar industries for economic growth, particularly financial services.

In his policy address, Chief Executive Donald Tsang put particular emphasis on further developing the financial services industry, which accounts for 16 percent of GDP. It is one of the four traditional pillar industries along with tourism, trade and logistics, and professional services.

"We are committed to developing Hong Kong as a global capital formation center, asset management center and offshore renminbi business center to attract capital and talent, with a view to providing world-class, comprehensive and quality financial services in the Asian time zones," Tsang said.

In a move to boost the city's status as an international financial center and contribute to financial reforms, particularly the internationalization of yuan and the convertibility of the mainland's capital account, the government put forward four short-term goals for the financial services sector.

The first is to seek "early and pilot implementation" in the city of those financial services have not been liberalized in the mainland. Due to a closed capital account, some financial services are unable to be carried out on the mainland currently and need to be tested first in an open market.

The second goal is to promote capital flows between banks in Hong Kong and the mainland, and to attract more foreign enterprises to use Hong Kong's yuan settlement services. A government spokesperson said yuan trade settlement in Hong Kong has been developing very rapidly due to growing cross-border trade. Currently the inter-bank lending between Hong Kong and mainland is capped by a quota. The government hopes the quota can be raised to better serve trading companies.

The third goal is to encourage more mainland, Hong Kong and foreign enterprises to issue yuan bonds in the city. Recent months have seen a slew of yuan bonds, with issuers including banks and corporations. The spokesperson said the government hopes such financing activities gradually become mature and systematic rather than a one-time phenomena.

The last goal is to strengthen the link between products traded on the stock exchanges of Hong Kong and the mainland. One example of such a product are ETFs (exchange traded funds). ETFs tracking A-shares are currently listed on Hong Kong's bourse, but their mainland counterparts - ETFs tracking H-shares - are not yet available for investors. The spokesperson said the government will promote a mutual listing of funds to expand capital flows channels between the two markets.

However, economists and scholars see the four new goals as an extension of existing policies rather than new initiatives, and said their real concerns have barely been addressed.

Paul Tang, chief economist at the Bank of East Asia, said the Policy Address was more of a summary of what has been achieved rather taking the first steps in a brave new direction.

Professor Chong Tai Leung from the Department of Economics at the Chinese University of Hong Kong (CUHK) said "hot money" on the heels of quantitative easing by developed countries is his primary economic concern. With the value of the Hong Kong dollar being pegged to the US dollar, the government's economic policy options are limited.

China Daily

(HK Edition 10/14/2010 page2)