joseph yam : the asian crisis - lessons for the future opening remarks by mr joseph yam, chief executive of the hong kong monetary authority, at the hkma fifth distinguished lecture : “ the asian crisis : lessons for the future ”, hong kong, 21 may 2002. * * * i am delighted to welcome all of you to this fifth hkma distinguished lecture, and to introduce our speaker, dr stanley fischer, and our discussant, dr stephen grenville. the title of stanley fischer ’ s lecture is “ the asian crisis : lessons for the future. ” in a few weeks ’ time we shall be marking the fifth anniversary of the outbreak of the asian financial crisis - a day or so, incidentally, after we celebrate an entirely unconnected event, the fifth anniversary of the establishment of the hong kong sar. asia and the world have gone through many other ordeals since 1997, so that the crisis perhaps seems much further in the past than it really is. but its effects both physical and psychological - are still with us. it is important that we continue to study the causes and effects and to see what lessons there are for the present. i have spoken at length on many previous occasions on the asian financial crisis, and i intend today to sit back and listen. let me, however, make three very brief observations. the first is that, five years on, very limited progress has been made in resolving one of the fundamental problems that helped make the crisis so devastating for so many economies : a deficient global financial architecture, which has been outgrown by the markets that use it. there have indeed been some reforms both internationally and in individual economies, and there is a much greater alertness to the threats to stability posed by volatile, high - velocity international capital flows. but much still remains to be done, and as capital flows get bigger, the risk of further crisis remains. paradoxically, the risks are increased by a false sense of security brought on by two or three years ’ absence of the kind of contagion that shook so many parts of the world in the nineties. the second observation is that, in the absence of international solutions, a number of economies in the region have adopted local approaches to the problem. some have chosen to go slow or even step back from financial liberalisation through introducing or tightening restrictions and controls. while understandable - and in some cases effective as short - term measures - such an approach is regrettable because it shuts off many

. 1 this is hardly surprising in that the international monetary fund forecasts that, emerging asia, led by china, will contribute almost 60 % of the world ’ s gdp growth by 2016. by 2020, the estimated number of millionaires in mainland china and hong kong together will be 3. 7 million, with an accumulated wealth of us $ 14 trillion. 2 so it is beyond doubt that the expanding affluent population in china and the rest of asia will generate ever increasing demand for private banking services for high - net - worth individuals. while it is clear that there will be increasing number of wealthy people in asia looking for private banking services, the question we need to ask is : “ will they choose hong kong? ”. this begs the question on what hong kong can offer over and above the other centres that are equally keen to gain market share as a private banking hub. in this regard, there are global wealth report 2011, credit suisse research institute deloitte and oxford economics bis central bankers ’ speeches several fundamental attributes that make hong kong exceptionally well placed to become the leading private banking hub in asia : • hong kong has a robust legal framework with an independent judiciary that safeguards property rights. we have a simple, low and predictable tax system. only profits and income derived in hong kong are subject to hong kong tax. there are no withholding tax, estate duty, and tax on capital gains, dividends, interests and so on. we have well established laws to protect the confidentiality of customer information. these advantages not only facilitate the creation and accumulation of wealth in hong kong but also make hong kong a very attractive place for people outside of hong kong to park and manage their wealth in hong kong. • hong kong is also a leading ipo centre, ranked number one globally for the third consecutive year. in 2011, there were more than 100 newly listed companies in hong kong, which together raised a total of us $ 36 billion equity funds. ipo activities help the private banking industry to flourish in at least two ways. apart from providing opportunities for private banking clients to invest in promising businesses, ipo activities also create wealth for entrepreneurs who will then become important clients of the industry. • what is more, hong kong benefits from being the most important gateway for capital flows into and out of china. hong kong has always been the largest source of foreign direct investments ( fdis ) into china since the beginning of the reform and opening programme in 1979. and in the last few years, mainland