free and open to support its status as an international financial centre, providing financial services that mobilise us savings to the rest of the world and attracting foreign investments, and servicing domestic financial intermediation at the same time. london, of course, has much of the european economy in addition to the united kingdom economy. hong kong has the mainland of china, the third largest trading partner, the fourth largest economy, the largest foreign reserve holder and home to participants in the key financial markets that collectively form the largest player in the world. the second point i wish to make is that, under " one country, two systems ", there are two financial systems in china, both in a position to serve the interests of the country in the allimportant function of financial intermediation. this is unique and there are no relevant precedents in the financial history of the world. because of the uniqueness of this arrangement, there is understandably considerable scepticism both internationally and within china on how it might work. let me tell you. the two financial systems are different in a variety of ways, with the financial system on the mainland operating in the developing environment of a socialist market economy and the one in hong kong operating in the familiar environment of a capitalist free market economy. we all know that where there are differences, there are opportunities for exploiting relative strengths, addressing relative weaknesses and maximising synergies between the two systems, remembering always the national interest of making financial intermediation more efficient for the country as a whole. in other words, there is a need to develop a complementary, mutually - assisting and interactive relationship between the two financial systems. this incidentally is national policy, articulated by premier wen on the occasion of the national finance working meeting held early last year. given, however, that there are considerable controls in the financial system on the mainland, including capital controls, and that the financial system in hong kong is among the freest in the world, to develop the complementary, mutually - assisting and interactive relationship between the two financial systems there is a need first to establish channels to promote the mobility in an orderly manner between the two financial systems of ( 1 ) money, ( 2 ) investors and fund raisers, ( 3 ) financial instruments and ( 4 ) financial intermediaries. given also the increasing use and the clear prospects of the renminbi as a medium for international financial transactions there is also a need secondly to develop the ability of the financial system in hong

take any appropriate action. opportunities for hong kong having acknowledged the immediate challenges, i think it ’ s time now to turn towards the opportunities, above all in this region. for while the challenges from the west are deep, they should not blind us to the opportunities within asia. i would say that the coming opportunities for the banking industry here are bright – even if at times they may appear to be obscured by clouds abroad. in fact, i believe that they put us on the threshold of a new era for the banking industry in hong kong. i would like to highlight two of the most promising opportunities. the first is the offshore rmb market, which has developed rapidly over the past two years. the second is the increasing demand for asset and wealth management services, both institutional and individual. opportunity 1 : offshore rmb market on the offshore rmb market, hong kong bankers have been the first ones to exploit the new business opportunities. the development of this market in hong kong is a story very familiar to you, so let me focus my remarks on three specific questions which i am often asked. first, is the rmb liquidity pool in hong kong big enough? over the past year or so, the growth of rmb customer deposits has turned modest. on occasions there have even been month - on - month declines. some commentators have seen this as a sign that the rmb liquidity pool in hong kong is beginning to plateau and might not be able to support future rmb bond issuances and other financial activities. frankly, i think this should not be a cause for concern. one needs to recognise that the level of rmb customer deposits is a useful but incomplete measure of rmb liquidity. for instance, banks have been increasingly issuing rmb certificates of deposits as a means to tap rmb funds. taking rmb customer deposits and certificates of deposits together, these added up bis central bankers ’ speeches to 700 billion yuan at the end of july 2012, with a modest 5 % increase from the end of 2011. in other words, the rmb deposit pool has remained largely stable, at a time when we are seeing very vibrant rmb dim - sum bond issuances and expansion in other rmb financing and investment activities. this is a healthy sign that market forces are balancing supply and demand, and that the offshore rmb market in hong kong is maturing. looking ahead, the level of rmb deposits may rise or fall from time to time. this is only natural as