Mr. Yam looks at the future of Hong Kong as a financial services centre for China and the Asian region Speech by the Chief Executive of the Hong Kong Monetary Authority, Mr. Joseph Yam, JP, to Coopers and Lybrand Financial Services Conference in Hong Kong on 28/10/97. I have been asked to speak on Hong Kong’s role as a financial services centre for China and the Asian region. As you know, many of the economies of the Asian region, including of course the mainland of China, have been undergoing a rapid process of financial liberalization. This has brought tremendous benefits to the region, through providing the mechanisms for channelling savings into investments, domestically and internationally, thus promoting growth and development of the region. The process has brought substantial risks to the region as well, as clearly you have witnessed in the past few months when financial turmoil spread in the region. 2. Notwithstanding the financial problems now being faced by the region, the balance of opinion is still firmly that financial liberalization is of long-term benefit. The correct response to such problems is clearly, at least for the immediate future, to take the right medicine and implement the necessary economic adjustment programmes, prescribed if necessary by the International Monetary Fund. Indeed, this has very much been the focus of recent attention when one looks at individual economies in this region that have been subject to financial turmoil. But prevention is always better than cure.
In the OECD countries, especially in the US, there is solid growth with low inflation, BIS Review 112/1997  -4-  while we are seeing signs of broad-based recovery in Europe. Only in Asia have we seen a slowing of growth, but the growth rates have still been high by world standard and last year Japan grew by 3.6%, the fastest since the late 1980s. 15. Second, because of high global liquidity and low inflation, asset markets around the world are at record levels. Capital flows have increased with globalization, and added to record high stock and bond prices. The fact that Europe has recently raised interest rates, and the Fed is considering whether to pre-emptively raise rates to prevent wage-push inflation, has made the financial markets much more nervous despite the growth environment. This explains why the financial volatility in Asia has become global in nature. It is very flattering to know that Hong Kong can move even the mighty US and European markets, as much as the other way around. 16. Third, Asian fundamentals, and especially Hong Kong fundamentals, are strong. But there have been different degrees of strength in Asia with respect to the fundamentals. The adjustments in exchange rates of currencies in this region reflect partly the market perception of fundamentals. But as I said recently at the Per Jacobsson lecture, there is no perfect exchange rate regime.