Advanced and Emerging Economies -- Two-speed Recovery

I. Introduction
Good evening. Today, I am indeed honored to have this precious opportunity to give a
speech here in the beautiful and dynamic city of Hong Kong. I would like to begin by
expressing my heartfelt thanks to the Bauhinia Foundation Research Centre and the
Chairman, Mr. Anthony T. Y. Wu for kindly providing such an honorable occasion to speak
in front of our distinguished audience.
As you are well aware, financial business is the biggest industry in Hong Kong. Did you
know, however, that the financial relationship between Hong Kong and Japan was forged
shortly after Hong Kong appeared in modern history? In 1871, three years after the
foundation of the Meiji Government, Japan began to issue its first modern currency. The
government of the time acquired its minting machinery from the former English Minting
Authority in Hong Kong, and invited the engineers to Japan, asking them to issue silver coins of the same weight and quality as those used in Hong Kong. While there are a variety of stories claiming to account for the origin of the name of the Japanese currency, the yen, one of these stories tells us that in fact the yen derives its name from the silver Hong Kong one yuan coin (Slide 1). Financial institutions have also been active since the very early days in helping build close associations between Hong Kong and Japan. The Hong Kong and Shanghai Banking Corporation Limited, familiar worldwide as HSBC, was established in Hong Kong in 1865. In the following year, 1866, HSBC opened its branch in Yokohama, and this contributed greatly to the development of trade finance in Japan. Among Japanese banks, the former Yokohama Specie Bank Limited, which is said to have been modeled after HSBC, opened its local office in Hong Kong in 1896. The strong economic ties between Hong Kong and Japan are not limited to financial services but extend also to trade in goods and services. Hong Kong is currently Japan's fifth largest export partner (Slide 2). It must also be pointed out that this trade in products is not confined merely to industrial goods. Believe it or not, despite its total population of less than ten million, Hong Kong is the primary export destination for Japanese agricultural products, some of which may be re-exported to other regions, including mainland China. Japanese luxury fruits are very popular among Hong Kong's gourmet residents.

There is also a long-term relationship between Hong Kong and the Bank of Japan. The Bank of Japan opened a representative office in Hong Kong in 1957, aiming to ensure close appreciation of economic developments in the Asian region (Slide 3). Since then, our representatives at the Hong Kong office have been providing extremely valuable and enlightening reports to the Tokyo Head Office on monetary and economic developments in Hong Kong and East Asia, including those on the Asian currency crisis in 1997. We have been enjoying a very close and friendly relationship with the Hong Kong Monetary Authority, and I myself have solicited advice for today's speech from my very close friend, Mr. Norman T. L. Chan, Chief Executive of the Hong Kong Monetary Authority. Let me now move on to the main subject. The title of my speech today is "Advanced and Emerging Economies: Two-speed Recovery," and I would like to take this opportunity to express my views on the outlook for the global economy. I will also briefly touch upon several challenges for Asia and Japan from the perspective of ensuring economic developments between the two.

II. Current State of the Global Economy
I will start with the current state of the global economy. The global economy has been recovering at a modest pace, following its rapid decline after the Lehman shock. The current state can most accurately be described by what has already become a rather worn-out phrase, the "two-speed recovery." According to the IMF World Economic Outlook released in October, the growth rate of the global economy was minus 0.6 percent in 2009, followed by a forecast plus 4.8 percent for 2010, and plus 4.2 percent in 2011 (Slide 4). Approximately 70 percent of the growth is contributed by emerging and resource-rich economies. Among those, the growth of Asian emerging economies stands out, and it can be said that Asian emerging economies are currently the growth center for the global economy, and have been a great driving force for its recovery since the global financial crisis.

For the full speech visit: http://www.boj.or.jp/en/type/press/koen07/data/ko1011b.pdf