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002653
MDLIAN 8304
POLITICAL PRESSURES FOR TAX REDUCTIONS AND HIGHER SOCIAL SPENDING, AND POSSIBLE COST INCREASES DUE TO DELAYS ON THE ACP MAY PUT FURTHER STRAINS ON THE FISCAL POSITION. THE MISSION THEREFORE STRESSES THE IMPORTANCE OF MAINTAINING A PRUDENT FISCAL STANCE WHICH, IN THE SHORT TERM, WOULD AVOID ADDING TO DEMAND PRESSURES AND IN THE LONGER TERM, WOULD ENABLE FISCAL RESERVES TO ACCUMULATE TO PROVIDE A BUFFER AGAINST THE POSSIBILITY OF UNFAVOURABLE SHOCKS. THEY CONSIDER IT DESIRABLE FOR THE RESERVES TO GROW IN LINE WITH ECONOMIC ACTIVITY AS THIS WOULD ENSURE HIGH CREDIBILITY OF FISCAL POLICY AND PROVIDE A SIZEABLE CUSHION. IN LIGHT OF THESE, MEASURES THAT WOULD EITHER RAISE CURRENT SPENDING IN RELATION TO TREND OUTPUT OR LOWER TAX REVENUES SHOULD BE AVOIDED.
REGULATION OF THE FINANCIAL SECTOR.
10.
LARGE CAPITAL INFLOWS AND THE CONSEQUENT INCREASES IN ASSET PRICES CREATE CHALLENGES FOR POLICIES AND PRUDENTIAL SUPERVISION OF THE FINANCIAL SECTOR IS OF PARTICULAR IMPORTANCE. IN THIS CONTEXT, THE MISSION NOTES THE STRENGTHENED SURVEILLANCE OF SECURITIES MARKETS, THE HIGH CAPITAL ADEQUACY AND LIQUIDITY RATIOS OF BANKS AND THEIR STRONG PROFITABILITY, AND THE CLOSE MONITORING OF EXPOSURE TO EXCHANGE RATE AND INTEREST RATE RISKS. THE MISSION ENCOURAGES US TO PHASE IN MORE COMPREHENSIVE PUBLIC DISCLOSURE REQUIREMENTS FOR BANKS, WHICH WOULD FURTHER HONG KONG'S ROLE AS AN INTERNATIONAL FINANCIAL CENTRE AND IS CONSISTENT WITH THE BROAD APPROACH OF ALLOWING MARKET FORCES TO ALLOCATE FINANCIAL RESOURCES
EFFICIENTLY.
INITIAL PUBLIC OFFERINGS.
·
11 NOTING THAT INITIAL PUBLIC STOCK OFFERINGS, LARGELY OF SHARES
IN CHINESE FIRMS, HAVE RESULTED IN VOLATILITY IN FINANCIAL MARKETS, THE MISSION SUGGESTS THAT IT MAY BE DESIRABLE TO REVIEW THE METHODS USED TO ISSUE THESE SHARES TO IMPROVE THE STABILITY AND TRANSPARENCY OF MARKET ACTIVITY. THE MISSION ALSO WELCOMES OUR INTENTION TO STUDY WAYS OF REDUCING FRICTIONS IN THE CLEARING SYSTEM THAT HAVE CONTRIBUTED TO SHARP MOVEMENTS IN SHORT-TERM INTEREST RATES. THEY ALSO CONSIDER THAT THE GROWING SOPHISTICATION OF HONG KONG'S FINANCIAL MARKETS SUGGESTS THE NEED FOR AN ONGOING ASSESSMENT OF THE PROS AND CONS OF CURRENT RIGIDITIES IN THE SYSTEM FOR SETTING SOME BANK DEPOSIT RATES.
BALANCE OF PAYMENT STATISTICS.
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