FINANCIAL SYSTEM AND ECONOMY
Hong Kong as a Financial Centre
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Hong Kong continued to develop as a financial centre in 1981. Eight major international banks were licensed to carry on banking business in Hong Kong, after the lifting of the previous moratorium on bank licensing. Other important developments during the year were the redefinition of banking business and the associated creation of a new class of financial institution, the licensed deposit-taking company. No companies were granted that status during the year, but a further 48 registered deposit-taking companies started operations. The stock market had another very active year, with the Hang Seng index reaching record highs in July, although the commodity market was relatively quiet.
Hong Kong has a probably unique combination of institutional features as an interna- tional financial centre. There is little specialisation within the monetary sector especially among deposit-taking institutions so that there is, for instance, only one company concerned exclusively with granting mortgage finance, while there is no institution established only to gather savings deposits. There is no central bank, and no central monetary authority; such of the tasks of a central bank as arises in Hong Kong are carried out by the Monetary Affairs Branch of the Government Secretariat, operating as necessary through the Hong Kong Government Exchange Fund and through one of its commercial bankers. There is no marketable direct government debt; total public debt is extremely low. There is a well-developed money and foreign exchange market, with no exchange control of any sort, and a very active gold market.
The Monetary Sector
The most important developments during the year were the redefinition of banking business, so extending the type of business which may be undertaken only by licensed banks, and the associated creation of a three-tier monetary sector. These were achieved by means of amendments made to the Banking and Deposit-taking Companies Ordinances which provide that, after the expiry of a two-year transitional period in mid-1983, the business of taking deposits will be shared by three distinctive classes of institution: first, licensed banks which can take deposits in any amount and of any maturity in the course of their banking business; secondly, licensed deposit-taking companies which can take deposits of not less than $500,000 and of any maturity; and, thirdly, registered deposit- taking companies which can take deposits of not less than $50,000 and with an original term to maturity of not less than three months.
Banks in Hong Kong are licensed under the Banking Ordinance, the licensing authority being the Governor-in-Council. At the end of 1981, a total of 123 banks were licensed in Hong Kong, with between them 1 301 banking offices: 89 of these banks are incorporated outside Hong Kong. In addition, there were 121 representative offices of foreign banks.
In May, a moratorium on the grant of further banking licences, which had been in force since August 1979, was lifted in respect of major international banks and long established local deposit-taking companies. A bank incorporated outside Hong Kong which desires to apply for a banking licence is required to show minimum assets (net of contra items) of US$10,000 million (this minimum will be reviewed annually), and its country of incorpora- tion must both apply an adequate form of prudential supervision and offer some acceptable form of reciprocity to Hong Kong banks. Finally, in considering each application the Governor-in-Council has regard to the number of banks from the applicant's country of incorporation which already hold licences under the Banking Ordinance.
A domestic company (one incorporated in Hong Kong and predominantly beneficially owned by Hong Kong interests) must satisfy three criteria in order to be considered for a