88 | Financial and Monetary Affairs
Financial Links between Hong Kong and the Mainland
Hong Kong has long served as an international financial centre for the Mainland, facilitating Mainland enterprises to access international capital through its banking, equity and debt markets. Hong Kong's banks have also maintained a strong presence on the Mainland. The financial links between Hong Kong and the Mainland have been further strengthened with China's accession to the World Trade Organisation (WTO), which will, over time, generate increasing demand for a wide range of financial support services for the increasing trade and investment flows between the Mainland and the rest of the world.
The smooth and orderly development of renminbi (RMB) business facilitates cross-boundary tourist spending in Hong Kong and helps promote economic integration between Hong Kong and the Mainland. Further development of renminbi business is expected to enhance the capability of Hong Kong's financial system to handle renminbi transactions, which is an important step in strengthening the status of Hong Kong as an international financial centre.
There has been a steady flow of cross-boundary funds among financial institutions in both places. Over the years, the Mainland has accumulated a substantial amount of funds in Hong Kong dollars from trading activities and inward investment. These funds are placed with financial institutions on the Mainland and are subsequently channelled back to Hong Kong through the inter-bank market.
By the end of the year, Als' external liabilities to financial institutions in the Mainland amounted to $328.1 billion, while their claims on financial institutions in the Mainland totalled $267.4 billion. The amounts represented 20.2 per cent and 8.3 per cent, respectively, of Als' total liabilities to and claims on banks outside Hong Kong.
The use of cross-boundary links with Guangdong Province and Shenzhen rose considerably in 2005, reflecting increasing economic integration between the Mainland and Hong Kong. The daily average turnover of cross-boundary links (RTGS and cheques in Hong Kong dollars and US dollars) increased by 30 per cent to the equivalent of about $790 million in 2005.
In light of the potential of the fund management industry in the Mainland, Hong Kong-based fund managers, who are recognised for their knowledge and experience in asset management, are now actively seeking joint ventures with Mainland fund managers. Hong Kong managers have also embarked on ways to enable investors to capture investment opportunities in the Mainland. At year-end, there were 11 SFC authorised funds that offered returns linked to the performance of the A-share market on the Mainland. These included an ETF that tracks the A-share market, funds that invest indirectly in A-shares via equity-linked investments issued by qualified foreign institutional investors and guaranteed funds with their upside potential returns linked to the A-share market performance.