ENG-1978 — Page 56

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Financial Structure

新見

THE development of Hong Kong as an international financial centre was strengthened by the introduction, in March, of a new policy permitting well-established foreign banks to apply for licences to conduct banking business and operate as branches, rather than using non-bank subsidiaries. By the end of the year 27 new banking licences had been issued to foreign banks. At the same time, as available evidence indicated deposit-taking companies are dependent to a substantial degree on licensed banks as a source of funds, proposals were put forward to extend supervisory arrange- ments to deposit-taking companies, similar to those presently exercised over banks.

Further developments included the expansion of the foreign exchange market in Hong Kong, which now includes some 40 active institutions together with a number of international broking firms; the issue of certificates of deposits; the issue by the Mass Transit Railway Corporation of five-year government-guaranteed notes; and the provision of mortgage finance on favourable terms by commercial banks in connection with the Home Ownership Scheme. During the year, legislation was enacted to extend the charge to profits tax on banks and other financial institutions to include interest which a banking business operating in Hong Kong obtains, without the substantial intervention of any branch elsewhere. The Stamp Ordinance was reformed by reducing its ambit so that it applies to only three major sources of duty - contract notes on shares and marketable securities, assignments of immovable property,' and leases and assignments of leases. With the abolition of stamp duty on foreign exchange trans- actions, it was possible to abolish the need to license money changers.

Further expansion of the Monetary Affairs Branch of the Government Secretariat, including a number of new posts in the Commissioner of Banking's Office, was neces- sary to enable the government to effectively discharge its role in relation to the rapidly growing financial sector.

How Hong Kong Works

With the ultimate authority resting with the Legislative Council, Hong Kong has almost complete autonomy in financial matters and draws up its own estimates of revenue and expenditure, which are submitted to the Legislative Council each year. However, approval by the Secretary of State for Foreign and Commonwealth Affairs is required before decisions are made on certain major matters, such as currency and banking.

Hong Kong is financially self-supporting and the government's accounts showed a surplus of $1,236 million for the 1977-8 financial year.