ENG-1983 — Page 72

THE ECONOMY

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advisers and trading practices in securities, and provides for the establishment of a compensation fund and the elimination of improper trading practices. The Protection of Investors Ordinance aims at protecting investors by prohibiting the use of fraudulent or reckless means to induce investors to buy or sell securities or take part in investment arrangements, and regulates the issue of related publications.

The Chinese Gold and Silver Exchange Society operates a gold bullion market which is among the four largest in the world. Gold traded on the society is of 99 per cent fineness, weighed in taels and quoted in Hong Kong dollars. Prices, after allowing for exchange rate fluctuations, parallel those in the other major markets of London, Zurich and New York. Membership of the society is restricted to 194 member firms. There is another gold market in Hong Kong, activity in which has been growing in recent years, the so-called loco-London gold market. Dealings principally take place in US dollars per troy ounce of 99.95 percent fine gold, with delivery in London. Major international gold-trading companies are the main participants in this market. The trading of gold futures started in August 1980 on the Commodity Exchange. Prices are quoted in US dollars per troy ounce of 99.5 percent fine gold, with a minimum lot of 100 ounces. Trading has so far been on a small scale.

The Commodities Trading Ordinance, which was enacted in 1976, regulates trading in commodity futures contracts in Hong Kong. The Hong Kong Commodity Exchange Limited, established in 1977, is the only company which has been granted a licence under the Commodities Trading Ordinance to operate a commodity exchange in Hong Kong. It operates four contracts: gold (as described above), cotton (which is at present dormant through lack of trading interest), sugar and soya-beans. The licence of the Commodity Exchange-is currently under review, as is the Commodities Trading Ordinance. The possibility of establishing a financial futures market in Hong Kong is being examined.

Diversification of the Services Sectors

Not only has the financial and business services sector grown in importance, other services sectors such as insurance, transport and tourism have also expanded. Most of the insurance and transport services are related to merchandise trade transactions. Hong Kong ship-owners have long been engaged in operating ships for charter and providing international liner services. They have been expanding their fleets in the last two decades and ship ownership in terms of tonnage is now second in the world (after Greece).

The steady growth of Hong Kong's external trade has led to the expansion of a number of services related to shipping, notably cargo handling and storage facilities in the container port. Hong Kong's air cargo handling facility also ranks among the top 10 in the world. According to the 1980 Survey of Transport Establishments, the direct contribution of ocean and air transport and related services to the GDP was about three per cent in value-added terms. The tourist industry has also expanded rapidly. The number of incoming tourists has increased from about 1.3 million in 1974 to 2.8 million in 1983, with total spending reaching an estimated HK$11 billion.

Inflation

Inflation has been a much more significant phenomenon in Hong Kong in the 1970s and 1980s than in the 1960s. Given the externally-oriented nature of the economy, even under a floating exchange rate system, the inflation rate in Hong Kong cannot be insulated completely from what is happening in the rest of the world.