ENG-1984 — Page 119

THE ECONOMY

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Hong Kong's main export markets. Since the establishment of the 'certificate of origin' system in the late 1950s, the United States has become Hong Kong's largest export market. Gradually, the share of exports going to other countries such as the Federal Republic of Germany, Japan, Canada, Australia and those in Southeast Asia has also increased. In recent years, Hong Kong has also diversified into new markets, particularly China but also countries in the Middle East, Eastern Europe, Latin America and Africa.

Nature and Relative Importance of the Financial Sector

The financial sector, apart from growing in domestic importance as indicated by its rising contribution to the GDP, from 6.9 per cent in 1980 to 7.4 per cent in 1982, has also continued to enhance its international importance. Banks and other deposit-taking insti- tutions, insurance companies, pension funds, unit trusts and similar operations, foreign exchange and money brokers, stock and commodity brokers, other financial organisations and ancilliaries such as international firms of lawyers and of accountants, combine to provide a wide range of financial and related services to both local and international customers. The government has continually worked towards providing a favourable environment, with sufficient regulation to ensure, as far as possible, sound business standards and confidence in the institutional framework, but without unnecessary impedi- ments of a bureaucratic or fiscal nature. The favourable geographical position of Hong Kong, which provides a bridge in the time gap between Japan and Europe, together with the traditionally strong links with Southeast Asian countries and assisted by excellent communications with the rest of the world, has helped to develop the territory into one of the world's leading international financial centres.

Unlike most major economies, Hong Kong has no central bank. Most of the functions which might typically be performed by one -- such as prudential supervision of financial institutions, managing official foreign exchange reserves, certain open market operations, issuing banknotes or providing banking services to the government - are carried out by different government offices or by selected commercial banks.

The deposit-taking sector in Hong Kong, under the three-tier structure established since 1981, is made up of three distinct classes of institutions: licensed banks, licensed deposit- taking companies and registered deposit-taking companies.

Banking licences are granted at the absolute discretion of the Governor in Council in accordance with the provisions of the Banking Ordinance. At present, a domestic company (that is, a company incorporated in Hong Kong and predominantly beneficially owned by Hong Kong interests), in order to be considered for a banking licence, must have a paid-up capital of at least $100 million, have been in the business of taking deposits from and granting credit to the public for at least 10 years, and have at least $1,750 million of deposits from the public and total assets of at least $2,500 million. A bank incorporated outside Hong Kong wishing to apply for a banking licence is required to satisfy a separate set of criteria: it must show total assets (net of contra items) of at least US$12,000 million, and its country of incorporation must apply an adequate form of prudential supervision and offer some acceptable form of reciprocity to banks in Hong Kong. At the end of 1984, there were 140 licensed banks in Hong Kong, 44 of them being locally incorporated. They maintained a total of 1 547 offices in Hong Kong. In addition, there were 112 representative offices of foreign banks.

Only licensed banks may operate cheque or savings accounts. They may also accept deposits from the public of any size and any maturity. But the interest rate rules of the Hong Kong Association of Banks (of which all licensed banks are required by law to be