ENG-1994 — Page 113

FINANCIAL AND MONETARY AFFAIRS

share a similar level of activities, while the trading of gold futures and interest rate futures remained inactive.

There is an active gold market in Hong Kong, in which the main participants are banks, major international bullion houses and gold trading companies. It is commonly known as the Loco-London gold market, with prices quoted in US dollars per troy ounce of gold of 99.95 per cent fineness and with delivery in London. Trading in this market has expanded in recent years. The price of Loco-London gold moved between US$368 and US$398 in 1994. The price of gold dropped from US$391 per troy ounce at the end of 1993 to US$383 per troy ounce at the end of the year.

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The Chinese Gold and Silver Exchange Society operates one of the largest gold bullion markets in the world. Gold traded through the society is of 99 per cent fineness, weighed in taels (one tael equals approximately 1.2 troy ounces) and quoted in Hong Kong dollars. Prices closely follow those in the other major gold markets in London, Zurich and New York. The price of gold at the Chinese Gold and Silver Exchange Society exhibited movement similar to that of Loco-London gold. At the end of the year, gold cost HK$3,533 per tael. Turnover on the exchange totalled 23.6 million taels in 1994.

The number of unit trusts and mutual funds increased to 978 at the year's end, from 895 a year earlier. Of the 140 newly-authorised funds approved by the Securities and Futures Commission during the year, many were invested in the emerging markets of Asia and Latin America, including five funds invested in China.

Opportunities in China

The international nature of Hong Kong's financial markets has contributed to the development of China's financial markets, particularly in upgrading professional skills and bringing in competition through market participation. In the past three years, Hong Kong-incorporated authorised institutions more than doubled their number of branches and representative offices operating in China. Of those China offices, at the end of 1994, 12 were in Shenzhen, eight in Shanghai and 31 in other cities.

The newly-established Shenzhen Foreign Exchange Trading Centre linked its rate quotation system with that of the Treasury Centre of the Bank of China Group in Hong Kong in 1994, as a first step to link China's domestic forex market to the world market. There are also regular contacts between the HKMA, the Stock Exchange of Hong Kong Limited and their counterparts in China on regulatory issues.

As the reform and liberalisation of China's economy intensify, Hong Kong is playing an increasingly prominent role as a window through which China can access international capital. By the end of 1994, 15 China state-owned enterprises had tapped equity capital through the listing of 'H' shares on the Stock Exchange of Hong Kong. In response to the increasing prominence of H-shares in investors' portfolios, the Hang Seng China Enterprises Index (HSCEI) was introduced in August, with a base value set at 1 000 on July 8, 1994. All H-shares have been included as constituent stocks of the index, amounting to a total market capitalisation of US$2.56 billion at the year's end. The HSCEI stood at 1 069.67 at the end of December.

Portfolio investment in the form of 'China funds' has also become increasingly popular. At the end of the year, there were 15 such funds, authorised by the Securities and Futures Commission, investing in B-shares listed on the Shanghai and Shenzhen stock exchanges as

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