ENG-1995 — Page 81

THE ECONOMY

In the other direction, China has also been investing heavily in Hong Kong. Its investment ranges from traditional activities such as import/export trades, wholesale/retail trades, banking, transportation and warehousing, to newer areas such as real estate, hotels, financial services, manufacturing and infrastructural development projects.

Increasing financial links between Hong Kong and China are reflected by the rapid growth in financial transactions with China in recent years. The Bank of China group is the second largest banking group in Hong Kong, after the HongkongBank group. It is also one of the note-issuing banks in Hong Kong. In 1995, the Agricultural Bank of China, the Industrial and Commercial Bank of China, and the People's Construction Bank of China were also granted banking licences to operate in Hong Kong. On the other hand, the HongkongBank group, together with the Bank of East Asia and the Standard Chartered Bank, are among the best-represented foreign banks in China.

Hong Kong is a major funding centre for China. Most of China's fund-raising activities in the territory have taken the form of syndicated loans. Although in some cases Hong Kong is not the direct source of funds, it serves as a window through which China can gain access to external borrowing. These loans are mostly for financing China's own economic development, but some of them are used by China- interest companies in Hong Kong to finance their investment activities in the territory or abroad. In addition to syndicated loans, China-related banks and other enterprises have been making greater use of negotiable certificates of deposit, bonds and share issuance to raise funds. Since mid-1993, large state-owned enterprises in China have raised funds through the issue of "H" shares in Hong Kong. By the end of 1995, 17 such enterprises had listed their "H" shares on the Hong Kong Stock Exchange, raising a total capital of HK$16 billion.

The Economy in 1995

External Trade

The growth rates of both re-exports and domestic exports accelerated sharply in the early part of the year. Apart from strong import demand in the overseas markets, a weaker Hong Kong dollar along with the US dollar also boosted export performance. There was however some moderation in export growth in the latter part of 1995 as the boosting effect of the earlier exchange rate movements gradually dissipated. Nevertheless, re-exports still maintained a double-digit growth throughout the year. For 1995 as a whole, re-exports rose by 17 per cent in value terms. After discounting price increase, the growth rate in real terms was about 14 per cent, up from 14 per cent in 1994.

In 1995, re-exports to China continued to be influenced by the macro-economic restraint measures implemented by China since July 1993. There was however some picking up in China's import demand over the course of the year. On the other hand, re-exports to China for outward processing, after showing a surge in the first half of the year, moderated in the third quarter. For 1995 as a whole, re-exports to China grew by about 15 per cent in real terms, representing a further moderation from the 17 per cent increase in 1994.

Re-exports to the USA likewise slowed down in growth over the course of 1995. The rebound in the Hong Kong dollar against the currencies of some neighbouring

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