ENG-1997 — Page 89

THE ECONOMY

made 34 million trips to the Mainland, and foreign visitors to the Mainland made another two million trips through Hong Kong. These represented increases of 17 per cent and 2 per cent respectively over 1996.

Moreover, Hong Kong is the largest source of external direct investment in the Mainland. At end-1997, the cumulative value of Hong Kong's realised direct investment in the Mainland was estimated at US$121 billion, accounting for about 55 per cent of the total value. There has also been a notable shift in the composition of Hong Kong's direct investment in the Mainland in more recent years, from outward- processing industries to other economic sectors such as hotels and tourist-related facilities, real estate and infrastructure development. Hong Kong's economic links. with Guangdong are much more intimate than with other places in the Mainland. At end-1997, the cumulative value of Hong Kong's realised direct investment in Guangdong was estimated at US$48 billion, accounting for almost four-fifths of the total foreign direct investment there. More than five million Mainland workers are regularly employed in the Province by Hong Kong industrial ventures. This is about 16 times the size of Hong Kong's own manufacturing workforce.

In the opposite direction, there has been a sizeable flow of investment capital from the Mainland to Hong Kong. By end-1995, the Mainland invested a total of US$14 billion in the territory, making it the second-largest external investor, just behind the UK. About 1 800 Mainland enterprises operate in Hong Kong. They maintain high investment stakes in such traditional lines of business as import/export trades, wholesale/retail trades, banking, transport and warehousing, and there has recently been a growing diversification of such investment into other spheres such as real estate, hotels, financial services, manufacturing and infrastructure development.

Along with the surge in these cross-border trade, investment and people flows, financial links between Hong Kong and the Mainland have also been increasing rapidly. By end-November 1997, external liabilities of Hong Kong authorised institutions to entities in the Mainland reached $300 billion, while their external claims on entities in the Mainland were even larger, at $412 billion. These represented increases of 2 per cent and 17 per cent respectively over a year earlier. The Bank of China Group, which has been established here for decades, is now the second-largest banking group in Hong Kong after the Hongkong Bank Group. It started issuing Hong Kong dollar banknotes in May 1994. The other three state specialised banks the People's Construction Bank of China, the Agricultural Bank of China, and the Industrial and Commercial Bank of China, were granted banking licences to operate in Hong Kong in 1995. On the other hand, the Hongkong Bank group, together with the Bank of East Asia and the Standard Chartered Bank, are among the best- represented foreign banks in the Mainland.

Hong Kong has played an important role as the major funding centre for the Mainland. As well as a direct source of funds, Hong Kong often serves as a window through which foreign funds can be channelled efficiently into the Mainland for financing the various development projects there. So far, most of the Mainland's fund-raising activities in the territory have taken the form of syndicated loans, but more recently an increasing number of the Mainland-related banks and enterprises have raised funds through issues of negotiable certificates of deposit, bonds and

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