ENG-1998 — Page 117

FINANCIAL AND MONETARY AFFAIRS

carry out its duties effectively and efficiently. The feasibility study of the IMS was completed and tenders for the design, development and installation of the IMS were invited in November. A suitable vendor will be selected in early 1999 to undertake the project.

Another important task is the establishment of the MPFA's executive arm. A consultancy study on the organisational structure and the staff remuneration packages was largely completed by the end of the year. The recommendations would be scrutinised by the MPFA in January 1999. It is expected that the recruitment exercise would start in early 1999.

To facilitate the enforcement of the MPFSO, the MPFA will issue guidelines to service providers to help them prepare for licensing applications and compliance with the various statutory requirements. The guidelines are being drafted in consultation. with the relevant professional organisations and the retirement schemes industry. The guidelines with respect to applications for approval as trustees, registration of MPF schemes and approval of MPF investment products respectively were issued in December. Guidelines on scheme operation and other subjects will be finalised in 1999.

A major step forward has been made in the implementation of the MPF System in 1998. It is envisaged that it will be ready for operation by the end of 2000.

Increasing Financial Links between HK and the Mainland

Hong Kong has been serving as the Mainland's primary channel for international fund-raising but the cross-border capital flows have by no means been one-way. Direct investment and inter-bank fund flows in both directions have grown rapidly. Hong Kong banks have also stepped up their business activities in the Mainland.

Hong Kong has also facilitated the Mainland's overseas fund-raising activities via our equity and debt markets. At the end of 1998, 41 Chinese state-owned enterprises were listed in Hong Kong through the issuance of H-shares, raising a total of more than $52 billion.

Cross-border fund flows among financial institutions have also grown rapidly. Over the years, the Mainland has accumulated a substantial amount of funds in Hong Kong dollars from trading activities and inward investment. These funds are placed with financial institutions in the Mainland and subsequently channelled back to Hong Kong through the inter-bank market.

Since 1980, external liabilities of authorised institutions in Hong Kong to financial institutions in the Mainland have grown at an average rate of over 34 per cent per annum to 273 billion by December 1998. Over the same period, claims on financial institutions in the Mainland by authorised institutions in Hong Kong registered an annual growth of about 21.5 per cent to $274 billion.

Many banks from Hong Kong have expanded their businesses in the Mainland. A total of 18 locally incorporated banks have established 34 branches and 33 representative offices there at the end of 1998.

Portfolio investment in the form of 'China funds' has also become increasingly popular. By the end of 1998, 29 such funds, amounting to some US$818 million, had been authorised by the SFC to invest in B-shares listed on the Shanghai and Shenzhen stock exchanges as well as H-shares listed on the SEHK.

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