ENG-1999 — Page 77

THE ECONOMY

1999, external liabilities of Hong Kong's authorised institutions to entities in the Mainland amounted to HK$262 billion, while their external claims on entities in the Mainland amounted to HK$246 billion. These represented decreases of 10 per cent and 24 per cent respectively over a year earlier. The Bank of China Group, which has been established in Hong Kong for decades, is now the second largest banking group in the SAR after the HSBC Group. It started issuing Hong Kong dollar banknotes in May 1994. The other three state-owned commercial banks, namely the China Construction Bank, the Agricultural Bank of China, and the Industrial and Commercial Bank of China, were granted banking licences to operate in Hong Kong in 1995. Meanwhile, the HSBC Group, together with the Bank of East Asia and the Standard Chartered Bank, are among the best-represented foreign banks in the Mainland.

Moreover, Hong Kong has been serving as a major funding centre for the Mainland. Apart from being a direct source of funds, Hong Kong also serves as a window through which foreign funds can be channelled efficiently into the Mainland for financing development projects there. So far, most of the Mainland's fund-raising activities in Hong Kong have taken the form of syndicated loans. But more recently, an increasing number of Mainland-related banks and enterprises have raised funds through issuance of negotiable certificates of deposit, bonds and shares. Since mid- 1993, H shares have been listed on Hong Kong's stock exchange by an increasing number of large state-owned enterprises in the Mainland. At end-1999, a total of 44 such enterprises were so listed, raising a total equity capital of $65 billion. Of these 44 enterprises, three were listed in 1999, raising HK$4.3 billion. With the ongoing restructuring of the Mainland's financial sector, and the Mainland's continuing economic liberalisation on a wider front, more foreign investment can be expected to flow there. The role of Hong Kong as a major funding centre for the Mainland will thus be sustained in the years to come.

The Economy in 1999

External Trade

Export performance staged a strong recovery over the course of 1999, reversing the downtrend in 1998. Exports of goods remained slack in overall terms in the first half of 1999, but exhibited a distinct upturn in the third quarter, and accelerated markedly in growth in the fourth quarter. This was largely attributable to the resurgence in exports to East Asia during the year, amidst a broad-based revival in import demand in tandem with economic recovery in the region. Of particular note was the sharp rise in exports to the Mainland in the second half of the year, especially in respect of material inputs for export processing. As to the conventional overseas markets, exports to the United States accentuated in growth, while exports to the European Union also picked up significantly. Apart from the robust demand in these markets, improved price competitiveness consequential to the cost adjustment in the local economy and the rebound in many of the East Asian currencies also helped.

For 1999 as a whole, total exports of goods (comprising re-exports and domestic exports) went up by 4 per cent in real terms, in contrast to a 4 per cent decline in 1998. Reflecting the progressive leap during the year, total exports, having decreased by 5 per cent and 2 per cent respectively in real terms in the first and second quarters, revived strongly to grow by 8 per cent in the third quarter and further by 12 per cent

51