ENG-2000 — Page 83

THE ECONOMY

At end-1999, the cumulative value of Hong Kong's realised direct investment in Guangdong was estimated at US$64 billion, accounting for almost three-quarters of the total inward direct investment there. Currently, over five million Chinese workers are said to have been employed in Guangdong by industrial ventures with Hong Kong interests. This is about 21 times the size of Hong Kong's own manufacturing workforce.

In the opposite direction, there has likewise been a sizeable flow of investment capital from the Mainland to Hong Kong over the past years. At end-1999, the Mainland had invested a total of US$105 billion in Hong Kong, making it amongst the largest external investors in the territory. More than 1 800 Mainland enterprises operate in Hong Kong. While these enterprises maintain high investment stakes in such traditional lines of business as the import/export trade, the wholesale/retail trades, banking, transport and warehousing, there has been an increased diversification of their investment into other spheres such as real estate, hotels, financial services, manufacturing and infrastructure development.

Along with the surge in two-way trade, investment and people flows, financial links between Hong Kong and the Mainland have also been on a rapid increase over the past two decades. This was notwithstanding the distinct slow-down in 1998 and 1999, upon the impact of the Asian financial turmoil. At end-2000, external liabilities of Hong Kong's authorised institutions (AIs) to entities in the Mainland amounted to $393 billion, representing a surge of 50 per cent over a year earlier. Yet external claims of Hong Kong's AIs on entities in the Mainland contracted by 10 per cent to $221 billion. The reduction in external claims against entities in the Mainland reflected partly the shift towards renminbi financing for foreign-funded enterprises in the Mainland. The Bank of China Group, which has been established in Hong Kong for decades, is now the second largest banking group in the HKSAR after the HSBC Group. It started issuing Hong Kong dollar banknotes in May 1994. The other three state-owned commercial banks, namely

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, is amongst 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 in the more recent years, 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 (SOEs) in the Mainland. At end- 2000, a total of 47 such enterprises were so listed in the Main Board of the Hong Kong Stock Exchange, raising a total equity capital of $117 billion. Of these 47 enterprises, three were listed in 2000, raising $51.8 billion. Another three SOEs were listed in the Growth Enterprise Market (GEM) set up in November 1999, raising a total of $644 million. With the ongoing restructuring of the Mainland economy and its continuing economic liberalisation on a wider front, more foreign direct

51