ENG-2001 — Page 126

FINANCIAL AND MONETARY AFFAIRS

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World Trade Organisation (WTO), which would generate increasing demand for a wide range of financial support services for increasing trade and investment flows between the Mainland and the rest of the world.

Cross-boundary fund flows among financial institutions have grown in the last two decades. 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 are 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 31 per cent per annum to $272.1 billion by the end of November 2001. Over the same period, claims on financial institutions in the Mainland by authorised institutions in Hong Kong registered an annual growth of about 16 per cent to $169.7 billion.

Many banks from Hong Kong have established a strong presence among businesses in the Mainland. A total of 18 locally incorporated banks have established 40 branches and 32 representative offices there by the end of 2001. Hong Kong's banks, with their long-established financial links with the Mainland and their well-developed global financial expertise, should be able to expand further their scope of business in the Mainland as well as to help Mainland entities to reach out following China's accession to the WTO.

The joint clearing facility for Hong Kong dollar cheques, agreed between the HKMA and the People's Bank of China (PBoC) Guangzhou Branch, was introduced in September 2000 in order to speed up the processing of Hong Kong dollar cheques issued by banks in Hong Kong and presented in Guangdong. This was the second agreement of its kind: a similar cheque clearing facility was established between Hong Kong and Shenzhen in January 1998. In 2001, about 120 000 cheques totalling $20 billion was cleared through the two joint clearing facilities. In September, an agreement was reached for the cross-boundary joint clearing facility for Hong Kong dollar cheques, drawn upon banks in Hong Kong and presented in Guangdong (including Shenzhen), be extended to cover a cashier's order and demand drafts.

Portfolio investment in the form of 'China funds' is also popular. By the end of 2001, 37 China or Greater China funds had been authorised by the SFC and they invested in H-shares, red-chips, B-shares listed on the Shanghai and Shenzhen stock exchanges, the Taiwan stock exchange, or other China related securities.

Hong Kong is committed to making full use of the favourable conditions of the Hong Kong market, including higher liquidity, better research coverage, and closer proximity to the Mainland market to provide better services to Mainland enterprises seeking listing outside the Mainland.

At present, Hong Kong is the most important capital formation centre for Mainland enterprises. At the end of the year, 58 Mainland-incorporated enterprises had been listed on the SEHK through the issuance of H-shares, raising a total of more than $128.8 billion. Of this, $6.6 billion was raised in 2001.

In addition, as part of their restructuring for listing, some Mainland state-owned enterprises have reincorporated in Hong Kong and listed as red-chips on the SEHK. As at end-2001, 69 red-chips were listed, raising $18.3 billion directly and indirectly through Hong Kong.