ENG-2002 — Page 81

THE ECONOMY

at a generally strong pace over the past two decades. Yet there was a distinct slackening in the more recent times, reflecting reduced lending from Hong Kong's financial institutions to Mainland banks amidst abundant liquidity in the Mainland, as well as fewer fund-raising activities by Mainland enterprises in Hong Kong and thus lesser Hong Kong dollar placements from those enterprises in Hong Kong's banking system. Comparing end-2002 with a year earlier, external liabilities of Hong Kong's authorised institutions (AIs) to entities in the Mainland fell by 14 per cent to $289 billion, while external claims of Hong Kong's AIs on entities in the Mainland contracted by 36 per cent to $127 billion.

The Bank of China (Hong Kong) Limited is the second largest banking group in Hong Kong after the HSBC Group. It was established on October 1, 2001 through restructuring 10 member banks of the former Bank of China Group. It has taken on the issuance of Hong Kong dollar banknotes, as was hitherto performed by the former Bank of China since May 1994. (The other two note-issuing banks are the Hongkong and Shanghai Banking Corporation, and the Standard Chartered Bank.) 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 all granted banking licences to operate in Hong Kong in 1995. Meanwhile, the HSBC Group, the Bank of East Asia and the Standard Chartered Bank continue to be amongst the best-represented foreign banks in the Mainland.

Hong Kong has been serving as a major funding centre for the Mainland. Apart from being a direct source of funds, it also provides 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. Yet 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-2002, a total of 54 SOEs were so listed in the Main Board of the Hong Kong Stock Exchange, raising a total equity capital of $144.5 billion. Of these 54 enterprises, four were listed in 2002, raising $16.9 billion. In addition, 71 other Mainland-related enterprises have been listed on the Main Board since 1986, raising a total equity capital of $584.1 billion. Of these 71 enterprises, three were listed in 2002, raising $51.2 billion. Another 20 SOEs and one other Mainland-related enterprise were listed in the Growth Enterprise Market (GEM) set up in November 1999, raising a total equity capital of $2.6 billion and $0.4 billion respectively.

Apart from SOES, private enterprises in the Mainland also find the stock market. in Hong Kong, particularly the GEM, a useful channel to raise equity capital. In turn, this can help broaden the base of Hong Kong's stock market, and help entrench further Hong Kong's position as a fund-raising centre for enterprises in the Mainland.

With continuing reform and further liberalisation of the Mainland economy, particularly after China's entry into the World Trade Organisation, more foreign investment can be expected to flow into the Mainland. Hong Kong's service hub role for the Mainland will continue to strengthen. Hong Kong possesses a strong niche in partnering with as well as in providing various necessary services to foreign enterprises seeking to enter the Mainland market. In the other direction, as more

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