ENG-2003 — Page 107

FINANCIAL AND MONETARY AFFAIRS

field as well as a sound regulatory regime have all helped Hong Kong develop into both a leading international financial centre in the region and the premier capital formation centre for the Mainland. The absence of any restrictions on capital flows into and out of Hong Kong is another important strength.

Hong Kong's financial markets are characterised by a high degree of liquidity. They operate under effective and transparent regulation which fully meets international standards. A highly educated workforce and ease of entry for professionals from outside Hong Kong further contribute to the development of financial markets in Hong Kong.

In late 2002, Hong Kong participated in the Financial Sector Assessment Programme (FSAP), a joint International Monetary Fund (IMF)-World Bank initiative designed to promote financial stability and assess compliance with key international codes and standards covering various financial services sectors. The FSAP exercise was concluded in June 2003 with the issuance of a final report, which confirmed that the financial system of Hong Kong is fundamentally sound and that the market infrastructure is robust and efficient.

Hong Kong has a very strong presence of international financial institutions. Of the world's top 100 banks, 75 have operations in Hong Kong. As at December 2003, there were 121 foreign-owned licensed banks. Apart from these, some foreign institutions also operate as restricted licence banks and deposit-taking companies through their subsidiaries, related companies or branches in Hong Kong. A further 87 foreign banks. have local representative offices.

The interbank money market is well-established. Wholesale deposits are traded actively among local authorised institutions (AIs), and between local and overseas institutions, with an average daily turnover of $168 billion in 2003.

Hong Kong also has a mature and active foreign exchange market, which forms an integral part of the global market. The link with overseas centres enables foreign exchange dealings to continue 24 hours a day with the rest of the world. The last triennial survey coordinated by the Bank for International Settlements in April 2001 shows that the daily average foreign exchange turnover in Hong Kong is US$66.8 billion, which represents 4 per cent of the world's total transactions and makes Hong Kong the world's seventh largest foreign exchange market.

With a total market capitalisation of $5,547.8 billion as at year-end, the Hong Kong stock market ranked 10th in the world and second in Asia, following Japan'. The daily turnover (including $154 million on the Growth Enterprise Market) averaged $10.4 billion in 2003. At year-end, 1037 public companies (including 185 on the Growth Enterprise Market) were listed on the Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of the Hong Kong Exchanges and Clearing Limited (HKEx). The 73 (including 27 on the Growth Enterprise Market) newly-listed companies raised a total of $59.1 billion from initial public offerings (of which $2.1 billion was raised in the Growth Enterprise Market). Besides new share issues, funds were also raised in the secondary market, with a total amount of $154.5 billion. Funds raised in H-shares and red-chips markets amounted to $53.2 billion, some 25 per cent of the total funds raised in the Hong Kong market during the year.

The stock market is an important fund-raising centre for Mainland enterprises. As at end-2003, of the 93 Mainland incorporated enterprises listed outside the Mainland

1 Source: World Federation of Exchanges

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