ENG-2003 — Page 125

FINANCIAL AND MONETARY AFFAIRS

Government and the MPFA, was set up in 2001 for this purpose. The SORC has so far completed three phases of its work. Following the coming into force of the provisions relating mainly to raising the minimum relevant income level for making MPF contributions and other scheme administration measures in February 2003, all the provisions arising from the first phase of review have become operational. The proposals resulting from the second and third phases of its review cover issues relating to investment regulation, scheme administration and enforcement. The Government is aiming to put these proposals through the legislative process.

The MPFA has also initiated a project since late 2002 to review and improve the disclosure of information about fees, charges and fund performance of MPF products, with a view to enabling scheme members to make informed investment decisions. Key proposals have been developed in consultation with industry bodies and other regulators, and the details are being worked out progressively. The proposals will be implemented in phases from 2004 to 2006. Public education programmes will be developed to tie in with the different stages of implementation.

Financial Links between Hong Kong and the Mainland

Hong Kong provides Mainland enterprises with an efficient access to international capital through its banking, equity and debt markets. Nevertheless, the cross- boundary capital flows have by no means been one-way. Hong Kong's banks have maintained a strong presence in the Mainland. The financial links between Hong Kong and the Mainland will be further strengthened with China's accession to the World Trade Organisation (WTO), which will over time 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. The arrangements for banks in Hong Kong to conduct renminbi (RMB) business signify an important step forward for the development of the banking sector and open a new channel for the flow of renminbi funds between Hong Kong and the Mainland through the banking system.

Cross-boundary funds were flowing steadily among financial institutions in both places. 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.

Als' external liabilities to and claims on financial institutions in the Mainland at end-December were $226.6 billion and $157.1 billion, respectively. The amounts represented 15 per cent and 5.8 per cent, respectively, of Als' total liabilities to and claims on banks outside Hong Kong.

Many banks from Hong Kong have established a strong presence among businesses in the Mainland. A total of 15 locally incorporated banks have established 46 branches and 29 representative offices there by year-end. Hong Kong's banks, with their long-established financial links with the Mainland and their well-developed global financial expertise, should be able to further expand 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 Guangzhou Branch of the People's Bank of China (PBOC), was introduced in September 2000 to expedite the processing of Hong Kong dollar

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