ENG-2004 — Page 124

94 | Financial and Monetary Affairs

placed with financial institutions in the Mainland and are subsequently channelled back to Hong Kong through the inter-bank market.

At end-December, Als' external liabilities to financial institutions in the Mainland were $269.8 billion, while their claims on financial institutions in the Mainland were $226.2 billion. The amounts represented 15.5 per cent and 6.9 per cent, respectively, of Als' total liabilities to and claims on banks outside Hong Kong.

Good progress was made during the year in further developing cross-boundary financial infrastructure between Hong Kong and the Mainland. These payment linkages helped meet the growing needs of cross-boundary financial intermediation brought about by increasing economic ties. The daily average turnover of these linkages (RTGS and cheque, Hong Kong dollar and US dollar) with Guangdong Province and Shenzhen increased to $850 million in the month of December 2004, compared with $26 million in January 1998, when only one-way HKD joint cheque clearing with Shenzhen was in operation.

In March 2004, the HKMA and the Guangzhou branch of the People's Bank of China (PBOC) introduced cross-boundary system linkages for making Hong Kong dollar and US dollar RTGS payments between banks in Hong Kong and Guangdong province. This arrangement was an extension of similar system linkages between Hong Kong and Shenzhen completed in 2003. With these linkages, payments in Hong Kong dollars and US dollars between banks in Hong Kong and Guangdong/Shenzhen can be made in a safer and more efficient manner. In 2004, the RTGS system linkages with Guangdong and Shenzhen handled

handled 11 944 transactions, with a total equivalent value of over $113 billion.

Cross-boundary joint cheque clearing arrangements made another step forward in 2004. With the cooperation between the HKMA and Shenzhen sub-branch of PBOC, the existing joint cheque clearing facilities between Shenzhen and Hong Kong were extended to cover US dollar cheques in July 2004. This shortens the clearing time for US dollar cheques drawn on banks in Hong Kong and presented in Shenzhen, or vice versa. Two-way joint cheque clearing facilities of Hong Kong dollar cheques between Guangdong/Shenzhen and Hong Kong was fully implemented as early as June 2002. The extension to cover US dollar cheques in Shenzhen represented ongoing infrastructure development to meet growing needs of foreign currency settlement across the boundary. In 2004, around 315 000 cheques, with a value of $27 billion equivalent, were cleared through these joint clearing facilities.

Hong Kong has the highest concentration of fund management expertise in Asia, ex-Japan. In light of the potential of the fund management industry in China, Hong Kong-based fund managers are now actively seeking joint ventures with Mainland fund managers. Hong Kong managers have also embarked on ways to enable investors to capture investment opportunities in China. In 2004, the SFC authorised 12 retail funds that offered returns linked to the performance of the A-share market in China. These included an exchange traded fund that tracks the A-share market, funds that invest indirectly in A-shares via equity-linked investments