ENG-2005 — Page 82

52 The Economy

In tandem with the surge in cross-boundary business activities, financial links between Hong Kong and the Mainland have strengthened substantially over the past years. Comparing end-2005 with a year earlier, external liabilities of Hong Kong's authorised institutions to entities in the Mainland grew by 19 per cent to $476 billion, and their external claims on entities in the Mainland also grew by 25 per cent to $325 billion.

The Bank of China (Hong Kong) Limited is one of the largest banking groups in Hong Kong. It is also one of the note-issuing banks in Hong Kong along with the Hongkong and Shanghai Banking Corporation Limited and the Standard Chartered Bank (Hong Kong) Limited. The other state-owned commercial banks, 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. The HSBC Group, the Standard Chartered Bank and the Bank of East Asia meanwhile are among the best-represented foreign banks on the Mainland.

Hong Kong is also a major funding centre for Mainland enterprises. By year-end, a total of 335 Mainland enterprises were listed on Hong Kong's stock market. Among them, 37 were listed in 2005, raising equity capital of $150.8 billion. The more prominent listings in 2005 included those of China Construction Bank Corporation, China Shenhua Energy Company Limited and Bank of Communications Company Limited. All these listings have helped broaden the base of Hong Kong's stock market, and further entrench Hong Kong's position as a major fund-raising centre in the region.

The HKSAR Government and the Central People's Government reached an agreement on liberalisation measures under the third phase of CEPA (CEPA III) on October 18, 2005, in which all products of Hong Kong origin could be given tariff- free treatment by the Mainland starting from January 1, 2006. The tariff concession should give a further boost to the competitiveness of Hong Kong products on the Mainland market. By year-end, around 10 000 certificates of origin had been issued, covering exports valued at around $3.5 billion.

Within the first two years of implementation, Hong Kong's businesses saved a total of around $240 million in tariffs. There were also 23 additional liberalisation measures under CEPA III, covering 10 services sectors: legal, accounting, audio-visual, construction, distribution, banking, securities, tourism and transport sectors, and individually owned stores. These CEPA concessions give Hong Kong companies a 'first move' advantage in the Mainland market and foster better synchronisation of the chain of cross-boundary economic activities in finance, production and distribution. The improvement in efficiency and productivity should help reduce transaction costs significantly to the benefit of both the Hong Kong and Mainland economies. There are 27 services sectors benefiting from CEPA and more than 910 Hong Kong Service Supplier Certificates were issued by year-end.

With continuing reform and further liberalisation of the Mainland economy, particularly after its entry into the WTO, more foreign investment can be expected to