ENG-2006 — Page 114

86 | Financial and Monetary Affairs

international financial centre which serves as a platform for Mainland funds to invest in international markets. Hong Kong's financial market provides many products of high quality and liquidity, enabling Mainland investors to use Hong Kong as their base for undertaking global investment to enhance investment returns and diversify risks.

Hong Kong professionals are well qualified to provide professional advice and services to the Mainland investors on asset management, including risk management and diversification of investment.

The Government and concerned regulatory authorities will continue to actively promote the links and cooperation between Hong Kong and the Mainland on financial services. The SFC has regular meetings with the China Securities Regulatory Commission, the stock exchanges in Shanghai and Shenzhen, and HKEx to discuss issues of mutual interest.

Mainland and Hong Kong Closer Economic Partnership Arrangement

Under the Closer Economic Partnership Arrangement (CEPA), Hong Kong's financial services suppliers and professionals can enjoy greater market access and flexibility for their operations on the Mainland. Implementation of CEPA has not only enhanced Hong Kong's attractiveness to market users, but also strengthened its competitiveness as an international financial centre and the premier capital formation centre for Mainland enterprises. Further progress was made with the signing of CEPA Ill in 2005.

The Mainland's further liberalisation measures in the financial services sector under CEPA III were signed in October 2005 in Hong Kong to be effective from January 1, 2006. The China Securities Regulatory Commission has already granted approval to a few Mainland securities and futures brokers to set up subsidiaries in Hong Kong. Some of the subsidiaries of these Mainland-approved brokers have applied to be licensed to carry out regulated activities in Hong Kong.

Meanwhile, banks from Hong Kong continued to take advantage of CEPA during the year. By the end of 2006, five Hong Kong banks had taken advantage of the lower asset requirement to open branches on the Mainland. With these new entrants, the number of locally incorporated banks with a presence on the Mainland rose to 16. Together, they had established 102 branches and 24 representative offices by the end of the year. Three Hong Kong banks with a total of six branches were allowed to conduct renminbi business while seven banks with a total of 68 branches were allowed to act as agents to sell insurance products.

CEPA also provides special advantages for Hong Kong insurers by raising their maximum allowed equity participation in a Mainland insurance company to 24.9 per cent, compared with 20 per cent for other foreign insurers. Hong Kong insurers also have greater opportunities to enter the Mainland market through the formation of groups, while Hong Kong residents may engage in relevant insurance professions after they have obtained the requisite Mainland qualifications and they are employed or appointed by a Mainland insurance institution.