ENG-2006 — Page 117

Financial and Monetary Affairs | 89

Promoting Asset Management Business

The saving rates in Asia are high compared to other regions and this is expected to be a long-term trend. Located at the heart of Asia, Hong Kong is well positioned to further develop as an international asset management centre. According to the Fund Management Activities Survey 2005 released by the SFC in July 2006, which covered licensed corporations and registered institutions, the combined fund management business had grown by 25 per cent from $3,618 billion in 2004 to $4,526 billion in 2005. Since the establishment of the SFC in 1989, the number of retail funds in Hong Kong had more than doubled from 781 to 1 964 in 2005, with the value jumping 18 times from $283 billion to $5,210 billion. The introduction of the QDII Scheme by the Mainland authorities in April is expected to provide further impetus to the development of the asset management industry in Hong Kong (see 'Capital Formation Centre and Global Investment Platform for the Mainland' under Financial Links between Hong Kong and the Mainland).

In addition, according to a hedge fund survey conducted by the SFC, the hedge fund industry has shown significant growth in recent years with aggregate assets managed from Hong Kong by the SFC licensed hedge fund managers and advisors of US$33.5 billion as at March 31, 2006, representing a remarkable increase of 268 per cent from March 2004. These findings again confirmed Hong Kong's position as Asia's major asset management hub for investors worldwide.

To provide a conducive environment for the further development of Hong Kong as Asia's asset management centre, the Government abolished estate duty, with retrospective effect from July 15, 2005. In addition, the legislation exempting offshore funds from profits tax was enacted on March 1, 2006. The exemption, which applies with retrospective effect from the year of assessment 1996-97, will put Hong Kong's tax treatment of offshore funds on a par with other international financial centres such as the United States and the United Kingdom. The SFC also continued to review relevant codes and guidelines and facilitate the launch of new investment products and international funds' access to local market.

Improvement of the Securities and Futures Ordinance

The SFO came into force on April 1, 2003 and has been implemented successfully since then. During the year, the SFC continued to maintain and update the SFO in light of market developments.

In 2006, the Government continued to work closely with the SFC and HKEx to refine, taking into account market comments, proposed legislative amendments to the SFO for giving statutory backing to major listing requirements covering financial reporting and other periodic disclosure by listed companies, disclosure of price- sensitive information by listed companies and shareholders' approval for certain notifiable transactions. The Government aimed to introduce the bill into the Legislative Council in 2007.

In the Budget Speech of the Financial Secretary for the year of 2006, he announced a 20 per cent reduction of the SFC Levy, pursuant to a recommendation from the SFC. The Securities and Futures (Reduction of Levy) Order 2006 was made