ENG-2006 — Page 77

The Economy | 49

Hong Kong's extensive investment in the Mainland has contributed to China's industrial development and the city's economic transformation.

The Mainland is likewise Hong Kong's largest source of foreign direct investment. By the end of 2005, the Mainland had invested US$164 billion in Hong Kong, accounting for 31 per cent of all investments in Hong Kong. According to Chinese statistics, there are over 2 600 mainland-backed enterprises operating in Hong Kong enjoying easier access to global funding and the opportunity to extend their businesses to overseas markets. Such investments help boost Hong Kong's position as the region's leading services hub.

China's state-owned commercial banks have established a significant presence in Hong Kong. For instance, the Bank of China (Hong Kong) Limited is one of the largest banking groups in Hong Kong. Other state-owned banks, such as the China Construction Bank, the Industrial and Commercial Bank of China and the Agricultural Bank of China, were all granted banking licences in 1995 to operate in Hong Kong. At least two of them have been making sizable mergers/acquisitions in Hong Kong through its subsidiaries to expand their Hong Kong banking network. As regards banking business on the Mainland, the HSBC Group, the Standard Chartered Bank and the Bank of East Asia are among the best-represented foreign banks on the Mainland.

Hong Kong is also a major funding centre for Mainland enterprises. By the end of December 2006, a total of 367 Mainland enterprises were listed on Hong Kong's stock market. Among them, 39 were listed in 2006, raising equity capital amounting to $303.8 billion. The more prominent listings in 2006 included that of the Industrial and Commercial Bank of China Ltd, Bank of China Limited, China Merchants Bank Company Ltd, China Communications Construction Company Limited and China Coal Energy Company Limited. These listings have helped broaden the base of Hong Kong's stock market, and entrenched further Hong Kong's position as a major fund- raising centre in the region.

The Hong Kong Government and the Central People's Government (CPG) reached an agreement on October 18, 2005 to further liberalise measures governing Hong Kong's trade with the Mainland. Under Phase 3 of the Closer Economic Partnership Arrangement (CEPA), all products of Hong Kong origin were given tariff- free entry into the Mainland starting from January 1, 2006. By the end of 2006, over 19 000 certificates of Hong Kong origin had been issued, covering exports valued at around $6.8 billion. CEPA has enabled Hong Kong companies to save up to $618 million in tariffs since it went into effect three years ago.

On the services side, 15 new liberalisation measures spreading across 10 services sectors1 were agreed with the CPG on June 27, 2006. By the end of 2006, there

1

The 10 services sectors are legal, construction, information technology, convention and exhibition, audiovisual, distribution, tourism, air transport, road transport, and individually-owned stores.