ENG-2007 — Page 125

Financial and Monetary Affairs 85

Domestic Institutional Investors (QDII) Scheme, strengthen Hong Kong's role as an international financial centre as it serves as a platform for Mainland funds to invest in international markets. Hong Kong's financial market provides many quality products and liquidity, which enable Mainland investors to use Hong Kong as their base for undertaking global investment to enhance investment returns and to deal with diversified risks. In May 2007, CBRC issued a notice which promulgated the widening of the scope of investment allowed under the overseas wealth management business provided by the Mainland commercial banks on behalf of their clients.

Hong Kong professionals are well qualified to provide professional advice and services to Mainland investors on asset management, including risk management and diversification of investment. In June 2007, CSRC announced the Provisional Rules for QDII Investing in Overseas Securities and a related notice, which widened the scope. of investment of QDII fund management companies and securities firms. In July 2007, the China Insurance Regulatory Commission promulgated the Provisional Measures for the Administration of Overseas Investment of Insurance Fund. It relaxes the limit of insurance funds that can be invested outside the Mainland to 15 per cent. Furthermore, the State Administration of Foreign Exchange announced in August 2007 a pilot scheme for Mainland individuals to invest directly in securities in Hong Kong. The details are being worked out.

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 the Supplement IV to CEPA in June 2007 in Hong Kong.

Pursuant to the Mainland's further liberalisation measures in the financial services sector under the Supplement IV to CEPA, Mainland fund management companies can, starting from January 1, 2008 and upon approval by CSRC, set up subsidiaries in Hong Kong and apply for licence to carry out regulated activities in Hong Kong.

Hong Kong-incorporated banks have gained greater access to the Mainland market since the implementation of CEPA in January 2004. By the end of 2007, five local banks that had benefited under CEPA had established nine branches or sub- branches on the Mainland. The latest improvements to CEPA, which became effective from January 2008, relax the criteria for Hong Kong-incorporated banks to gain the status of Hong Kong Service Supplier (a prerequisite for an entity to enjoy the