ENG-2009 — Page 126

78 Financial and Monetary Affairs

Listing of Mainland enterprises in Hong Kong; and

• Co-operation between Shanghai and Hong Kong capital markets.

There has been a steady flow of funds between financial institutions on both sides of the boundary. Over the years, the Mainland has accumulated a substantial amount of funds in Hong Kong dollars from trading activities and inward investment. These funds are placed with financial institutions in the Mainland and are subsequently channelled back to Hong Kong through the inter-bank market.

By the end of 2009, Als' external liabilities to banks in the Mainland amounted to $318.9 billion, while their claims on banks in the Mainland totalled $379 billion. These sums represent 12.7 per cent and 8.3 per cent respectively of Als' total liabilities to and claims on banks outside Hong Kong.

The Mainland's budding fund management industry has prompted Hong Kong- based fund managers to form joint ventures with their Mainland counterparts. Hong Kong fund managers have also paved the way for investors to seize investment opportunities in the Mainland. At year-end, there were 29 SFC-authorised funds with significant exposure to A-shares via the fund managers' own Qualified Foreign Institutional Investment (QFII) quota and six Exchange-traded Funds (ETFs) that tracks the A-share market, as well as funds that invest indirectly in A-shares via equity-linked investments issued by qualified foreign institutional investors, and guaranteed funds with their upside potential returns linked to A-share market performance.

Capital Formation Centre and Global Investment Platform for the Mainland

Hong Kong's fundamental strengths, enhanced by its high market liquidity, a robust regulatory system, efficient information flow, a rich pool of financial professionals and proximity to the Mainland market, make it an ideal provider of top class services to Mainland enterprises seeking listing in the city, widely known as international financial centre.

The growing presence of Mainland issuers in Hong Kong has increased the breadth and depth of Hong Kong's securities and futures markets. Hong Kong's equity market has evolved from one with a high concentration of property and financial businesses to one with a great diversity of constituent stocks and a wide range of products.

Mainland enterprises also raise capital in Hong Kong through the issuance of bonds, project financing and loan syndication. In addition, they have easy access to investment banking services for mergers and acquisitions, and consultancy on restructuring.

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Foreign institutions approved by the China Securities Regulatory Commission as Qualified Foreign Institutional Investors (QFIIs) may invest in China A shares and other RMB-denominated securities in the Mainland subject to the grant of investment quotas by State Administration of Foreign Exchange.