ENG-2011 — Page 122

86 Financial and Monetary Affairs

Hong Kong is a major destination and source of the Mainland's outward and foreign direct investment. The Mainland authorities put in place administrative arrangements for the use of RMB in outward direct investment from the Mainland and foreign direct investment into the Mainland in January and October 2011 respectively.

RQFII Pilot Scheme rules were promulgated on December 16, 2011, further enhancing the circulation of onshore and offshore RMB funds. A total of 21 Hong Kong subsidiaries of qualified Mainland fund managers and securities companies were granted RQFII quotas worth RMB 20 billion by the Mainland authorities to channel RMB proceeds raised in Hong Kong to invest in the Mainland securities markets. The SFC authorised the first batch of four RQFII retail investment funds managed by Hong Kong licensed subsidiaries of three Mainland asset management firms and one securities company at the end of 2011.

Mainland and Hong Kong Closer Economic Partnership Arrangement

The Closer Economic Partnership Arrangement (CEPA) between the Mainland and Hong Kong, which went into force in 2004, gives Hong Kong's financial service providers and professionals greater market access and flexibility for their operations in the Mainland. It has also enhanced Hong Kong's attractiveness to market users and strengthened the city's competitiveness as an international financial centre and the premier capital formation centre for Mainland enterprises.

On December 13, 2011, the Central People's Government and the Government of the Hong Kong Special Administrative Region signed Supplement VIII to CEPA, which, among other things, further strengthened co-operation in the following financial services:

(a) Banking: Mainland-incorporated banking institutions established by a Hong

Kong bank may engage in the sale and distribution of mutual funds;

(b) Securities: the Mainland and Hong Kong will continue to support qualified Mainland financial institutions engaged in securities activities to set up subsidiaries in Hong Kong and to operate businesses in accordance with law; deepen co-operation in financial services and products development, and allow investments in the Mainland securities market through the RQFII scheme; and

(c)

Insurance: Hong Kong insurance brokerage companies will be allowed to set up wholly-owned insurance agency companies in the Guangdong Province (including Shenzhen) on a pilot basis. In addition, Hong Kong insurance companies will be allowed to enter the market through setting up business institutions or capital participation.

Banking Sector

Main Features

Hong Kong maintains three tiers of deposit-taking institutions, comprising licensed banks (LBs), restricted licence banks (RLBS) and deposit-taking companies