ENG-2012 — Page 100

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Financial and Monetary Affairs

To further enhance financial co-operation with the Mainland, the Hong Kong Exchanges and Clearing Limited (HKEX) set up a joint venture, China Exchanges Services Company (CESC), in October 2012 with the Shanghai Stock Exchange and the Shenzhen Stock Exchange. On 10 December 2012, CESC launched CES120, the first index in the new CESC Cross Border Index Series. CESC will develop sub-indices, including a pure A-shares index and a Hong Kong Mainland index based on CES120 constituents, and plans to introduce other cross-border indices as well as index-related products in early 2013.

Development of Offshore RMB Business

In June 2012, the Central People's Government announced a series of measures to boost Hong Kong's role as an offshore RMB centre and global financial centre. These include developing the offshore RMB lending market, increasing the choice of offshore RMB products in Hong Kong, increasing the investment quotas, enlarging the range of participating entities and relaxing the investment restrictions in relation to the RMB Qualified Foreign Institutional Investors (RQFII)? Pilot Scheme. The measures have not only broadened the scope of the offshore RMB market in Hong Kong, but also expanded the channels for the flow and circulation of RMB funds between Hong Kong and the Mainland.

There was significant progress in the development of offshore RMB business in Hong Kong in 2012, with rapid growth notably in RMB trade settlement, deposits, bond issuance and financing, making Hong Kong a global hub for RMB trade settlement, financing and asset management. Banks in Hong Kong handled RMB trade settlements of RMB2,633 billion in 2012, representing a 37 per cent growth as compared to 2011. At the end of 2012, the RMB customer deposits and outstanding RMB certificates of deposit issued amounted to RMB603 billion and RMB117.3 billion respectively, totalling RMB720.2 billion, up 9 per cent compared with RMB661.6 billion at the end of 2011. Since 1 August 2012, Als in Hong Kong are offering RMB services to personal customers who are non-Hong Kong residents, and over 29,000 such accounts had been opened by the end of 2012, with deposits exceeding RMB4 billion.

At the end of 2012, there were 204 banks participating in Hong Kong's RMB clearing platform, of which 181 were branches and subsidiaries of foreign banks and overseas presence of banks from the Mainland.

Meanwhile, the scale of RMB financing activities expanded markedly. There was a significant growth in RMB bank lending, with the outstanding amount of RMB loans increasing to RMB79 billion at the end of 2012, from RMB31 billion at the end of 2011. RMB bond issuance was active, and totalled RMB112.2 billion during the year. The outstanding RMB bonds amounted to RMB237.2 billion at the end of 2012, up more than 60 per cent from 2011.

Since the launch of the RQFII Pilot Scheme in December 2011, the SFC has authorised 19 RQFII funds with an aggregate quota size of RMB20.6 billion. The quota for RQFII Pilot Scheme funds was increased by RMB50 billion in April 2012, allowing eligible institutions to invest in A-share index shares and launch RMB-denominated A-share exchange-traded funds (ETFs) in Hong Kong. In June, the SFC authorised the first RQFII A-share ETF for listing on the SEHK. Four RQFII

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The scheme channels offshore RMB funds raised in Hong Kong to invest in the Mainland's equity and bond markets.

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