Hong Kong as an International Financial Centre

A favourable geographical position, bridging the time gap between North America and Europe; strong links with the Mainland and other economies in South-East Asia and excellent communications with the rest of the world; rule of law; a level playing field as well as a sound regulatory regime have all helped Hong Kong develop into both a leading international financial centre in the region and the premier capital formation centre for the Mainland. The absence of any restrictions on capital flows into and out of Hong Kong is another important strength.

Hong Kong's financial markets are characterised by a high degree of liquidity. They operate under effective and transparent regulation which fully meets international standards. A highly educated workforce and ease of entry for professionals from outside Hong Kong further contribute to the development of financial markets in Hong Kong.

In late 2002, Hong Kong participated in the Financial Sector Assessment Programme (FSAP), a joint International Monetary Fund (IMF)-World Bank initiative designed to promote financial stability and assess compliance with key international codes and standards covering various financial services sectors. The FSAP exercise was concluded in June 2003 with the issuance of a final report, which confirmed that the financial system of Hong Kong is fundamentally sound and that the market infrastructure is robust and efficient.

Hong Kong has a very strong presence of international financial institutions. Of the world's top 100 banks, 75 have operations in Hong Kong. As at December 2003, there were 121 foreign-owned licensed banks. Apart from these, some foreign institutions also operate as restricted licence banks and deposit-taking companies through their subsidiaries, related companies or branches in Hong Kong. A further 87 foreign banks have local representative offices.

The interbank money market is well-established. Wholesale deposits are traded actively among local authorised institutions (AIs), and between local and overseas institutions, with an average daily turnover of $168 billion in 2003.

Hong Kong also has a mature and active foreign exchange market, which forms an integral part of the global market. The link with overseas centres enables foreign exchange dealings to continue 24 hours a day with the rest of the world. The last triennial survey coordinated by the Bank for International Settlements in April 2001 shows that the daily average foreign exchange turnover in Hong Kong is US$66.8 billion, which represents 4 per cent of the world's total transactions and makes Hong Kong the world's seventh largest foreign exchange market.

With a total market capitalisation of $5,547.8 billion as at year-end, the Hong Kong stock market ranked 10th in the world and second in Asia, following Japan¹. The daily turnover (including $154 million on the Growth Enterprise Market) averaged $10.4 billion in 2003. At year-end, 1 037 public companies (including 185 on the Growth Enterprise Market) were listed on the Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of the Hong Kong Exchanges and Clearing Limited (HKEx). The 73 (including 27 on the Growth Enterprise Market) newly-listed companies raised a total of $59.1 billion from initial public offerings (of which $2.1 billion was raised in the Growth Enterprise Market). Besides new share issues, funds were also raised in the secondary market, with a total amount of $154.5 billion. Funds raised in H-shares and red-chips markets amounted to $53.2 billion, some 25 per cent of the total funds raised in the Hong Kong market during the year.

The stock market is an important fund-raising centre for Mainland enterprises. As at end-2003, of the 93 Mainland incorporated enterprises listed outside the Mainland (H shares), 92 were quoted on the SEHK. The daily turnover of these H-shares and red chips accounted for 38.7 per cent of the total market turnover. In 2003, about $50.4 billion was raised in new listings of H-shares and red chips in Hong Kong, accounting for some 85 per cent of the total funds raised in initial public offerings (IPO) on the SEHK. The market capitalisation of H-shares and red chips accounted for about 29 per cent of the total market capitalisation. During 2003, the H-share index surged by 152 per cent. It is expected that Mainland issuers will continue to be a major growth driver of the securities market of Hong Kong in the future.

The average daily turnover of Hang Seng Index Futures and Mini-HSI Futures traded on the Hong Kong Futures Exchange (HKFE) increased from 19 602 contracts and 4 522 contracts in 2002 to 27 588 contracts and 5 064 contracts in 2003, respectively, representing increases of 41 per cent and 12 per cent. The average daily turnover of Hang Seng Index Options also increased to 8 596 contracts in 2003, compared with 4 369 in 2002, representing an increase of 97 per cent. The average daily turnover of Mini-HSI Options was 130 contracts, whereas that of H-share Index Futures launched in December 2003 reached 3 196 contracts. Apart from Index futures and options, the HKFE also traded 33 stock futures contracts with an average daily turnover of 76 contracts in 2003. As regards stock options, contracts in respect of a total of 34 stocks were traded in the market by year-end. The average daily turnover of stock options was 17 122 contracts in 2003.

The Hong Kong fund management industry is characterised by its strong international flavour, both in terms of the presence of global fund managers and authorised funds. In a survey conducted by the Securities and Futures Commission (SFC) in 2003, there were 192 companies that provided fund management or advisory services and that derived gross operating income from such activities at the end of 2002, an increase of 12 per cent from 172 a year earlier. Total assets under management amounted to $1,491 billion (US$191.2 billion)² as at December 31, 2002, representing a growth of 0.4 per cent over the previous year.

The number of authorised unit trusts and mutual funds was 1 862 at the end of 2003 (excluding Mandatory Provident Fund-related unit trusts).

Hong Kong operates one of the most active physical gold markets in the world. Spot gold can be traded through two closely related yet independent markets in the city — he Chinese Gold and Silver Exchange Society and the Loco-London gold market.

The society, established in 1910, provides trading of both tael bars and kilo bars in Hong Kong dollars³. Prices closely follow those in the other major gold markets in London, Zurich and New York. Loco-London gold quotation is made in US dollars per troy ounce of gold.

Hong Kong continues to be one of the most open insurance centres in the world. Among the 188 authorised insurers at year-end, 94 were insurers from 22 overseas countries or the Mainland. Twelve of the world's top 20 insurers are authorised to carry out insurance business in Hong Kong either directly or through a group company. There are 23 professional reinsurers, including most of the top reinsurers in the world. Gross premium income in 2002 was $89.0 billion, approximately 7.1 per cent of Hong Kong's Gross Domestic Product (GDP).