Hong Kong as an international financial center

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Hong Kong as an international financial center
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Linked Exchange Rate in Hong Kong
History
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• 100 backup
• Linked with USD
• Have two exchange system a. Linked Exchange
  Rate
• 
  b. Market Exchange Rate
• Linked Exchange Rate Fixed 1 USD 7.8 HKD
• Issue
  Bank Foreign Exchange Fund
• Market Exchange Rate Demand / Supply
• Exchange
  Branch, Bank
• Low
  floating rate

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Linked Exchange Rate
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Why Hong Kong choose Linked Exchange Rate System

• USD ( High Liquidity, High Credibility , High
  Circulation)
• Financial Crisis (1983)--- Political Factor
• High Stability (Hong Kong was a Colony)
• Mainly focusing on service industry
• ( Less affection from unfavorable balance of
  trade)
• Price of Land is very High
• Maintain the regulation of financial system

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Automatic Stabilizer

• Sell HKD ( Large amount)
• Supply of HKD? Interest Rate ?
• HKMA Buy HKD back
• USD Supply ?
• Interest Rate of HKD?
• (even higher then USD)
• Demand of HKD ? Exchange Rate ?

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• Cannot reflect the economic performance
• Monetary policy become very inelastic
• Less Competitive
• Balance of payment
• Re-export
• Logistic
• Exchange Rate will ceaselessly drop until it
  reach EQ

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• Average inflation rate 1983-1986
• Hong Kong 7.79
• USA 3.35
• Space of HKD to be appreciated was very large

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Financial Crisis (1998)

• Countries among Asia region depreciate their
  currency to adapt the economic
• down turn
• Highly affect Hong Kong re-export industry
• 1999 s gross export volume dropped 12.7,
  reaching 13979 billions

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Competition from Singapore

• Another financial centre in the same region
• Operate in the same market segment
• Being geographically close to each other
• Belonging to the same time zone

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• HK and Singapore have been rivals for the title
  of the second largest financial centre in the
  Asia-Pacific region (the largest is Tokyo)
• Singapores long term objective
• ?To replace HK after 1997 as the second largest
  IFC in the region

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Similarities between HK and Singapore

• Both are free ports
• Both are small open economies
• Both have a background of British rule
• Both use the English legal system
• Both use the English language
• ?the challenge from Singapore is much more
  immediate and direct

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HK vs Singapore

• The Monetary Authority of Singapore( MAS) was
  established in 1971
• Abolition of the interest rate cartel among banks
  was completed in 1975

• The Hong Kong Monetary Authority (HKMA) was
  established in 1993
• Only recently in HK

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HK vs Singapore

• Singapores second board, SESDAQ, was established
  in 1987
• MAS launched the revamped government securities
  market in 1987 as one of the measures to develop
  a domestic bond market

• More than a decade of HKs GEM
• HK started its Exchange Fund bills programme in
  1990

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HK vs Singapore

• HKs exchange may be switching to longer trading
  hours and lower brokerage fees
• Singapore implemented these long ago
• Their propaganda emphasize the same thing
• -time zone advantage
• -excellent infrastructure
• -political stability
• -a strong and stable currency

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• Facing the challenge from Singapore,
• However, HK keeps its competitive power
• Can be proved by three released reports
• Economic Freedom of the World 2005 Annual Report
  
• The 2005 Index of Economic Freedom
• The Capital Access Index 2005

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Economic Freedom of the World 2005 Annual Report

• HK has consecutively retained its top ranking in
  the Economic Freedom of the World for 9 years
• Scoring 8.7 out of 10
• Closely followed by Singapores 8.5
• New Zealand, Switzerland and the US tied for
  third with ratings of 8.2
• HK was also voted the best area of freedom to
  trade internationally and regulation of credit,
  labour and business and second in size of
  government

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The 2005 Index of Economic Freedom

• HK has consecutively ranked the worlds freest
  economy, scoring 1.35
• again ,the second is Singapore, scoring 1.6
• The Luxembourg ranked the third, scoring 1.63

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The Capital Access Index 2005

• The Top 10 markets (with 2004 ranking)
• 1. United Kingdom (3) 2. Hong Kong (1)3.
  Singapore (2)4. United States (6)5. Sweden
  (4)6. Denmark (9)7. Australia (7)8. Norway
  (13)9. Finland (5)10. (tie) Canada (10)10.
  (tie) Ireland (11)

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• It seems that HK is still leading Singapore at
  the moment
• CAUTION
• Singapore may follow HK closely enough to
  overtake HK someday !

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Prospects
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Enchancing our Position as an IFC

• Hong Kong ranked 1st in Asia and 3rd in the world
  last year in terms of capital raised,
• with total Initial Public Offering (IPO) and
  post-IPO equity funds reaching some 265 billion,
  
• out-performing the London and Tokyo Stock
  Exchanges.

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• 2. 2004
• a total of 304 Mainland enterprises
• compare with 2003
• ? 22
• ? Over ¼ of the total no of listed companies
• ? 30 of total stock market capitalisation
• ? half of our total market turnover

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1. Market capitalisation also hit a new high of
   about 6,650 billion, nearly 50 above the
   pre-reunification level
2. gt 70 of their trading is conducted in Hong Kong
   .

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Reinforcing our Renminbi Business

• 1st place outside the Mainland to conduct
  personal Renminbi (RMB) business, including
• deposit-taking,
• currency exchange,
• remittances
• credit cards
• ?total of 38 Hong Kong retail banks
• ? first three services

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Three strategic directions will be indicated

• exploring the diversification of the RMB assets
  and liabilities of Hong Kong banks particularly
  on the liability side, diversification to
  non-residents and non-individuals of deposits now
  restricted to resident individuals.

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Three strategic directions will be indicated

• exploring the provision of appropriate RMB
  banking services for trade and other current
  account transactions between Hong Kong and the
  Mainland.

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Three strategic directions will be indicated

• exploring the feasibility of establishing a RMB
  debt issuance mechanism in Hong Kong.

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Promoting the Bond Market

• e.g. 5 tunnels and 1 bridges.
• a 6 billion securitisation bond was issued
• the largest-ever securitisation bond offering in
  Hong Kong
• 1st made available to retail investors.

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• e.g. In July last year, the Government launched
  its 20 billion global bond offering.
• This was the largest multi-tranche offering from
  the region, available to both retail and
  institutional investors.
• the largest subscription and issue amounts for a
  retail bond.

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