Hong Kong: Solid growth momentum continued into the fourth quarter

• The Hong Kong economy held up well on entering into the fourth quarter of 2006.  Merchandise exports registered a notable growth of 7.9% y-o-y in value terms in October, essentially a continuation of the rapid growth seen in most parts of the year. Reflecting the sustained strength in domestic demand, import intake for local use, particularly consumer and capital goods, continued to grow strongly, while the volume of retail sales also maintained solid growth, at 5.2% y-o-y in October, amidst the upbeat consumer sentiment.

• The land auction held in the week recieved keen response from the developers, with the land premium for the two residential sites fetched at 35-76% above the respective triggered prices.

• The stock market eased back during the week after hitting a historical high of 19 265 last Thursday, mainly due to technical correction following the strong surge over the past few weeks.  The HSI closed the week at 18 691, about 3.0% lower than a week ago.

The Mainland: Macro tightenings seen effective; detailed regulations for foreign banks coming on stream

• Liu Ming-kang, Chairman of China Banking Regulatory Commission (CBRC), said that the macroeconomic tightenings were effective in limiting macroeconomic risks and growth was possibly already slowing.  The risk of over-tightening leading to a sharp economic slow-down was small as liquidity was abundant.

• Meanwhile, CBRC issued more guidelines in respect of further liberalisation of the banking sector to foreign banks on 11 December. CBRC stipulated that foreign banks incorporated in the Mainland as local entities would have to ensure that the loan-to-deposit ratio would not exceed 75% by 31 December 2011.  In addition, a lending cap of 10% of capital to any single borrower will be required after the end of 2009, compared with 25% before that date.  Foreign banks incorporated locally must also meet all other regulations by 1 August 2007.

• Renminbi continued to hit new high of 7.8320 alongside the weakness of the US dollar. The impact of renminbi appreciation on the Hong Kong economy has been rather insignificant, and imported inflation from this source remains quite modest.

Hong Kong: Full-fledged recovery continued in Q3 06; 2006 growth forecast revised up to 6.5%

• The Hong Kong economy gathered strong momentum and registered a 6.8% growth in Q3 06, up from 5.5% in Q2.

• The forecast growth for 2006 is revised upward to 6.5%, on the back of the strong outturn in the first three quarters and having already allowed for some possible moderation in external trade in the rest of this year. This marks the third consecutive year of high growth, the best performance in 20 years. Consumer price inflation is forecast at 2% for 2006 as a whole.

• In the financial sector, the stock market continued to rally and close at another record high of 19 265 on Thursday, driven by abundant liquidity, the surge in the US stock market and an upbeat sentiment. Although fund inflows have led to a more vibrant stock market lately, this may potentially lead to greater volatility later on, especially when these funds are retrieved out of Hong Kong.

• Growth in urban fixed-asset investment and new RMB denominated loans both slowed over the same period. But broad money supply (M2) growth re-accelerated in October, after three straight months of deceleration. Last week, the PBoC has raised financial institutions��minimum reserve requirement for RMB denominated deposits for the third time this year, citing in its monetary policy report that the effects of macroeconomic tightening to rein in the growth in fixed-asset investment and loans are not yet firmly established

• Retail sales continued to surge, indicating sustained strength in local consumer spending.

• The Central Government has released a new set of guidelines regulating foreign banks�� operation in the Mainland (���ؤH���@�M��~��Ȧ�޲z����). This is to pave the way for further opening of the Mainland��s banking sector, which should help Hong Kong��s banks expand their business there.