Major Facts

• Hong Kong is the world's 11th largest trading economy, one of the world's four largest gold markets, the world's 6th largest foreign exchange market, the world's 15th largest banking centre, and Asia's 2nd biggest stock market.

• Hong Kong's external banking transactions volume are among the highest in the world in 2006.

• Hong Kong has 202 foreign-owned licensed banks, restricted licence banks, deposit-taking companies and representative offices from 30 countries as at end of 2006. There are 181 foreign banks in Hong Kong with 69 of the world's top 100 banks having presence in the city.

• Trading in Exchange Fund Bills and Notes was active with an average daily turnover of HK$36.3 billion in the first nine months of 2006.

• The Stock Market is the 2nd largest in Asia behind Japan. At the end of December 2007, 1,241 public companies were listed on the Stock Exchange of Hong Kong Limited with a total market capitalization of HK$20,697.54 billion (US$2,654 billion).

Hong Kong Monetary Authority

To maintain the prosperity and stability of Hong Kong, we need a robust monetary system to maintain monetary stability in the territory. It was with this mandate that the Hong Kong Monetary Authority (HKMA) was set up on April 1, 1993 by merging the Office of the Commissioner of Banking and the Office of the Exchange Fund.

The primary monetary objective of HKMA is to maintain exchange rate stability under the linked exchange rate system (US$1=HK$7.8). The HKMA's other objectives include:

• to maintain currency stability, within the framework of the linked exchange rate system, through sound management of the Exchange Fund, monetary policy operations and other means deemed necessary;

• to promote the safety and stability of the banking system through the regulation of banking business and the business of taking deposits, and the supervision of authorised institutions; and

• to enhance the efficiency, integrity and development of the financial system, particularly payment and settlement arrangements.

Banking in Hong Kong

Hong Kong maintains a three-tier system of deposit-taking institutions, comprising licensed banks, restricted license bank (RLBs) and deposit-taking companies (DTCs). Only licensed banks may operate current and savings accounts and accept deposits of any size and maturity. Subject to various restrictions, RLBs and DTCs are two categories of institutions which provide an opportunity for overseas banks not qualified for a full banking license to conduct wholesale and investment banking business in Hong Kong.

As Hong Kong is an international financial center, it is the firm commitment of the Hong Kong Monetary Authority that the supervisory framework in Hong Kong should conform with international supervisory standards, e.g. all authorized institutions are required to comply with a minimum liquidity ratio of 25%, locally incorporated institutions have to comply with a minimum capital adequacy ratio of 8% and the HKMA may raise the ratio to 12% in case of licensed banks and 16% in the case of RLBs or DTCs. At present, the minimum ratio for locally incorporated banks is 10%.

The interest of small depositors is further protected by the Priority Payment Scheme whereby the first HK$100,000 net deposits will be accorded priority status in the event of a bank liquidation.

At end-December 2006, there were 138 licensed banks, 31 RLBs, and 33 DTCs in Hong Kong. Of these 202 AIs, 181 were owned by interests from 30 foreign countries. In addition, there were 84 representative offices of foreign banks.
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Securities and Futures Market and Market Regulation

The Hong Kong Exchanges and Clearing Limited (HKEx) operates a stock exchange, a futures exchange and performs clearing and settlement functions. The stock market of Hong Kong provides a wide variety of products ranging from ordinary shares to options, warrants, unit trusts and debt securities. As at end of December 2007, 1,241 companies were listed on the main board, with a market capitalization of HK$20,697.54 billion (US$2,654 billion).

A second market, namely the Growth Enterprise Market (GEM) was established to provide an alternative fund raising channel for emerging growth companies. As of February 2008, 191 companies were listed on the GEM. A total of HK$19,460.14 million (US$2,495 million) were raised in 2007. Transactions were computerized to allow for increased trading volumes and efficiency.

Hong Kong's regulatory framework for the securities and futures market is on par with prevailing international standards and aims to achieve a fair, transparent and efficient market place. There are 3 tiers of regulation. The first tier comprises the front-line operator of the market, i.e. the HKEx through promulgation and enforcement of rules. The Securities and Futures Commission (SFC), being the statutory regulator overseeing the market, is the second tier. The final tier is the Government which deals with policy and legislative matters to ensure the accomplishment of the ultimate policy objective to maintain and further develop the status of Hong Kong as an international financial center.
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The Insurance Industry

Hong Kong has a thriving insurance industry. As at end-December 2007, there were 178 authorized insurers operating in Hong Kong, 96 of which were incorporated in 26 countries, with the US taking the lead, followed by the UK. According to latest audit return, the gross premium in 2006 was about HK$156.6 billion.

Hong Kong maintains a level playing field for all insurers and insurance intermediaries irrespective of their countries of origin. The same set of rules or requirements applies to both domestic as well as foreign insurers or insurance intermediaries. The Office of the Commissioner of Insurance (OCI) is charged with the responsibility of administering a comprehensive regulatory regime for the prudential supervision of insurers and insurance intermediaries in Hong Kong, with the Commissioner of Insurance appointed as the Insurance Authority (IA). Any insurer who wishes to carry out insurance business in or from Hong Kong is required to obtain authorization from the IA and subject to regulation that conforms to international supervisory standards.
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The Mandatory Provident Fund System

Since December 1, 2000, a Mandatory Provident Fund (MPF) system has come into full operation covering all employees and self-employed persons between the ages of 18 and 65 unless specifically exempt under the law. Under the scheme, both employers and employees are required to make contributions based on 5% of employees' relevant income, subject to maximum and minimum income levels. For employees earning more than the maximum level of income, mandatory contributions are capped at $1,000. For those earning less than the minimum level of income, they are not required to contribute but may elect to do so. However, regardless of the employees' election, their employers must contribute 5% of the employees' income. Contributions in excess of the maximum level of income are voluntary.

All benefits derived from MPF contributions must be preserved until the scheme member attains the retirement age of 65, or ceases employment and attains the age of 60. However, benefits will be paid before a scheme member attains retirement age by reasons of death, total incapacity and permanent departure from Hong Kong.