1. The Hong Kong Financial Markets Professor Stephen Y.L. Cheung Department of Economics and Finance City University of Hong Kong

2. Content 1. Hong Kong Financial Market • Securities Market • Banking 2. Currency Board System 3. Economic Situation of Hong Kong

3. Hong Kong Financial Market A. Securities Market • Hong Kong Exchange and Clearing Co. • The Stock Exchange of Hong Kong • The Hong Kong Futures Exchange • The Hong Kong Clearing Ltd.

4. Hong Kong Financial Market • Securities Market • Objectives of Merger • Cost efficiency • New financial innovations • Reduce overlapping of business • Market-oriented • Reduce overlapping of regulating structure

5. Hong Kong Financial Market

6. 1. Hong Kong Financial Market

7. 1. Hong Kong Financial Market

8. Hong Kong Financial Market • Securities Market • New Financial Product • Growth Enterprise Market (GEM)

9. Growth Enterprise Market – Background • Established in November 1999 • Intention of becoming a centre of science and technology • Independent and alternative market, not a second tier market to the main board • For enterprises that have good business idea and growth potential, but unable to obtain a listing in the Main Broad.

10. Performance of Growth Enterprise Market

11. S&P / HKEx GEM Market

12. Characteristics of GEM (I) • Target at growth companies, big and small • Reasonable prospect of significantly developing or expanding their business, such as telecom-related and Chinese IT firms • Non-telecom-related: Wah Sang Gas Holdings, Far Eastern Polychem Industries

13. Characteristics of GEM (II) • Higher degree of investors awareness of risk • Risky market - more likelihood of business failure and insolvency • Future performance is less predictable • No proven profitable track record • No obligation to forecast future profitability • Target for sophisticated investors • Risk Disclosure Statement

14. Characteristics of GEM (III) • Disclosure-based regime • Buyer-beware philosophy • Greater, more frequent and timely disclosure • Quarterly, half yearly and annual accounts • Half yearly comparison of the business progress with the business plan for the first 2 financial years • Sponsor scheme • Act as an adviser to assist the issuer to comply with the GEM Listing Rules • The principal channel of communication between the Exchange and the issuer

15. Characteristics of the GEM (IV) • Strong corporate governance requirements • Reduce the risk of malpractice • Companies properly fulfill the listing obligations • Measures: • Appointment of a qualified accountant to supervise the finance and accounting functions • Designating an executive director as the compliance officer • 2 independent directors • An audit committee

16. Hong Kong Financial Market • Banking • Interest rate agreement in 1964 • Three-tier system • Licensed banks • Restricted licensed banks • Deposit taking companies

17. Hong Kong Financial Market • Difference • Minimum capital requirement • Ability to accept saving deposit • Restriction on maturity and amount • Deposit rate

18. Hong Kong Financial Market • Reforms • Interest rate agreement abolished (July 01) • Deposit insurance scheme • Credit reference agency • Improvement on Corporate Governance • Transparency

19. Currency Board System • Established in Oct. 1983 1 US dollar = 7.8 HK dollar • US dollars back the HK dollars

20. Currency Board System • Advantages • Confidence • No exchange rate risk • Stable exchange rate

21. Currency Board System • Disadvantages • Competitiveness • Macro-economic adjustment • US dollar appreciate → export↓ • US dollar depreciate → inflation↑

22. Hong Kong Economic Situation • The GDP for 2003 is forecast to increase by 1.5% in real term • The unemployment rate is 8.7% • The inflation rate is -3.1%

23. 3. Hong Kong Economic Situation Problems • Economic transformation • No confident in future • Weak consumption market • Asset market deflation in property market and stock market

24. 4. Hong Kong Economic Situation- Future Development • Fund raising centre for Mainland enterprise • QDII • RMB off-shore centre

25. Thank you