Hong Kong as the International Financial Centre in Asia:

Ways Forward

Prof. Stephen Cheung

City University of Hong Kong

Contents

• Balance growth of financial markets

• Quality markets

Financial Market Development

• Equity market

– From 8th in 2005 to 6th in 2006

– Capital raised in 2006

• Bond market

– RMB dominated bonds

– Asian Bond Funds

10 Largest Domestic Equity Market Capitalization at year-end 2006 and 2005

Source: World Federation of Exchanges 2006 Market Highlights

Capital Raised in 2006By Share Issues

(in million of USD)

By Bond Issuance

(in million of USD)

Australian SE 47,042.3 N/A

Hong Kong Exchange 65,015.8 8,351.9

Jakarta SE 1,823.1 N/A

Korea Exchange 5,281.3 400,667.9

New Zealand Exchange 1,014.9 1,504.5

Shanghai SE 16,760.5 N/A

Shenzhen SE 5,977.7 1,548.1

Singapore SE 5747.0 115,766.6

Thailand SE 3227.9 92,460.5

Tokyo SE N/A N/A

Nasdaq 17,374.9 N/A

NYSE 102,274.6 N/A

London SE 95,203.9 560,450.3

Luxembourg SE 35,209.8 1,320,246.1

Source: Focus January 2007, World Federations of Exchanges

Quality Market

• Listed companies

• Regulators

• Financial intermediaries

Corporate Governance

• Regional Comparison

• Comparison among listed companies in

Hong Kong

Corporate Governance Quality Index

Source: World Economic Outlook, September 2006

Year 2005

• Sample

– Use 5 OECD principles as benchmark

– Four main Hong Kong indices

constituents as of 12/31/2005

• HSI, HSCCI, HSCEI, HSHKCI

– Totally 174 listed companies in Hong

Kong

Improvement of CGI Compared with 2002

Improvement of CGI compared with 2002

10

23

4036

18

6

0

5

10

15

20

25

30

35

40

45

-6～0 5～10 15～20

Mean of CGI increased by 16.14% compared with year 2002.

Improvement Frequency

-6-0 10

0-5 23

5-10 40

10-15 36

15-20 18

>20 6

Improvement of CGI by Sections

0

10

20

30

40

50

60

70

80

90

100

A B C D E CGI2005 2002

A. Rights of shareholders

B. Equity of shareholders

C. Role of stakeholders

D. Disclosure and transparency

E. Board responsibilities

Opportunities

• Quality Market– Better investor protection– Better liquidity– More quality companies

• Enhance the corporate governance of listed companies in China

• Toward the international financial centre in Asia