International Finance - Hong Kong

7/27/2019 International Finance - Hong Kong

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Introduction

Hong Kong is characterized by its high degree of internationalization, business-friendly environment, rule of law, free trade and free flow of information, open and fair

competition, well-established and comprehensive financial networks, superb transport

and communications infrastructure, sophisticated support services, and a well-educated

workforce complemented by a pool of efficient and energetic entrepreneurs. Added to

these are substantial foreign exchange reserves, a fully convertible and stable currency,

and a simple tax system with low tax rates.

Hong Kong a Free Economy

Hong Kong has retained its rating as the freest economy in the world in the2004 Index of Economic Freedom released by The Heritage Foundation, for the 10th

consecutive year. The Cato Institute in the United States, in conjunction with more than

50 economic institutes worldwide, also ranks Hong Kong as the world's freest economy.

The International Monetary Fund classifies Hong Kong as an advanced economy. Other

highly regarded institutionslike the World Economic Forum, the International Institute

of Management Development and the Economist Intelligence Unitalso identify Hong

Kong as one of the world's most competitive business environments. And Hong Kong is

the best-performing host economy for foreign direct investment (FDI) in Asia, according

to the World Investment Report 2002published by the United Nations Conference on

Trade and Development (UNCTAD).


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Market structure

Hong Kong as a financial centre

Hong Kong is an international financial centre with an integrated network offinancial institutions and markets. The Government's policy is to maintain and develop a

sound legal, regulatory, infrastructural and administrative framework with the aims of

providing a level playing field for all market participants, maintaining the stability of the

financial and monetary systems and enabling Hong Kong to compete effectively with

other major financial centers.

A favorable geographical position, which bridges the time gap between North

America and Europe, strong links with the Mainland and other economies in South-east

Asia and excellent communications with the rest of the world have helped Hong Kong to

develop into an important international financial centre. The absence of any restrictions

on capital flows into and out of Hong Kong is another important factor.

Financial Markets

Hong Kong's financial markets are characterized by a high degree of liquidity.

They operate under effective and transparent regulations, which meet international

standards. A highly-educated workforce and ease of entry for professional staff from

overseas further contribute to the development of the financial markets.

The Banking Sector

The international financial community has a strong presence. At the end of 2003,

Hong Kong had 134 licensed banks, of which 121 were foreign-owned banks. Of the


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world's top 100 banks, 75 have operations in the HKSAR, while 81 subsidiaries or related

companies of foreign banks operate as restricted licence banks and deposit-taking

companies. A further 87 foreign banks have local representative offices. The banking

sector's external assets are among the highest in the world.

Exchange Market

Hong Kong has a mature and active

foreign exchange market, which forms an

integral part of the global market. Links with

centres overseas enable foreign exchange

dealing to continue 24 hours a day around the

world. Hong Kong was the world's 6th largest

centre for foreign exchange trading, according

to the 2004 triennial global survey conducted by the Bank for International Settlements.

Stock Market

The stock market is one of the world's largest in terms of market capitalisation. At

the end of May 2004, 1 057 public companies were listed on the Hong Kong Exchanges

and Clearing Limited with a total market capitalisation of $5,484.4 billion (US$703.1

billion).

The stock market is the 2nd largest in Asia, behind Tokyo's. The Growth EnterpriseMarket (GEM), a NASDAQ-style second board of the stock exchange, was launched in

November 1999 to provide 'start-up' companies, in particular those involved in high-tech

business, with access to equity market financing. As at May 2004, 195 companies were

listed on GEM with a total market capitalisation of $74.5 billion (US$9.55 billion). In a

pilot programme launched in May 2000, Hong Kong became the first city in Asia to offer

'live' trading on the Asian time-zone of seven leading US NASDAQ stocks.


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The Hong Kong Foreign Exchange Market

Hong Kong has one of the largest foreign exchange (FX) markets in the world.According to the most recent survey conducted by the Bank for International Settlements(1996)1, Hong Kong has overtaken Switzerland to become the fifth-largest FX market inthe world. In April 1995 Hong Kong's average daily trading volume was over 90 billionU.S. dollars. The prominent FX market puts Hong Kong in a good position to berecognized as one of the major international financial centers (IFCs).

The importance of the financial sector to the Hong Kong economy is well understood byboth Hong Kong and China officials. In fact, the Basic Law states that Hong Kong shouldmaintain its IFC status after returning to Chinese rule. Given Hong Kong's significantposition in the global FX market, a strong FX market has the ability to strengthen andextend the role of Hong Kong as a renowned IFC. In addition, the fact that Hong Kongenjoys IFC status means that a healthy climate exists in which to develop the FX market.

A New Generation of Trading System - AMS/3

AMS/3, the third generation of the Automatic Order Matching and Execution System, is

a new trading infrastructure developed by the Stock Exchange of Hong Kong (SEHK).

By electronic means, AMS/3 connects investors, Exchange Participants (brokers with

direct access to SEHK trading facilities) and the central market. As stock trading

becomes more electronic, investors' participation in the securities market will become

faster and more convenient. AMS/3's wide range of functions will also boost Hong

Kong's competitiveness in the world financial market.

About AMS/3

AMS/3 consists of five major components: Host System, Trading Terminals, Multi-

Workstation System (MWS), Open Gateway (OG) and Order Routing System (ORS).


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AMS/3 Trading Terminals have more functions than the existing terminals,

but they cannot be connected to electronic trading channels such as mobile

phone or Internet.

MWS can receive electronic trading requests from investors via ORS.

Broker Supplied Systems (BSS) are trading facilities developed by

Exchange Participants themselves which capture investors' electronic

trading requests directly or via ORS.

OG connects Exchange Participants, ORS and SEHK Host System, but

investors cannot use it directly.

ORS is an electronic infrastructure developed by SEHK consisting of


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SEHK-established Internet channel and the channel of Proprietary Network

Systems (PNS) set up by service providers. It enables investors to place

trading requests electronically through the Internet and mobile phone, which

are then routed to MWS or BSS of designated Exchange Participants.

Multiple Channels of Stock Trading

After AMS/3 rollout, investors will be able to enjoy multiple channels of placing orders

via systems and facilities provided by SEHK, Exchange Participants or service providers:

In person

Telephone

Internet

Mobile phone or other electronic devices (provided by service providers)

Faster and More Convenient Service

By increasing investors' access to the central market, AMS/3 speeds up and simplifies

stock trading.

Investors can enter, alter or cancel trading requests directly at any time via Internet or

mobile phone.Investors can acquire the latest information about trade execution via eChannels such

as Internet or mobile phone.

Investors can obtain market information more conveniently.

MWS carries risk management functions that allow automatic endorsement by

Exchange Participants of an investor's trading request in accordance with pre-fixed

credit level. These functions enable quicker routing of trading requests to the market

for matching.

Public Key encryption/decryption technology can be used to ensure the confidentialityof electronic trading information.

HK 6th in global foreign exchange market


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Hong Kong has advanced one place to rank sixth in the global foreign exchange market, andseventh in the global foreign exchange and over-the-counter derivatives market, according tothe latest Bank for International Settlements triennial survey results.

The Monetary Authority said the results are broadly in line with global trends, with DeputyChief Executive William Ryback adding: "The advance in Hong Kong's global ranking interms of foreign exchange trading is encouraging as it reinforces Hong Kong's position as acompetitive and active centre for foreign exchange and derivatives activities."

Foreign exchange up 52.9%

The survey found net daily turnover of foreign exchange transactions rose 52.9% to US$102.2billion in 2004, compared with 2001.Marked growth was seen in both spot and forward transactions, with the former rising 87.9%

to US$35.6 billion and the latter by 39% to US$66.5 billion.Forwards, nonetheless, comprise a majority of the foreign exchange transactions and a largeproportion was of short maturity, less than seven days.As expected, the Hong Kong dollar against the US dollar remained the most heavily tradedcurrency pair on the local market. Trading of other currency pairs also rose, reflecting thedeepening of Hong Kong's foreign exchange market.

Increased asset management activities in Hong Kong and the increase in treasury operations of

banks on the back of narrowed lending margins were probably the key factors behind thegrowth. depreciation of the US dollar prompting investors to purchase non-US dollar foreign

currencies for valuation gains, also additionally contributed to the growth.


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Although Hong Kong dollar contracts grew 97.5%, its share reduced from 59.3% to

27.7% to rank third after the US dollar and Japanese yen as contracts denominated in yen

increased strongly.

Over-the-counter derivatives up 2.6 times

Average daily net turnover of over-the-counter derivatives (both foreign exchange andinterest rate derivatives) rose by 2.6 times to US$14.9 billion.

Strong growth was seen in both foreign exchange derivatives and interest rateinstruments, particularly the latter due to growing anticipation of interest rate increasesin 2004.In contrast to the significant rise in 2001, turnover in the Hong Kong dollar against theUS dollar shrank by 38.2% in 2004. Its share to total net turnover fell from 28.2% in2001 to 7.2%.On single currency interest rate derivatives, US dollar denominated contracts surpassedHong Kong dollar denominated contracts to represent the largest share of grossturnover in 2004.


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Forex market participants

Issuers

The Hong Kong Monetary Authority (HKMA) is one of the principal issuers of HKD

debt, particularly Exchange Fund Bills and Notes (EFBNs). Other significant issuers

include quasi-government institutions, supranational entities, offshore borrowers,

and local banks and corporations. Among the issuers of quasi-government debt are

the Hong Kong Mortgage Corporation, Hong Kong Airport Authority, Mass Transit

Railway Corporation and the Kowloon-Canton Railway Corporation.

Investors

Principal investors in the Hong Kong debt market include the pension fund system of

the Mandatory Provident Funds, licensed banks, authorized institutions, government-

related institutions, and individuals.

Securities Companies/ Dealers

The Hong Kong Securities and Futures Commission (HKSFC) maintains a Public

Registry of all licensed persons and institutions involved in the market. This includesa comprehensive list of companies and individuals who are licensed dealers,

advisers, and asset managers, among others. A list of Recognized Dealers and

Market Makers of EFBNs is available at the web links below. EFBNs are traded

actively through Recognized Dealers and Market Makers.

Market Regulators

The HKMA and the HKSFC are the primary regulators of the debt market. A more

comprehensive discussion on market regulators and supervisory structures is

available under the section on Rules and Regulations.


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Market regulations

1. General Policy Framework

Since becoming a Special Administrative Region of the Peoples Republic of

China on July 1, 1997, Hong Kong has continued to manage its own financial and

economic affairs, its own currency, and its independent role in international economic

organizations and agreements.

The Hong Kong Government generally pursues policies of noninterference in

commercial decisions, low and predictable taxation, government spending increases

within the bounds of real economic growth, competition subject to transparent laws

(albeit without antitrust legislation) and consistent application of the rule of law. With

few exceptions, the government allows market forces to set wages and prices and does

not restrict foreign capital flows or investment. It does not impose export performance or

local content requirements, and allows free repatriation of profits. Hong Kong is a duty-

free port, with few barriers to trade in goods and services.

Until 1998, the government regularly ran budget surpluses and thus has amassed

large fiscal reserves. The corporate profit tax is 16 percent and personal income is taxed

at a maximum of 15 percent. Property is taxed but interest, royalties, dividends, capital

gains and sales are not. In the face of a possible structural deficit, the government has

faced pressure to identify new sources of revenue. A recent Advisory Committee report

suggested 13 options to broaden the tax base including a general consumption tax, capital

gains tax and tax on interest. However, Financial Secretary Antony Leung has indicated

that none of these reforms will be implemented in the near future.

stimulus measures, including infrastructure expenditures, small tax cuts, employment

generation, and development funds for small and medium enterprises. However,

authorities generally resisted pressure for large-scale government expenditures to kick

start the economy.

One exception to this traditional laissez faire approach was the creation of a new

Innovation and Technology Commission, which in mid-2000 was given responsibility for

spearheading Hong Kongs move to create a knowledge based economy. The

governments willingness to fund technology investment reflected the widespread belief


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that Hong Kong cannot compete in the high tech sector without targeted government

support.

Because monetary policy is tied to maintaining the nominal exchange rate linked to

the U.S. dollar, Hong Kong's monetary aggregates have effectively been demand-

determined. The Hong Kong Monetary Authority, responding to market pressures,

occasionally adjusts liquidity through interest rate changes and intervention in the foreign

exchange and money markets. The Asian financial crisis provoked a sharp economic

downturn in 1998 and the first half of 1999, but Hong Kong's economic fundamentals

remained strong, with a stable banking system, prudent fiscal policy, and massive dollar

reserves. A strong, export-led recovery in 2000 and early 2001 stalled abruptly at mid-

year, following a slump in consumer demand in the United States and Europe. The

September 11 terrorist attacks in the United States and subsequent further economic

downturn in Hong Kong's major markets have worsened the short-term outlook.

Unemployment is increasing (to around five percent) and Hong Kong will

experience recession in 2001. The local community remains concerned about Hong

Kong's long-term competitiveness in the face of challenges from mainland China. In

response to these economic difficulties, the government unveiled a series of modest

2. Exchange Rate Policies

The Hong Kong dollar is linked to the U.S. dollar at an exchange rate of HK$7.8 =

US$1.00. The link was established in 1983 to encourage stability and investor confidence

in the run-up to Hong Kong's reversion to Chinese sovereignty in 1997. PRC officials

have supported Hong Kong's policy of maintaining the link. In December 2000, the Hong

Kong Monetary Authority completed the third and final phase of the implementation of

Hong Kong's U.S. dollar payment system, which allows local firms to achieve real-time

settlement of U.S. dollar transactions. The establishment of the system is aimed at

reinforcing monetary stability.

There are no foreign exchange controls of any sort. Under the linked exchange rate,the overall exchange value of the Hong Kong dollar is influenced predominantly by the

movement of the U.S. dollar against other major currencies. The price competitiveness of

Hong Kong exports is therefore affected by the value of the U.S. dollar in relation to third

country currencies, with Hong Kong exports suffering during periods of strong U.S.

dollar exchange rates.


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3. Structural Policies

The government does not have pricing policies, except in a few sectors such as

energy, which is a regulated duopoly. Even in these controlled areas, the government

continues to pursue sector-by-sector liberalization. Hong Kongs personal and corporate

tax rates remain low and it does not impose import or export taxes. The Monetary

Authority implemented the final phase of interest rate deregulation covering savings and

current accounts in July 2001. Interest rates on all types of deposits are determined by

competitive market forces. Consumption taxes on tobacco, alcoholic beverages, and some

fuels constrain demand for some U.S. exports. Hong Kong generally adheres to

international product standards.

Hong Kong's lack of antitrust laws has allowed monopolies or informal cartels,

some of which are government-regulated, to dominate certain sectors of the economy.These informal cartels can use their market position to block effective competition

indiscriminately but do not discriminate against U.S. goods or services in particular.

4. Debt Management Policies

The Hong Kong government has minuscule public debt. Repeated budget surpluses

have meant the government has not had to borrow. To promote the development of Hong

Kong's debt market, the government launched an exchange fund bills program with the

issuance of 91-day bills in 1990. Since then, maturities have gradually been extended up

to 10 years. In March 1997, the Hong Kong Mortgage Corporation was set up to promote

the development of the secondary mortgage market. The Corporation is 100 percent

government owned through the Exchange Fund. The Corporation purchases residential

mortgage loans for its retained portfolio in the first phase, followed by packaging

mortgages into mortgage-backed securities for sale in the second phase.

In October 2000, the government launched a partial privatization of the Mass

Transit Railway Corporation to the general public in Hong Kong and domestic andinternational professional and institutional investors. The Initial Share Offer of this first-

ever Hong Kong government privatization raised about US$1.3 billion, accounting for 23

percent of governments total shareholding.

Hong Kong does not receive bilateral or multilateral assistance.


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5. Significant Barriers to U.S. Exports

Hong Kong is a member of the World Trade Organization, but does not belong to

the WTO's plurilateral agreement on civil aircraft. As noted above, Hong Kong is a duty-

free port with no quotas or dumping laws, and few barriers to the import of U.S. goods.

Hong Kong requires import licenses for textiles, rice, meats, plants, and livestock

most of which are related to health standards. These licensing requirements do not have a

major impact on U.S. exports.

There are several barriers to entry in the services sector, as follows.

The government decided in May 1999 to maintain a moratorium on additional

licenses for the local fixed telecommunications network services (FTNS), now contestedby five companies, until January 2003. In January 2000, the Hong Kong government

began opening of other telecom sectors, issuing five licenses for FTNS using wireless

networks and 12 licenses for external FTNS providers using satellites. In February 2000,

the government issued Letters of Intent to 13 applicants for cable-based external

facilities, and since then at least two American companies have been licensed to land

international data cables in Hong Kong. In September 2001, the government issued four

Third Generation (3G) mobile services licenses. Under the terms of the license, 3G

operators must offer 30 percent of their network capacity to non-affiliated service

providers. The government plans to invite additional FTNS licenses by the end of 2001

and will fully open the sector effective January 1, 2003.

The Hong Kong government limits foreign ownership of free-to-air television

stations to 49 percent and imposes strict residency requirements on the directors of

broadcasting companies. In June 2000, the Legislative Council (LEGCO) passed a

Broadcasting Bill that ended the foreign ownership limit for cable broadcasters and

substantially liberalized Hong Kong's television market. By adopting a more open and

flexible regulatory framework, the bill aims to expand program choice, encourageinvestment and technology transfer in the broadcasting industry, promote fair and

effective competition and spur the development of Hong Kong as a regional broadcasting

and communications hub. The Information, Technology and Broadcasting Bureau moved

quickly to exercise the new authorities granted by this bill, announcing five new

television licenses in July 2000. These new broadcasters (several of which are foreign

owned) will create new outlets for U.S. entertainment companies, which already enjoy a


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substantial presence in the Hong Kong market.

Our bilateral civil aviation agreement does not permit code sharing and restricts the

ability of U.S. cargo and passenger airlines to carry fifth freedom traffic to and from

Hong Kong and other points. These restrictions limit the expansion of U.S. carrier

services in the Hong Kong market.

In June 2000, the LEGCO passed a Legal Practitioners (Amendment) Bill that

removed the privileges conferred on barristers from England, Scotland, Northern Ireland

and other Commonwealth countries. A Hong Kong court may admit a foreign lawyer to

practice as a barrister if he is considered a fit and proper person and has complied with

the general admission requirements, including passing any required examinations.

Foreign law firms are barred from hiring local lawyers to advise clients on Hong Konglaw, even though Hong Kong firms can hire foreign lawyers to advise clients on foreign

law. Foreign law firms can become "local law firms" and hire Hong Kong attorneys, but

they must do so on a 1:1 ratio with foreign lawyers.

Foreign banks established after 1978 are permitted to maintain only three branches

(automated teller machines meet the definition of a branch). The Hong Kong Monetary

Authority has promised to consider further relaxation of this limit in 2001. In the

meantime, foreign banks can acquire local banks that have unlimited branching rights.

6. Export Subsidies Policies

The Hong Kong Government neither protects nor directly subsidizes manufacturers

who export. It does not offer exporters preferential financing, special tax or duty

exemptions on imported inputs, resource discounts, or discounted exchange rates.

The Trade Development Council, a quasi-governmental statutory organization,

engages in export promotion activities and promotes Hong Kong as a hub for tradeservices. The Hong Kong Export Credit and Insurance Corporation sells insurance

protection to exporters.


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7. Protection of U.S. Intellectual Property

The Berne Convention for the Protection of Literary and Artistic Works, the Paris

Convention on Industrial Property, and the Universal Copyright Convention (Geneva,

Paris) apply to Hong Kong by virtue of Chinas membership. Hong Kong, a WTO

member, passed a new Copyright Law in June 1997 and a modernized Trademark Law in

May 2000. Enforcement of copyright and trademarks has improved measurably in recent

years, but eliminating intellectual property piracy will require sustained effort.

Copyrights: Sale of pirated discs at retail shopping arcades is much less widespread

than it used to be but remains a problem. The United States has encouraged the

government at senior levels to crack down on this retail trade, and on the distributors and

manufacturers behind them. Hong Kong has responded by doubling Customsenforcement manpower, conducting more aggressive raids at the retail level, passing new

legislation and engaging in public education efforts to encourage respect for intellectual

property rights. Recent raids have closed down some of the most notorious retail arcades

and dispersed this illicit trade. In the first eight months of 2001, Customs seized 5.79

million pirated optical discs with a market value of US$14.1 million, and arrested 1,049

people. Hong Kong Customs intelligence operations and raids on underground

production facilities have shut down most pirate manufacturing and forced retailers to

rely increasingly on smuggled products. The judiciary has also begun to increase

sentences and fines for copyright piracy, handing down 524 piracy-related jail sentences

in the first half of 2001.

With the government's success against optical disc pirates, increasing attention has

turned to the problem of computer end-user piracy. In 1999, Hong Kong courts handed

down a first conviction for unauthorized dealer hard-disk loading. The LEGCO also

passed in June 2000 an IPR miscellaneous amendments bill which makes it clearly illegal

for companies to use unlicensed software in trade or business. Faced with intensive

public criticism of the new criminal provisions for photocopying newspapers andmagazine articles, the LEGCO passed a bill in June 2001 to suspend criminal provisions

for unauthorized copying of materials other than computer programs, movies, television

dramas and music. The bill also suspended criminal penalties for the use of parallel-

import computer software. The suspension is an interim arrangement expiring on July 31,

2002. The government will consult the community with a view to formulating a long-

term solution before then.


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Broadcast satellite signal piracy is also a growing concern for U.S. companies, and

industry associations have asked the government to take action against pubs and other

public venues that use satellite signals without compensation.

Trademarks: Sale of counterfeit items, particularly handbags and apparel, is

widespread in Hong Kongs outdoor markets. Customs officials have conducted

numerous raids, but these actions have had little impact on the overall availability of

counterfeit goods.

New Technologies: U.S. industry associations report that Hong Kong-based web

sites are being used to sell and transmit pirate software and music. Since April 2000,

Hong Kong Customs has raided nine establishments believed to be engaged in Internetpiracy. None of these cases has gone to court, but these raids put Hong Kong well ahead

of its neighbors in tackling the problem of Internet-based piracy.

Hong Kong's stepped-up IPR enforcement effort has helped to reduce estimated

losses to U.S. film and music companies. The Business Software Alliance reported in

May 2001 that software piracy in Hong Kong rose from 56 percent in 1999 to 57 percent

in 2000. However, estimated total losses for the software industry decreased from

US$88.6 million to US$86 million. U.S. film and music distributors also report

increasing levels of legitimate sales in Hong Kong.

8. Workers Rights

a. The Right of Association: Local law provides for right of association and the right of

workers to establish and join organizations of their own choosing. Trade unions must be

registered under the Trade Unions Ordinance. The basic precondition for registration is a

minimum of seven persons who serve in the same occupation. The government does not

discourage or impede the formation of unions Workers who allege antiuniondiscrimination have the right to have their cases heard by the Labor Relations Tribunal.

Violation of antiunion discrimination provisions is a criminal offense. Although there is

no legislative prohibition of strikes, in practice, most workers must sign employment

contracts that state that walking off the job is a breach of contract and can lead to

summary dismissal.


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b. The Right to Organize and Bargain Collectively: In June 1997, the Legislative Council

passed three laws that greatly expanded the collective bargaining powers of Hong Kong

workers, protected them from summary dismissal for union activity, and permitted union

activity on company premises and time. However, the Provisional Legislature repealed

these ordinances, removing workers new statutory protection against summary dismissal

for union activity. Legislation passed in October 1997 permits the cross-industry

affiliation of labor union federations and confederations, and allows free association with

overseas trade unions (although notification of the Labor Department within one month

of affiliation is required), but removed the legal stipulation of trade unions right to

engage employers in collective bargaining and banned the use of union funds for political

purposes. Collective bargaining is not widely practiced.

c. Prohibition of Forced or Compulsory Labor : Compulsory labor is prohibited under

the Bill of Rights Ordinance. While this legislation does not specifically prohibit forced

or bonded labor by children, there are no reports of such practices in Hong Kong.

d. Minimum Age for Employment of Children: The "Employment of Children"

Regulations prohibit employment of children under age 15 in any industrial

establishment. Children ages 13 and 14 may be employed in certain non-industrial

establishments, subject to conditions aimed at ensuring a minimum of nine years of

education and protecting their safety, health, and welfare. In 2000, there were three

convictions for violations of the Employment of Children Regulations.

e. Acceptable Conditions of Work: Aside from a small number of trades and industries in

which a uniform wage structure exists, wage levels are customarily fixed by individual

Agreement between employer and employee and are determined by supply and demand.

Some employers provide workers with various kinds of allowances, free medical

treatment and free Subsidized transport. There is no statutory minimum wage except for

foreign domestic workers (US$500 per month). To comply with the Sex DiscriminationOrdinance, provisions in the Women and Young Persons (Industry) Regulations that had

prohibited women from joining dangerous industrial trades and limited their working

hours were dropped. Work hours for people aged 15 to 17 in the manufacturing sector

remain limited to 8 per day and 48 per week between 6 a.m. and 11 p.m. Overtime is

prohibited for all persons under the age of 18 in industrial establishments. Employment in

dangerous trades is prohibited for youths, except 16 and 17 year old males.


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The Labor Inspectorate conducts workplace inspections to enforce compliance with these

and health and safety regulations. Worker safety and health has improved, but serious

problems remain, particularly in the construction industry. In 2000, a total of 58,092

occupational accidents (33,652 of which are classified as industrial accidents) were

reported, of which 199 were fatal. Employers are required under the Employees

Compensation Ordinance to report any injuries sustained by their employees in work-

related accidents.

f. Rights in Sectors with U.S. Investment: U.S. direct investment in manufacturing is

concentrated in the electronics and electrical products industries. Aside from hazards

common to such operations, working conditions do not differ materially from those in

other sectors of the economy. Relative labor market tightness and high job turnover have

spurred continuing improvements in working conditions as employers compete foravailable workers.


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Forex market activities of the treasuries, reserve,

government

GDP (purchasing

power parity): $254.2 billion

GDP (official

exchange rate): $181.6 billion

GDP - real growth

rate: 7%

GDP - per capita:

purchasing power parity - $36,800

GDP - composition

by sector: agriculture: 0.1%

industry: 10%

services: 89.9%

Inflation rate

(consumer prices): 0.9%

Investment (gross

fixed):21.2% of GDP

Budget:

revenues: $31.31 billion

expenditures: $32.3 billion, including capital expenditures of $5.9 billion (2005

est.)

Public debt:

1.8% of GDP

Current account

balance:$23.85 billion

Exports:

$286.3 billion f.o.b., including reexports

Exports - partners:

China 44%, US 17%, Japan 5.3%

Imports:

$291.6 billion
http://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2001http://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2195http://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2003http://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2012http://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2092http://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2185http://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2187http://www.cia.gov/cia/publications/factbook/rankorder/2087rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2087.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2087http://www.cia.gov/cia/publications/factbook/fields/2050.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2050http://www.cia.gov/cia/publications/factbook/rankorder/2078rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2078.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2078http://www.cia.gov/cia/publications/factbook/rankorder/2187rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2187.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2187http://www.cia.gov/cia/publications/factbook/rankorder/2186rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2186.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2186http://www.cia.gov/cia/publications/factbook/fields/2056.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2056http://www.cia.gov/cia/publications/factbook/rankorder/2185rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2185.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2185http://www.cia.gov/cia/publications/factbook/rankorder/2092rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2092.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2092http://www.cia.gov/cia/publications/factbook/fields/2012.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2012http://www.cia.gov/cia/publications/factbook/rankorder/2004rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2004.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2004http://www.cia.gov/cia/publications/factbook/rankorder/2003rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2003.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2003http://www.cia.gov/cia/publications/factbook/rankorder/2195rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2195.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2195http://www.cia.gov/cia/publications/factbook/rankorder/2001rank.htmlhttp://www.cia.gov/cia/publications/factbook/fields/2001.htmlhttp://www.cia.gov/cia/publications/factbook/docs/notesanddefs.html#2001


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Imports - partners:

China 43.5%, Japan 12.1%, Taiwan 7.3%, US 5.3%, Singapore 5.3%, South

Korea 4.8%

Reserves of

foreign exchange

and gold:

$122.3 billion

Debt - external:

$416.5 billion

Currency (code):

Hong Kong dollar (HKD)

Exchange rates:

Hong Kong dollars per US dollar - 7.79 (2005), 7.788 (2004), 7.7868 (2003),

7.7989 (2002), 7.7988 (2001)

Fiscal year:

1 April - 31 March

People's Republic of China, Hong Kong Special

Administrative Region:

Selected Economic and Financial Indicators

2002 2003 2004 2005 2006
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Proj.

Real GDP(percent change) 1.8 3.1 8.2 7.0 5.5

Real domestic demand

(contribution)

-0.7 0.1 4.5 1.8 2.0

Foreign balance (contribution) 2.5 3.1 3.7 5.2 3.5

Inflation (percent change)

Consumer prices -3.0 -2.6 -0.4 1.2 1.5

GDP deflator -3.5 -6.4 -3.3 -0.5 1.3

Employment(percent change) -0.6 -0.4 2.8 3.8 3.0

Unemployment rate (percent) 7.3 7.9 6.8 5.4 3.8

Real wages 1.3 0.2 -1.2 ... ...

Government budget (percent

of GDP) 1/

Revenue 13.9 16.8 20.4 18.6 17.9

Expenditure 18.7 20.1 18.8 18.6 17.8

Consolidated budget balance -4.8 -3.3 -0.3 0.0 0.1

External balances (in billions of

US$)

Merchandise trade balance -5.1 -5.8 -9.3 -4.5 -0.8

(In percent of GDP) -3.1 -3.6 -5.6 -2.6 -0.4

Current account balance 12.4 16.5 16.4 17.8 19.2

(In percent of GDP) 7.6 10.4 9.6 10.2 10.3


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Foreign exchange reserves

Foreign exchange reserves (in

billions of US$, end of period)

111.9 118.4 123.6 123.8 124.8

(In percent of GDP) 68.4 74.5 74.4 70.8 66.8

Currency

1 Hong Kong dollar (HK$) = 100 cents

Exchange rates: Hong Kong dollars per US dollar - 7.799 (April 2005), 7.798 (January

2002), 7.7994 (2001), 7.7918 (2000), 7.7589 (1999), 7.7462 (1998), 7.7425 (1997); note -

the Hong Kong dollar is linked to the US dollar at a rate of about 7.8 Hong Kong dollars

per US dollar

The future of Hong Kong

At the start of the 21st century, the HKSAR Government has undertaken a review

of Hong Kong's long-term development strategies, partly to cope with the changes and

capitalise on the opportunities arising from the reunification with the Mainland, and

partly in response to the many challenges in the face of globalisation and the emergence


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of a knowledge-based economy. The review follows a two-year study by the Commission

on Strategic Development which encompasses a vision and a strategic framework for

Hong Kong to become, not only a major city in China, but also Asia's world city.

Asia's Cyber City for the Cyber Century

Hong Kong has set itself on course to become the centre for innovation and

technology in East Asiaa cyber city in the cyber century. Much is being done to realise

this goal and to capitalise on the enormous opportunities thrown up by the information

revolution.

Cyberport

Cyberport Hong Kong's IT flagship is a HK$15.8 billion (US$2 billion)

landmark project managed by Hong Kong Cyberport Management Company Limited and

owned by the HKSAR Government. It is creating an interactive environment that will be

home to a strategic cluster of more than 100 information technology (IT) companies and


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more than 10 000 IT professionals. This clustering of local and overseas companies and

professional talent is envisioned as a catalyst and hub for the growth of local and regional

IT industries, with particular emphasis on IT applications, information services and

multimedia content creation. Cyberport will also provide IT education for the broader

community. Cyberport represents a commitment on the part of the Government of theHKSAR to facilitate Hong Kong's development as a leading digital city in the region. The

project is being developed on a 24-hectare site at Telegraph Bay in the southern district

of Hong Kong Island. Cyberport is being completed in phases extending through 2004,

and when complete will feature 100 000 square metres of 'intelligent' office space.

Science Park

The Science Park aims to establish and nurture a world-class technology

community dedicated to applied research and development. It is being developed along a

clustering concept, with four clusters of electronics, IT and telecommunications,

biotechnology and precision engineering. The first phase of the Science Park opened in

June 2002. Phase II of the Science Park is to be completed by the end of 2007.

Infrastructure Projects for the 21st Century

An efficient and reliable infrastructure has played a key role in maintaining Hong

Kong as a leading trade, finance, business and tourism centre in the region. Infrastructure

development enables us to meet demands arising from population growth and help

support our economic and trade development.

The HKSAR Government continues to invest heavily in capital works projects. It

plans to spend under the Capital Works Programme an average of $29 billion (US$3.7

billion) per year for the next 5 years.

Railway Development

Further to the commissioning of West Rail in December 2003, four new railways

are scheduled for completion between 2004 and 2007. Both the Tsim Sha Tsui Extension,

which will provide a second rail interchange between the KCR and the MTR systems,

and the Ma On Shan Rail, which will connect new towns in the eastern parts of Hong

Kong with the urban areas, will be completed by 2004. The Penny's Bay Rail Link

connecting Sunny Bay with Disneyland on Lantau Island is expected to be completed in

2005. A new rail passenger boundary crossing at Lok Ma Chau connecting Huanggang in

Shenzhen is expected to be completed before mid-2007.


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The 'Railway Development Strategy 2000' provides a blueprint for Hong Kong's

rail network expansion up to 2016 or so. This involves a total investment of some $100

billion to complete five new passenger rail projects (the Kowloon Southern Link (KSL),

Shatin to Central Link (SCL), Island Line Extensions (ILE), Northern Link (NOL), and

Regional Express Line (REL)) and a Port Rail Line for freight. Upon their completion,Hong Kong's rail network will expand by some 40 per cent to over 250 kilometres. The

railways' share of the public transport system will be boosted from 30 per cent to about

40 per cent.

New Urban Development

The West Kowloon Reclamation project was completed in 2003. The reclamation

has provided about 340 hectares of land to house a planned population of about 190 000.

At the southern tip of the reclamation, another major development proposal is the West

Kowloon Cultural District (WKCD), which is currently under active planning. The

intention is to develop the area into an arts, cultural, commercial and entertainment

district with a distintive identity. The Government has invited proposals internationally

for development of the WKCD.

The Outline Zoning Plan to guide redevelopment of the former Kai Tak Airport site was

approved in June 2002. In view of a recent court ruling on reclamation in Victoria

Harbour, a comprehensive review of the current development scheme will be carried out

to ensure its compliance with the legal requirements. The review which covers theplanning and engineering aspects, is expected to take two years. It will include extensive

public involvement to gauge the community's wishes for this major waterfront site and to

help build public consensus on revising the development scheme.

Road Projects


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New strategic roads will alleviate urban congestion and provide vital new links

into the New Territories and beyond. Among the major road projects are the Hong Kong-

Shenzhen Western Corridor, Deep Bay Link and Route 8 including the Stonecutters

Bridge.

The 1 596-metre Stonecutters Bridge, with a main span of 1 018m, will be the

longest cable-stayed bridge in the world. It is the first long-span bridge located in an

urban environment in Hong Kong and will be highly visible from Hong Kong Island and

Kowloon Peninsula. The bridge design was adopted from the winning design of an

international competition in 2000 which elicited participation from the best design and

engineering firms in the world.

This bridge is an important part of Route 8 between Tsing Yi and Sha Tin. On

completion of the works in mid-2008, Hong Kong will be adding an east-west strategic

route linking the eastern part of the New Territories to the airport. This new highway will

provide direct access to Container Terminals No 8 and No 9 in Kwai Chung, which will

further enhance Hong Kong as an important international logistics and transportation hub

Conclusion

The economy ofHong Kong has often been cited by people such as Milton Friedman and

the Cato Institute as an example of the benefits oflaissez-faire capitalism. Many analysts

believe that this characterization of the Hong Kong economy is not entirely accurate, as

the Hong Kong government, both under British and Chinese rule, have occasionally

intervened in the economy.
http://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Milton_Friedmanhttp://en.wikipedia.org/wiki/Cato_Institutehttp://en.wikipedia.org/wiki/Laissez-faire_capitalismhttp://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Milton_Friedmanhttp://en.wikipedia.org/wiki/Cato_Institutehttp://en.wikipedia.org/wiki/Laissez-faire_capitalism


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Frequently Asked Questions about Hong Kong Forex market

Q1 What channels are there for investors to place orders after the full

implementation of AMS/3?

A1 The channels available depend on the type of trading facility used by the Exchange

Participant of an investor. If trading is conducted via a trading terminal which cannot

be connected to other eChannels, investors will have to place orders with the

Exchange Participant by telephone or in person. If the Exchange Participant adopts


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Multi-Workstation System (MWS) or Brokers Supplied System (BSS), an investor

can opt for any channel provided by the Exchange Participant to place his order

(traditional method or the Internet/mobile phone). Since BSS are developed by

Exchange Participants or suppliers, services vary and investors should select

Exchange Participants that suit their needs.

Q2 Is online trading faster than the traditional method of placing orders?

A2 In normal cases, online trading serves investors faster. However, as the experience of

most Internet users indicates, there is always the possibility of congestion of Internet

lines resulting in delays in trading which is something SEHK cannot control.

Q3 Is it possible for an investor to input trading requests via ORS after trading

hours? Will BSS of Exchange Participants continue to receive trading

instructions after market close?

A3 Technically, ORS can support the input of trading requests after market close.

However, actual ORS operating hours depend on market needs. Exchange

Participants decide on their own whether their BSS will continue to entertain trading

requests after market close.

Q4 How do investors place orders online via SEHK's Internet channel?

A4 Before trading shares, investors should first apply to Hongkong Post for an e-

certificate and register with their Exchange Participants. The Exchange Participant

will record the e-certificate number of an investor in ORS to provide identityauthentication during online trading. An investor who owns more than one securities

account needs only one e-certificate, but he/she is required to register with Exchange

Participants separately for the use of ORS. An investor who has accounts in more

than one Exchange Participant should select his preferred Exchange Participant in

the SEHK web page for securities transactions before entering his trading request.

Web pages of some Exchange Participants are connected to the SEHK web page for

securities transactions to collect investors' trade requests.

SEHK's Internet channel aside, web facilities provided by Proprietary Network

System (PNS) vendors, such as the Internet, mobile phone, or PDA palm computer,

may also be used by investors to enter order instructions. Order instructions placed

via these means should first be verified and approved by an Exchange Participant

before they can be routed to the market for matching.

Q5 How can investors be prevented from inputting wrong trading requests


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accidentally during online trading?

A5 SEHK cannot prevent investors' input errors. SEHK will strengthen its investor

education programme by organising a series of public seminars and producing

investor educational material. As trading requests have to go through an Exchange

Participant before being routed to the central trading system, Exchange Participants

will continue to perform advisory and risk management functions after the launch of

AMS/3.

Q6 How can online securities accounts be protected from embezzlement?

A6 SEHK's Internet channel adopts the latest Internet technology to offer investors a

security-tight online trading environment and make use of accredited e-certificates to

ensure the integrity and confidentiality of trades. Before trading securities online,

investors should apply to Hongkong Post for an e-certificate. By means of PublicKey Infrastructure which encrypts and verifies investors' identity and online trade

information, an e-certificate protects investors' interests from being infringed by

eavesdropping, tampering, forgery and other misconducts. Investors should note that

as BSS and PNS are developed by Exchange Participants and PNS vendors, not all

their facilities adopt these security measures.

Q7 Will an investor still be required to trade shares via an Exchange Participant

after the launch of AMS/3?

A7 Yes. Before dealing in shares, an investor is required to open an account with anExchange Participant. Whichever channel an investor chooses, his trading

instructions should first be verified and approved by an Exchange Participant before

it is routed to the market for matching. Exchange Participants will continue to play

an advisory and verification role after AMS/3 has come into service.

Q8 What impact will electronic trading have on brokerage commission?

A8 The level of brokerage commission is a matter of commercial arrangement between

Exchange Participants and their clients. SEHK's minimum brokerage rule will still

apply after implementation of AMS/3. Brokerage commission will remain 0.25 per

cent of the value of the transaction with a minimum of HK$50. The minimum

brokerage rule is scheduled for abolition on 1 April 2002 after which commission

will be fully negotiable between Exchange Participants and clients.

Q9 Will the new trading system be insured? Will SEHK compensate investors or


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market participants for losses caused by AMS/3 defects?

A9 Due diligence will be exercised to ensure the normal functioning and operation of

AMS/3. According to the Exchanges and Clearing Houses (Merger) Ordinance,

SEHK is not liable for anything done or omitted to be done in good faith. SEHK has

developed a set of contingency arrangements, including the switch of AMS/3

primary site to AMS/3 backup site in case of hardware failure and, in the event of

emergencies in the first two weeks of its launch, a fallback to AMS/2.

Documents

International Finance - Hong Kong