A study released today (September 21) by the Trade Development Council (TDC) shows ample opportunities for financial institutions to capitalise on Hong Kong's unique position vis-a-vis the Chinese mainland.
According to the report, a total of over 570,000 private enterprises set up in the mainland during 2003, or around 1,500 enterprises established per day.
"Mainland enterprises need an enormous amount of capital (foreign and domestic) and financial services to meet their aspiration for expansion. But financial markets in the mainland are not fully developed to meet their rising demand," said TDC's Chief Economist Edward Leung.
The report identifies three major areas for mainland enterprises to fulfil their capital need:
- Savings (US1.4 trillion) are still sitting in banks and are not channelled to fund enterprise development efficiently;
- Insufficient channels for mainland enterprises to get in touch with overseas investors;
- Insufficient financial products and services to fulfil mainland enterprises' capital need
Hong Kong with its easy access to international capital - because of its expertise and impeccable reputation as a world-class financial centre - can do the job efficiently.
The report says Hong Kong can meet most of mainland enterprises' financial needs, including most importantly providing state-owned and private enterprises and high-tech companies with funds and liquidity. Hong Kong is widely recognised as a fund-raising centre for firms with operations in the region.
Listing on the Hong Kong Stock Exchange opens the door to easier access to international investors who attach great importance to Hong Kong's renowned "Mainland" expertise.
Over 90% of the overseas listed mainland companies have their listings in Hong Kong. In the past 10 years, 80% of the funds raised by mainland companies in Hong Kong has been brought in via post-listing issues. This demonstrates the ample liquidity of Hong Kong's capital market. As of August 2004, more than 280 mainland companies were listed in Hong Kong.
Venture capital is another important source of funding for the mainland's smaller private enterprises, and a vital way of nurturing the development of "high and new technology" industries - a top policy goal of the Central government.
The mainland's venture capital industry is still in its infancy and its funds are relatively small in size. Hong Kong has the largest pool of capital for private equity investment in the Asia Pacific region. The report adds that Hong Kong's venture investors provide not only funds but also the know-how of financing, modern management skills and international marketing strategies, expertise that mainland enterprises lack.
The mainland needs to provide a wider range of financial instruments for individual and institutional investors to manage their accumulate wealth more profitably, says the TDC report, which added that Hong Kong was in a position to do just that.
Investment is not a one-way street where Mainland is concerned. Many mainlanders are also keen to invest in Hong Kong because Mainland's financial market offers very few options for them to grow their money.
As a result, they have been putting their money in low-yield saving deposits in mainland banks. As of July this year, US$ 1.4 trillion was sitting in mainland banks, waiting to be tapped.
The mainland's insurers and the China National Social Security Fund (NSSF), or pension fund, for instance are seeking to produce higher yields from their investments to meet their obligations.
The government recently gave the go-ahead to mainland insurers and the NSSF to invest in overseas financial markets.
Inflows and outflows of the mainland's current account and financial account amounted to over US$800 billion in 2002. The mainland's financial institutions have long been encouraged to use Hong Kong for conducting treasury functions. Establishing Hong Kong as an offshore RMB center will be conducive to mainland's international business.
The TDC survey points out that Hong Kong's financial experts and related professionals can help "shorten the mainland's learning curve" in its attempts to further integrate with the global financial market.
TDC's Chief Economist said: "Hong Kong can help the mainland to develop a regulatory regime and framework that is compatible with global standards. This will include regulatory methodology, a high standard of corporate governance, transparency and disclosure practices.
"Hong Kong can also give expert advice on the steps to take to internationalise the mainland's financial market."
This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: www.tdctrade.com.
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