Financial services to Hong Kong

(Last updated: 21 Apr 2008)

Trends and opportunities

The market

Hong Kong is a major international financial centre, comprising an integrated network of institutions and markets that provide a wide range of products and services to local and international customers and investors.

Hong Kong has been ranked first in terms of economic freedom for 13 years (1995–2007), according to the Heritage Foundation.

Hong Kong’s financial markets are characterised by a high degree of liquidity and operate under effective and transparent regulations that meet international standards.

The Government of the Hong Kong Special Administrative Region (HKSAR) abides by the principle of minimal intervention in the market and has endeavoured to provide a favourable environment for business.

Its policy of low and simple taxation allows maximum room for business initiatives and innovation. There is a strong emphasis on the rule of law and fair market. There are no barriers of access to the market by foreign businesses and no restrictions on capital flows into and out of Hong Kong. There are also no exchange controls.

Banking sector

Banks in Hong Kong engage in a wide range of retail and wholesale banking business such as deposit-taking, trade financing, corporate finance, treasury activities, precious metal trading and securities broking.

At the end of September 2007, there were 142 licensed banks, 29 restricted licence banks and 30 deposit-taking companies in Hong Kong, together with 82 local representative offices of overseas banking institutions.

These institutions come from 38 countries and include 68 out of the world’s largest 100 banks. Together they operate a comprehensive network of about 1,330 local branches.
The external net assets held by banks and deposit-taking institutions reached A$319 billion (end of August 2007), making Hong Kong one of the largest banking centres in the world.

Hong Kong has a mature and active foreign exchange market, the development of which has been stimulated by the absence of exchange controls in Hong Kong and its favourable time zone location. According to a triennial global survey conducted by the Bank for International Settlements in 2007, Hong Kong was the world’s sixth largest foreign exchange market in terms of turnover.

The Hong Kong money market consists primarily of the interbank market. The money market is mostly utilised by institutions at the wholesale level. The Hong Kong Interbank Offer Rate (HIBOR) is determined by the supply of and demand for funds between market players, and therefore is one of the most important indicators of the price of short-term funds in Hong Kong. The daily turnover in the Hong Kong interbank market averaged A$55 billion in July 2007.

Stock market

Hong Kong’s stock market was the seventh largest in the world and the third largest in Asia in terms of market capitalisation as at the end of September 2007.
In terms of total equity funds raised in 2006, Hong Kong ranked fourth in the world and first in Asia.

At the end of September 2007, 1,210 companies were listed in the Stock Exchange of Hong Kong (SEHK), with a market capitalisation of A$2,786 billion. This included 388 Mainland enterprises that have together raised more than HK$1,687 billion.

For the derivatives market, as at the end of September 2007, four types of futures product and two types of options product were traded on the Hong Kong Futures Exchange (HKFE) and the SEHK: index futures; stock futures; interest rate futures; bond futures; index options; and stock options.

The derivatives market has become fully electronic with the migration of Hang Seng Index Futures and Options trading to the Hong Kong Futures Automated Trading System in June 2000.

Apart from the stock market and the futures market, there is also an active over-the-counter market which is mainly operated and used by professional institutions and trades swaps, forwards and options in relation to equities, interest rates and currencies.

Debt market

Hong Kong’s debt market has developed into one of the most liquid markets in the region. The Central Money Markets Unit (CMU) Service is operated by the HKMA to provide a clearing and custodian system for Exchange Fund Bills and Notes (EFBNs) and other private debt securities.

The EFBNs had an outstanding amount of about A$1.9 billion at the end of September 2007, when daily turnover in these papers averaged A$6.7 billion.
For Hong Kong dollar debt securities other than the EFBNs, a total of A$19 billion debt issues were launched in the first half of 2007.

Gold trading

The Chinese Gold and Silver Exchange Society has provided a platform for gold trading in Hong Kong since the early 20th century. Turnover of gold through the society totalled 160 million grams in 2006.

Insurance sector

Hong Kong is one of the most open insurance centres in the world. In September 2007, there were 181 authorised insurers, 90 of which were incorporated in Hong Kong and the remaining 91 were incorporated in 23 countries with the US and UK taking the lead. In recent years, Hong Kong’s insurance market has shown considerable growth. The gross premium for 2006 was about HK$156 billion.

Funds and asset management

Hong Kong is a major regional fund management centre with the largest concentration of international fund managers in Asia. According to a survey conducted by the Securities and Futures Commission (SFC), there were 292 companies engaged in funds management in Hong Kong at the end of 2006. Hong Kong's combined fund management business amounted to some A$855 billion as at the end of 2006, representing growth of 36 per cent over 2005 and accumulated growth of 70.1 per cent over 2004.

According to the SFC survey, around 62 per cent of the investment funds are sourced from outside Hong Kong.

Hong Kong's funds management industry has developed strong expertise in investing in Asia, in particular the Chinese mainland. Such expertise is vital to Hong Kong's ability to attract funds for management. According to the SFC survey, 80 per cent of the assets managed in Hong Kong were invested in Asia, and more than half of this investment was in Hong Kong and the Chinese mainland.

Hong Kong is also the regional centre for portfolio management activity, including Hong Kong authorised unit trusts and mutual funds and, on a larger scale, institutional fund management. At the end of September 2007, there were 2,014 authorised unit trusts and mutual funds in Hong Kong. The net asset value of these authorised unit trusts and mutual funds as at the end of 2006 totalled around A$986 billion.

The introduction of the Mandatory Provident Fund (MPF) System in December 2000 has
generated significant amounts of retirement assets, adding impetus to the further development of the financial markets. MPF is a long-term investment. Hence, apart from creating new and additional demands for investment products, MPF also contributes to greater stability in the financial markets. By August 2007, accrued assets of MPF schemes reached A$33 billion.

Opportunities

Financial services opportunities exist for the following categories:

Fund management. The depth and breadth of investment funds managed in Hong Kong has increased notably in recently years. A broad range of investment products, ranging from low-risk bond or money market funds to more sophisticated REITs and hedge funds products, are available in Hong Kong. The implementation of the MPF scheme has helped boost Hong Kong's fund industry as fund managers are attracted by the ample supply of funds. Australian fund management companies (with licenses registered in Hong Kong) can offer fund management services in the Hong Kong market.

Wealth management. Although banks currently share only a small portion of the fund management business in Hong Kong, they are becoming more involved in developing their wealth management and asset management businesses. Australian financial services companies that have been licensed in Hong Kong can offer wealth management advisory services in the Hong Kong market.

Consulting and training services. Australian financial services companies are well placed to capture opportunities in financial services consulting and corporate training due to the large number of international and local financial institutions that have offices in Hong Kong.

Tariffs, regulations and customs

In line with international trends, Hong Kong’s financial services regulatory system has evolved and developed over the years. The principal regulators below are responsible for regulation of the banking, securities and futures, insurance and retirement scheme industries respectively.

Hong Kong Monetary Authority (HKMA)

Besides banking supervision, other functions and objectives of the HKMA include the maintenance of currency stability and promotion of the efficiency, integrity and development of the financial system. These functions and objectives are generally consistent with those of central banks around the world.

The government is not involved in the day-to-day regulation of the securities and futures industry. The SFC is an autonomous statutory body responsible for administering the laws governing the securities and futures markets in Hong Kong and facilitating and encouraging the development of these markets. It seeks to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry and to provide protection for investors.

Securities and Futures Commission (SFC)

Within the regulatory framework, the SFC has regulatory oversight of the HKEx and its subsidiaries, namely the SEHK, the HKFE and three recognised clearing houses. The government may act as a facilitator and co-ordinator of market reforms pursued by the SFC and the HKEx where necessary.

Office of the Commissioner of Insurance (OCI)

Established as an office within the government structure, OCI administers the legislation governing the operation of insurance companies and insurance intermediaries in Hong Kong. The Commissioner of Insurance, who is appointed the Insurance Authority (IA), exercises prudential supervision of the insurance industry with a view to protecting the interests of policy holders.

Self-regulatory measures to strengthen professional discipline in the insurance market are also formulated by the insurance industry in consultation with the IA. Under the Insurance Intermediaries Quality Assurance Scheme initiated by the IA, insurance intermediaries are now required to pass a qualifying examination before they can practise.

Mandatory Provident Fund Schemes Authority (MPFA)

The MPFA was established in September 1998 as an autonomous, statutory body to regulate, supervise and monitor the operation of the MPF System.

Marketing your products and services

Market entry

The most effective market entry strategies for the Hong Kong financial services market include:

Establishing an office in Hong Kong directly or through a representative agent. The advantage of working with a local agent or partner is the local experience, contacts and knowledge that they can provide. On the other hand, the Australian partner can add value through their international experience and knowledge of the Australian market.

Financial services institutions should always do their research before selecting an agent. When looking for an agent in Hong Kong, it is advisable to research the agent's:

• Corporate structure
• History
• Management background information
• Track record in recruiting students
• Reputation
• Financial status
• Public filings

Participating in various financial services events in Hong Kong to promote your services directly:

• Hedge Funds World Asia 2008
  9-12 September 2008
  Hong Kong Convention & Exhibition Centre - Hong Kong

  www.terrapinn.com/2008/hfw%5Fhk
  
  
• Operation Technology for Banking and Financial Services
  5-6 November 2008
  Hong Kong Convention and Exhibition Centre, Hong Kong
  www.euro-events.com
  
  
• Asian Financial Forum
  Date and venue to be confirmed
  www.asianfinancialforum.com/eng/index.htm

Links and industry contacts

Financial services–related resources

Hong Kong Institute of Bankers (HKIB)
3/F., Guangdong Investment Tower
148 Connaught Road
Central, Hong Kong
Tel: +852 2815 1552
Fax: +852 2544 9946
Email: hkib@hkib.org
Web: www.hkib.org

The HKIB has been serving the local banking community in the provision of education and training since 1963. In 1995, with the encouragement and support of the local banking community, the Institute declared its independence from its parent institute in UK. With this independent status, the Institute is able to better serve the training needs of bankers in the region and to reflect the importance of Hong Kong as an international financial centre.

Hong Kong Investment Funds Association (HKIFA)
Room 1505, Tak Shing House
20 Des Voeux Road
Central, Hong Kong
Tel: +852 2537 9912
Fax: +852 2877 8827
Email: hkifa@hkifa.org.hk
Web: www.hkifa.org.hk

The HKIFA is a non-profit-making industry organisation that represents the fund management industry of Hong Kong. Its mission is to: maintain Hong Kong’s competitiveness as the major fund management centre in Asia, to foster the development of the fund management industry in Hong Kong, and to enhance the professional standards of the industry to ensure that they are in line with international best practice.

Hong Kong Securities Institute (HKSI)
Room 2403-08, 24/F., Wing On Centre
Sheung Wan, Hong Kong
Tel: +852 3120 6100
Fax: +852 2899 2611
Email: info@hksi.org
Web: www.hksi.org

The HKSI was officially formed in 1997 as a professional body to raise the standards of securities and finance practitioners in Hong Kong. The HKSI provides continuous professional development by offering comprehensive examinations and an extensive program of training courses and events.

Hong Kong Stockbrokers Association Ltd (HKSbA)
Flat C, 6/F., Shing Lee Commercial Building
6-12 Wing Kut Street
Central, Hong Kong
Tel: +852 2541 8832
Fax: +852 2541 1368
Email: info@hksa.com.hk
Web: www.hksa.com.hk

The HKSbA is a non-profit making industry association founded in 1978. Currently, HKSbA has over 1,300 members from some 350 brokerage firms, representing more than 70 per cent of the stockbroking business community.

Institute of Financial Planners of Hong Kong
Unit 2601, 26/F., Bank of East Asia Harbour View Centre
56 Gloucester Road
Wanchai Hong Kong
Tel: +852 2982 7888
Fax: +852 2982 7777
Email: info@ifphk.org
Web: www.ifphk.org

The Institute’s goals are to promote the Certified Financial Planner certification as the standard for financial planning, to reinforce and uphold professional standards in financial planning, and to represent the top practitioners in the financial planning industry in Hong Kong and Macao.

The Hong Kong Association of Banks
Room 525, Prince’s Building
Central, Hong Kong
Tel: +852 2521 1169
Fax: +852 2868 5035
Email: hkab@pacific.net.hk
Web: www.hkab.org.hk

The major roles of the Hong Kong Association of Banks are: to promote the interests of fully licensed banks in Hong Kong; and to make rules for the conduct of banking business in consultation with the Financial Secretary.

The Hong Kong Capital Markets Association (HKCMA)
Unit 301, The Centre Mark
287-299 Queen's Road
Central, Hong Kong
Tel: +852 2543 7343
Fax: +852 2547 9528
Email: hkcma@icc.com.hk
Web: www.hkcma.org

Established in 1986, the HKCMA is an industry association founded by a group of financial institutions active in the Hong Kong market to help promote the development of local and regional debt capital markets.

Government, business and trade resources for Hong Kong

Hong Kong SAR Government – www.gov.hk
Australian Consulate General – www.hongkong.china.embassy.gov.au
Australian Chamber of Commerce of Hong Kong – www.austcham.com.hk

Media

South China Morning Post – www.scmp.com
Major English language newspaper. A special financial supplement is available.

Hong Kong Economic Times – www.hket.com/eti
Major Chinese language financial newspaper

Hong Kong Economic Journal – www.hkej.com
Major Chinese language financial newspaper

Contact details

The Australian Trade Commission (Austrade) is the Australian Government’s trade and investment development agency, operating as a statutory agency within the Foreign Affairs and Trade portfolio.

Austrade assists Australian businesses contribute to national prosperity by succeeding in trade and investment, internationally, and promoting and supporting productive foreign investment into Australia.

Austrade:

• Delivers services that assist Australian businesses initiate, sustain and grow trade and outward investment.
• Promotes Australia as an inward investment destination and, with the States and Territories, supports the inflow of productive foreign direct investment.
• Administers the Export Market Development Grants scheme.
• Undertakes initiatives designed to improve community awareness of, and commitment to, international trade and investment.
• Provides advice to the Australian Government on its trade and investment development activities.
• Delivers consular, passport and other government services in designated overseas locations.

A list of Austrade offices (in alphabetical order of country) is available.

More information

For further information please contact Austrade on 13 28 78 or email info@austrade.gov.au

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Sources

• Government of Hong Kong SAR
• Hong Kong Trade Development Council