Hong Kong Gaining Momentum As International Financial Centre

by Mary Swire, Tax-News.com, Hong Kong

08 July 2005

Hong Kong's growth as an international financial centre has continued to gain momentum since the former British territory was handed back to China in 1997, according to a report in the Chinese state media.

Xinhua reports that Hong Kong held first place in the region and third place globally in terms of capital raised, with the total raised from initial public offerings and post IPO equity funds reaching HK$265 billion (US$34.4 billion) last year. According to Paul Chow, chief executive of Hong Kong Exchanges and Clearing (HKEx) this is a trend that has continued into 2005, with total funds raised through IPOs expected to set a monthly record total of HK$50 billion (US$6.4 billion) for the month of June.

Market capitalization also hit a new high of about HK$6,650 billion (US$855 billion) at the end of last year, nearly 50% higher than the pre-1997 level.

In the banking sector, figures from the Hong Kong Monetary Authority show that banks enjoyed good profitability last year as aggregated pre-tax operating profit rose to 1.3% from 0.9% at the time of the Asian financial crisis. Hong Kong's banks also boast a capital adequacy ratio of 16% which is double the 8% minimum ratio set by the Basel Committee.

The report noted that Hong Kong's foreign exchange reserves remained the world's seventh largest in May at US$122.4 billion, while Hong Kong ranks as the sixth largest foreign exchange market in the world, and seventh largest market for over-the-counter forex derivatives.

The city has also become one of the region's major asset management centres. In 2003, total assets of fund management business amounted to HK$2,950 (US$380 billion), of which HK$1,860 (US$239 billion), or 63%, was sourced from overseas investors.

Hong Kong has ranked as the world's freest economy for eleven years running according to the Heritage Foundation, a free market think tank. It has also been ranked as the world's second most competitive economy and Asia's most competitive economy by the World Competitiveness Yearbook 2005.

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