The Challenges to Hong Kong as an International Financial Center

1.Introduction

Our purpose? Financial Center of Hong Kong and Shanghai. Find out which one is better. Find out the advantages.

What Makes an International Financial Center (IFC)? 1) Cross-border and; 2) Cross-currency financial transactions.

2.Background

Background Background of Hong Kong. Background of Shanghai.

Background of Hong Kong last century 80s to 90s. A successful international financial centre.

Background of Hong Kong Economic freedom Positive non-interventionism. Free enterprise system. Freedom of foreign exchange Hong Kong dollar is freely convertible into other foreign currencies. Enterprises enjoy flexibility movement of capital and repatriation of profit. Sound legal system

Background of Hong Kong Favorable tax regime Tax rates are substantially lower than other countries. Effective infrastructure International airport, railway, telecommunication. Freedom of information Time zone advantage Fill the time gaps between North America and European’s time zones.

Background of Shanghai Shanghai has well development in recent years. As a challenger of Hong Kong.

Background of Shanghai The past 10 years, recorded double-digit annual economic growth. Finance and foreign trade has increase. Attract many transnational corporations. Setting local control offices and production facilities. Pudong New Area. The largest Special Economic Zone in China.

Background of Shanghai China’s leading international financial, trade and economic center. China’s premier stock market. Only foreign exchange center.

3.Financial center between Hong Kong and Shanghai

3.1 Professional and Experts

Pools of Talent Hong Kong : Entrepreneurs, professionals, management and commercial talent in various, sectors. Shanghai : Industrialists, industrial engineers and a relatively well-educate, skilled workforce.

Securities and Futures Commission (SFC) Compare of 13 economic systems in Asia. Australia, Mainland China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan and Thailand.

Availability of Skilled Personnel and Access to Suppliers of Professional Services Rankings of the 13 Selected Economies in Items Related to Availability of Skilled Personnel and Access to Suppliers of Professional Services(2006) FS BD FH EH IE CS LR IT All Mainland China (Shanghai) 9 12 7 6 13 4 11 Hong Kong 1 2

Hong Kong Chartered Financial Analysts (CFAs). Certified Public Accountants (CPAs). Solicitors and Barristers.

3.2 Foreign Exchange Control Policies

Foreign Exchange Control Policies Hong Kong : Able to exchange 14 types of foreign currency. (Australian Dollar, US Dollar, Euro, Canadian Dollar and Japanese Yen )

Hong Kong Item 2004 Australian Dollar 5.73 Philippine Peso 0.14 Canadian Dollar 6.00 Pound Sterling 14.27 Chinese Renminbi (per HKD100) 106.21 Republic of Korea Won 0.0068 Euro 9.69 Singapore Dollar 4.61 Japanese Yen 0.072 Swiss Franc 6.28 Malaysian Ringgit 2.04 Thai Baht 0.193 New Taiwan Dollar 0. .233 US Dollar 7.788

Hong Kong BASIC LAW Section 1: Public Finance, Monetary Affairs, Trade, Industry and Commerce. Article 112 Article 113

人民币汇率中间价 日期 美元 欧元 日元 港币 英镑 2006-12-18 782.55 1024.68 6.6323 100.666 日期　 美元 欧元 　日元 港币　 英镑　 2006-12-18 782.55 1024.68 6.6323 100.666 1529.31 2006-12-15 781.85 1027.53 6.6236 100.602 1532.74 2006-12-14 781.97 1032.71 6.6545 100.627 1537.8 2006-12-13 782.54 1038.4 6.693 100.679 1541.95 2006-12-12 783.24 1037.68 6.7041 100.756 1534.56

Shanghai Rigorous. No flexibility to deal with the demand of the corporation. Can not exchange the foreign currency those that are popular in the trade of the world.

3.3 Access to International Financial Market

Access to International Financial Market Research by Heritage Foundation. ( comprises 10 factors ) The freest economic in the world. HK scored 1.28 CHINA scored 3.34 Business ready access to IFM. Sources: The Heritage Foundation

Access to International Financial Market Other study  conducted for the Corporation of London. Four related items: Access to capital markets, foreign and domestic, is easy (AC). Direct investment flows abroad as a percentage of GDP (DA). Direct investment flows inward as a percentage of GDP (DI). Financial market sophistication is high in the economy (FM). Free flow  goods, services, capital and information.

Ranking of Hong Kong and China (including Shanghai) in Items Related to Access to International Financial Markets HK CHINA (including Shanghai) 2006 2004 AC DA DI FM Overall Over all 1 2 13 11 5 12 9 4 Sources: IMD, WEF and SFC Research

Number of Overseas companies with RHQs and ROs Access to International Financial Market Attracted many multi-national companies. Regional Headquarters (RHQs). Regional Offices (ROs). Number of Overseas companies with RHQs and ROs in Hong Kong 2001-2006 2001 2002 2003 2004 2005 2006 RHQs 944 948 966 1098 1167 1228 ROs 2293 2171 2241 2511 2631 2617 Sources: Hong Kong Census and Statistics Department

3.4 Banking System and Financial Market

Banking System and Financial Market HK  GDP growth double, an average annual rate of 4.9%.  Per capita GDP in more than doubled , an average annual growth rate of about 3.7%.  Freely convertible, free flow of capital and no exchange control.

Banking System and Financial Market SH  China lift foreign exchange control.  Make renminbi freely convertible under the capital account.  Requires a solid economic foundation.  Lowering of Chinese banks' excessively high bad debt ratio.  Standardization of the securities market.  Successful reform of state-owned enterprises.

Banking System and Financial Market  Highly-educated workforce.  Ease of entry for professional staff from overseas.

Banking System and Financial Market 1. The Banking Sector 134 licensed banks, 121 were foreign-owned banks. World's top 100 banks, 75 operations in HK. 2. Exchange market Continue 24 hours a day around the world. World’s 6th largest centre for foreign exchange trading. 3. Stock market One of the world's largest in terms of market capitalization.

3.5 Legislation and taxation

Legislation and Taxation A) An enterprise investing with part of its non-monetary assets, or B) An enterprise investing by transferring all of its assets as a whole. Independently accounted must: Have its own bank account. To prepare its own accounting books and financial statements. To ascertain its own profit and loss position.

Legislation and Taxation HK has lower tax rate than SH. Enterprise invests externally with part of its non-monetary operating assets. The transaction must be split into two economic activities at the time of execution.

4. Conclusion

Conclusion That… Conclusion : The gap will be narrowed between SH and HK. Solution : To be a channel for foreign funds entering China. Upgrade the communication technologic. Improve the quality of the professional services. Maintain the low taxation and free trade area.

End

Section 3 Group No: 6 YAU Yin Ting 047001 YEUNG Yau Fat 047003 CHAN Cho Ming 047004 LEE Cham Fung 047006 CHONG Chun Fung 047013

Q & A Section