Bringing Sustainable Success to the Hong Kong Primary Market China IPOs Conference 2005 Paul Chow Chief Executive, HKEx 28 September 2005

2 Agenda  Highlight of Hong Kong Securities Market  Mainland China Dimension  HKEx’s Major Initiatives in Primary Market  Conclusion

3 HKEx ranks 9 th among global exchanges by market capitalisation Jul 2005 market capitalisation, US$bn US$ 939 bn as of Jul 2005 US$ 956 bn (HK$ 7.5 tr) as of 20 Sep 2005 US$ 939 bn as of Jul 2005 US$ 956 bn (HK$ 7.5 tr) as of 20 Sep 2005

4 HKEx ranks 16 th among global exchanges by equity turnover YTM Jul 2005 turnover, US$bn US$ 261 bn as of YTM Jul 2005 US$ 309 bn (HK$ 2.4 tr) as of 20 Sep 2005 US$ 261 bn as of YTM Jul 2005 US$ 309 bn (HK$ 2.4 tr) as of 20 Sep 2005

5 HKEx ranks 4th among global exchanges by equity fund raised YTM Jul 2005 equity fund raised, US$bn US$ 17.3 bn as of YTM Jul 2005 US$ 19.6 bn (HK$ 153 bn) as of YTM Aug 2005 US$ 17.3 bn as of YTM Jul 2005 US$ 19.6 bn (HK$ 153 bn) as of YTM Aug 2005

6 UnitYTM Aug Total turnover HK$bn 2,9783,974 Average daily turnover HK$bn Total # of derivatives contracts Number 16,116,15719,629,692 Average daily # of derivatives contracts Number 98,26980,533 # of listed companies - equity Number 1,1081,096 # of new listings – equity Number 3070 Fund raised by IPOs HK$bn Fund raised in secondary market HK$bn Total fund raised HK$bn HKEx key market statistics

7 Agenda  Highlight of Hong Kong Securities Market  Mainland China Dimension  HKEx’s Initiatives in Primary Market  Conclusion

8 Since the 1980s, Hong Kong has played a key role in bridging between Mainland China and the world Since 1993, over HK$1 trillion (as of 20 Sept 2005) of equity funds were raised by Mainland China enterprises, representing 50% of market total 2005  Promote listing of foreign- controlled companies with Mainland operations  Many HK listed companies had manufacture operations in Pearl River Delta  HK- or foreign- incorporated Mainland enterprises listed in HK as Red Chips  H-shares market developed  Some H- share & Red-Chip companies dual listed on HK & overseas markets  H-shares Index Futures launched 2004  H-shares Index Options launched  iShares FTSE/Xin hua A50 China Tracker launched  Stock options, futures & warrants for individual Mainland enterprises developed  Mostly British hongs, utility companies & property companies

Hongkong Bank Whampoa Dock HK Land China Light KM Bus (1933) HK Electric HK Telephone Yaumati Ferry HK Tram Wheelock Jardine Swire Lane Crawford Kwong Sang Hong GI Cement 1973 Hongkong Bank HK Land Jardine Matheson Hutchison Intern’l E.A. Navigation New World Dev. Wharf China Light Wheelock Marden Taikoo Swire HK Telephone HK Electric Hang Seng Bank Whampoa Dock HK & Shanghai Hotels 1983 Hongkong Bank Hang Seng Bank China Light Hutchison HK Electric HK Land Wharf & Godown Swire Pacific Jardine Matheson General Oriental HK Telephone Swire Properties Cheung Kong SHK Properties New World Dev HSBC HK Telecom SHK Properties Hang Seng Bank Hutchison China Light Cheung Kong Swire Pacific Henderson Land Wharf HK Land HK Electric New World Dev. Jardine Matheson CITIC Aug 2005 HSBC China Mobile Hutchison Whampoa CNOOC Standard Chartered Hang Seng Bank Cheung Kong SHK Properties Bank of China Swire Pacific PetroChina CLP Holdings HK & China Gas China Netcom MTR Largest companies since 1962 in term of market cap. Other largest companies in 1973/1983/1993 in term of market cap. New largest companies in Aug 2005 in term of market cap. Mainland enterprises Of the 15 largest companies in 2005, 5 of them are Mainland enterprises

10 YTM Aug 2005 Definition No. of Listed Issuers Main BoardGEMTotal H shares Enterprises incorporated in the Mainland which are either controlled by Mainland Government entities or individuals Red chips Enterprises incorporated outside of Mainland and controlled by Mainland Government entities Non-H shares Mainland Private Enterprises Enterprises incorporated outside of Mainland and controlled by Mainland individuals Sub-total Mainland operating enterprises Other enterprises listed in Hong Kong that have substantial operations in the Mainland TOTAL Definitions of Mainland enterprises

11 Mainland China enterprises contribute significantly to the Hong Kong securities market YTM Aug 2005Unit Total Mainland enterprises% of total # of listed issuers Number 1, % # of new listings – equity Number % Market capitalisation HK$bn 7,3602,42033% Average daily turnover - equity HK$bn % Funds raised by IPOs HK$bn % Fund raised in secondary market HK$bn % Total fund raised HK$bn %

12 Top 10 IPOs since 1986 are all by Mainland enterprises RankCompany Listing dateTypeFund raised (HK$mn) 1China Unicom22 Jun 2000Red Chip43,608 2China Mobile23 Oct 1997Red Chip32,665 3China Life18 Dec 2003H shares26,714 4China Petro. & Chemical19 Oct 2000H shares26,681 5China Shenhua15 Jun 2005H shares22,976 6PetroChina7 Apr 2000H shares22,330 7BOC Hong Kong25 Jul 2002Red Chip20,516 8Bank of Communications23 Jun 2005H shares16,835 9Ping An Insurance24 Jun 2004Red Chip14,337 10SMIC18 Mar 2004Pvt. enterprise13,858

13 7 of the top 10 IPOs in 2005 are by Mainland enterprises RankCompany Listing dateTypeFund raised (HK$mn) 1China Shenhua Energy15 Jun 2005H shares22,976 2Bank of Communications23 Jun 2005H shares16,835 3China COSCO30 Jun 2005H shares9,537 4Shanghai Electric Group28 Apr 2005H shares5,054 5Foxconn3 Feb 2005Hong Kong3,711 6Guangzhou R&F Properties14 Jul 2005H shares2,284 7AAC Acoustic Tech.9 Aug 2005Pvt. enterprise980 8Xinyi Glass3 Feb 2005Hong Kong836 9Dynasty Fine Wines26 Jan 2005Red Chip776 10I.T.4 Mar 2005Hong Kong667

14 % of market capitalisation and equity turnover contributed by Mainland enterprises increase significantly over time % of market capitalisation % of equity turnover no. of Mainland enterprises 5% 9% 16% 14% 21% 27% 30% 33% 12% 9% 12% 38% 28% 26% 29% 42% 33% 46% 49% 45% % 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% Aug

15 Mainland enterprises listed in Hong Kong cover a diversified range of industries IndustryNo.% Technology (telecommunications, IT and electrical & electronic components)7223 Real estate248 Raw materials and chemicals237 Energy and power237 Conglomerate227 Pharmaceutical186 Transportation155 Financial services (banks, insurance companies and investment companies)144 Food113 Automobile103 Miscellaneous8427 Total As of Aug 2005

16 RegionNo.% Pan Pearl River Delta (Guangdong, Fujian, Guizhou, Hainan, Hunan, Jiangxi, Sichuan and Yunnan) 8326 Bohai Gulf (Beijing, Hebei, Shandong and Tianjin) 5618 Yangtze River Delta (Jiangsu, Shanghai and Zhejiang) 5016 Nationwide SOE (with businesses all over the Mainland e.g. China Mobile, PetroChina) 4213 Hong Kong (Mainland companies with major businesses conducted in HK e.g. BOC Hong Kong, Shenyin Wanguo) 299 Multi-regions (with businesses in more than one province e.g. GOME Electrical, China Gas) 248 Northeast (Heilongjiang, Jilin and Liaoning) 144 Others (Anhui, Chongqing, Gansu & Qinghai, Henan, Hubei, Inner Mongolia, Ningxia, Shaanxi, Shanxi, Tibet and Xinjiang) 186 Total Mainland enterprises listed in Hong Kong cover many different regions As of Aug 2005  22 provinces  5 autonomous region (Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang)  4 municipalities directly under the Central Government (Beijing, Chongqing, Shanghai and Tianjin)  22 provinces  5 autonomous region (Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang)  4 municipalities directly under the Central Government (Beijing, Chongqing, Shanghai and Tianjin)

17 Agenda  Highlight of Hong Kong Securities Market  Mainland China Dimension  HKEx’s Initiatives in Primary Market  Conclusion

18 Challenges to HKEx in relation to Mainland China enterprises Solutions PrinciplesHKEx’s initiatives IPO activitiesContinuous supply of IPO applications Increasing complexity of IPO transactions Enhance listing decision making efficiency Enhance operational efficiency Review of new structure of listing decision-making Enhancement of internal operations & processes of Listing Division Fund raising platform Diversified fund raising needs for different Mainland enterprises Offer robust and flexible fund raising platforms to meet market needs Promote HK as a premier capital formation centre for Mainland enterprises Review of GEM Mainland liaison and promotional activities HKEx’s initiatives related to primary markets are parts and parcels to the success of Hong Kong as a premier capital formation centre for Mainland enterprises

19 Challenges to HKEx in relation to Mainland China enterprises Solutions PrinciplesHKEx’s initiatives Market quality assurance Limitations on cross- border enforcement of non-Hong-Kong- based Mainland issuers Concentrated ownership on state and individual levels Enhance cross-border enforcement Continue to uphold and enhance disclosure based regulatory regime based on international standards Closer cooperation with SFC, CSRC, 2 Mainland exchanges and other enforcement authorities Statutory backing of certain provisions of the Listing Rules Continual promotion and education of corporate governance Enhancement of dissemination of listed issuers’ disclosures HKEx’s initiatives related to primary markets are parts and parcels to the success of Hong Kong as a premier capital formation centre for Mainland enterprises (cont’d)

20 Main BoardGEMTotal New applications accepted YTM Aug Approvals in principle granted by the Listing Committee YTM Aug No. of newly listed companies YTM Aug No. of newly listed companies in Continuous supply of IPO applications in the pipeline

21 HKEx’s initiatives in primary market: IPO activities Next StepsCurrent progress Published consultation paper in Feb 2005 on: ­ Composition and operation of Listing Committees ­ Proposals for a more efficient framework for decision-making in matters such as listing applications and suspected breaches of Listing Rules ­ Appointment of an adjudicator as first instance disciplinary decision- maker and aspects of the adjudicator’s procedures Received 18 submissions including 7 from industry associations Responses are published on HKEx website in May 2005 Finalise conclusions and Listing Rule amendments with the SFC, HKEx Listing Committee and HKEx Board Issue consultation conclusions by end of 2005 Review of new structure of listing decision making

22 HKEx’s initiatives in primary market: IPO activities Next StepsCurrent progress Set up an enhanced case database to capture corporate information of listed issuers and directors Organised professional training programmes for Listing Division (e.g. HKAS/IFRS) Review operational procedures in key listing areas to further improve process automation and response efficiency Further strengthen senior management team of Listing Division ­ Mainland China liaison ­ Legal and accounting ­ Enforcement Enhancement of internal operations of Listing Division

23 HKEx’s initiatives in primary market: Fund raising platform Next StepsCurrent progress Established an internal working group to develop proposals for the comprehensive review of GEM Completed internal research on historical performance of GEM Prepared comparisons of overseas second board designs Seek informal views from members of HKEx Listing Committees, members of HKEx Board, professional bodies and market participants Issue public consultation via a formal consultation paper by end of 2005 or early 2006 to: ­ Outline possible strategies to strengthen liquidity and corporate governance of GEM ­ Outline options to improve the robustness of the GEM platform to meet issuers’ capital-raising needs Review of GEM

24 HKEx’s initiatives in primary market: Fund raising platform Next StepsCurrent progress Regular communications with Mainland authorities to exchange views on regulations and market developments Organised and participated in over 100 conferences with over 6,600 participants including Mainland enterprises and intermediaries Continue to leverage HKEx BJO and special branch representatives in Shanghai & Guangzhou to undertake Mainland liaison activities Continue to organise major conferences to promote Hong Kong securities market: ­ Conference in Fuzhou in Sep 05 ­ Conference in Wuhan in Dec 05 Mainland liaison and promotional activities

25 HKEx’s initiatives in primary market: Market quality assurance Next StepsCurrent progress SFC issued proposed Securities and Futures (Stock Market Listing) Rules and guidelines (SMLR) in Jan 2005 FSTB issued Consultation Paper on Proposed Amendments to the SFO in Jan 2005 HKEx submitted combined response to SFC and FSTB in Mar 2005 Prepare a comparison of regulatory regimes in UK, US, Australia and under IOSCO principles on financial reporting, connected transaction and price sensitive information Continue discussions with FSTB and the SFC on the draft SMLR, and solicit inputs from market practitioners Propose to enshrine the following provisions in statute: ­ Regular financial reporting obligations ­ Disclosure obligations of corporate transactions that require prior independent shareholder approval (e.g. connected transactions) ­ Obligation to disclose price-sensitive information Statutory backing of certain provisions of the Listing Rules

26 HKEx’s initiatives in primary market: Market quality assurance Next StepsCurrent progress Implemented revised Code on CG Practices and CG Report in Jan 2005 Implemented revised listing rules on CG in Mar 2004 Implemented revised Code Provision on internal controls and the relevant disclosure requirements in the CG Report in Jul 2005 Conducted training programmes for 124 finance, accounting executives and board secretaries of H-share companies Continual promotion and education of corporate governance Allow time for listed issuers to adapt to new CG provisions Analyse responses from issuers on questionnaire sent out in Jul 2005 regarding market readiness to comply with the recent changes Continue to promote a compliance culture through issuer and investor education

27 HKEx’s initiatives in primary market: Market quality assurance Next StepsCurrent progress Proposals on total abolition of paid advertisements and mandatory use of eSubmission system (currently account for 24% of submissions) endorsed by HKEx Listing Committee in Jul 2005 Implemented a Disaster Recovery Site for HKEx website in Sep 2005 to enhance its resilience as a central dissemination platform for issuer disclosures in the future Establish an enhanced dissemination infrastructure of listed issuer information Enhance security features and user-friendliness of the eSubmission system Publish Exposure Paper by end of 2005 to seek public views on: ­ Transitional arrangements (e.g. summary announcement vs. notifications) ­ Proposed rule changes ­ Requirement of listed issuers to establish their own websites and/or use of third party websites Enhancement of dissemination of listed issuers’ disclosures

28 Agenda  Highlight of Hong Kong Securities Market  Mainland China Dimension  HKEx’s Initiatives in Primary Market  Conclusion

29 Hong Kong competitive advantages China’s growth & development presents tremendous business opportunities Hong Kong is in a unique & favourable position to capture these opportunities -No foreign exchange controls & withholding tax -No capital gain tax, and no controls on foreign investment and investors -Freely convertible currency -Proximity to Mainland China -Active retail & institutional participation -A free, transparent and fair securities marketplace -Rule of Law -International accounting standards and management best practices -Abundant of professional expertise (investment bankers, accountants, lawyers, valuers) HKEx is committed to build on its historic success and further strengthen its role as a premier capital formation centre for China enterprises as well as an international financial centre

30 HKEx’s strategic focus Focus on core market operations: Listing Cash & Derivatives Trading Clearing Information Services Market systems Focus on Hong Kong and Mainland China Operate a quality market through enhancing regulation and market infrastructure Goal Geographical focus Business focus

31 HKEx’s mission statement The mission of HKEx is to operate a world-class marketplace for Hong Kong and Mainland China securities and derivatives products. By offering issuers access to international capital markets and maintaining an open, secure, fair, orderly, efficient and transparent marketplace, HKEx contributes to Hong Kong’s status as an international financial centre and the premier capital market for Mainland China. By servicing China’s substantial long-term demand for capital and exchange services in accordance with international standards and practices, HKEx has the potential to become one of the world’s pre-eminent exchanges. The mission of HKEx is to operate a world-class marketplace for Hong Kong and Mainland China securities and derivatives products. By offering issuers access to international capital markets and maintaining an open, secure, fair, orderly, efficient and transparent marketplace, HKEx contributes to Hong Kong’s status as an international financial centre and the premier capital market for Mainland China. By servicing China’s substantial long-term demand for capital and exchange services in accordance with international standards and practices, HKEx has the potential to become one of the world’s pre-eminent exchanges...

32 Thank you