Hong Kong provides Mainland entities with an efficient access to international capital through its banking, equity and debt markets. Nevertheless, the cross-boundary capital flows have by no means been one-way. Direct investment and inter-bank fund flows have developed in both directions. Hong Kong's banks have maintained a strong presence in the Mainland. The financial links between Hong Kong and the Mainland will be further strengthened with China's accession to the World Trade Organisation (WTO), which will generate increasing demand for a wide range of financial support services for increasing trade and investment flows between the Mainland and the rest of the world.

    Cross-boundary funds were flowing steadily among financial institutions in both places. Over the years, the Mainland has accumulated a substantial amount of funds in Hong Kong dollars from trading activities and inward investment. These funds are placed with financial institutions in the Mainland and are subsequently channelled back to Hong Kong through the inter-bank market.

    AIs' external liabilities to and claims on financial institutions in the Mainland at year-end were $231.0 billion and $104.8 billion, respectively. The amounts represented 16.1 per cent and 4.4 per cent, respectively of AIs' total liabilities to and claims on banks outside Hong Kong.

    Many banks from Hong Kong have established a strong presence among businesses in the Mainland. A total of 15 locally incorporated banks have established 40 branches and 28 representative offices there by year-end. Hong Kong's banks, with their long-established financial links with the Mainland and their well-developed global financial expertise, should be able to further expand their scope of business in the Mainland as well as to help Mainland entities to reach out following China's accession to the WTO.

    The joint clearing facility for Hong Kong dollar cheques, agreed between the HKMA and the People's Bank of China (PBoC) Guangzhou Branch, was introduced in September 2000 to expedite the processing of Hong Kong dollar cheques issued by banks in Hong Kong and presented in Guangdong. This was the second agreement of its kind: a similar cheque clearing facility was established between Hong Kong and Shenzhen in January 1998. In 2002, about 170 000 cheques totalling $17 billion were cleared through the two joint clearing facilities. In September 2001, an agreement was reached for the cross-boundary joint clearing facility for Hong Kong dollar cheques, drawn upon banks in Hong Kong and presented in Guangdong (including Shenzhen), to be extended to cover cashier's orders and demand drafts.

    In June, the joint clearing facility was further extended to clear Hong Kong dollar cheques drawn on banks in Guangdong, including Shenzhen, and presented in Hong Kong. Under the new clearing arrangement, the time required for clearing is reduced to two working days. Furthermore, in orders to expedite cross-boundary Hong Kong dollar payments, a Hong Kong Dollar RTGS link between Hong Kong and Shenzhen to enable banks on both sides to make Hong Kong dollar RTGS payments was implemented on December 12.

    Portfolio investment in the form of 'China funds' is popular. By year-end, 41 China or Greater China funds had been authorised by the SFC and they invested in H-shares, red-chips, B-shares listed on the Shanghai and Shenzhen Stock Exchanges, the Taiwan Stock Exchange, or other China related securities.

    Hong Kong is committed to making full use of the favourable conditions of the Hong Kong market, including higher liquidity, a robust legal system, efficient information flow, availability of professional expertise, and closer proximity to the Mainland market to provide better services to Mainland enterprises seeking listing in an international financial centre.

    At present, Hong Kong is the most important international fund-raising centre for Mainland enterprises. At year-end, 74 Mainland-incorporated enterprises were listed on the SEHK through the issuance of H-shares, raising a total of more than $147.1 billion directly and indirectly through Hong Kong. Of this, $18.0 billion was raised in 2002.

    In addition, as part of their restructuring for listing, some Mainland state-owned enterprises have reincorporated in Hong Kong and listed as red-chips on the SEHK. As at end-2002, 72 red-chips were listed, raising $586.0 billion directly and indirectly through Hong Kong. Of this, $52.7 billion was raised in 2002.

    In a bid to further strengthen communication and enhance cooperation, the SFC had regular meetings with the China Securities Regulatory Commission (CSRC), the two exchanges in Shanghai and Shenzhen, and the HKEx to discuss issues of mutual interest.