There is generally greater recognition of the beneficial impact of market-oriented policies, and greater realisation that globalisation has made intervention, however desirable it might be in some cases, a great deal less effective. 13. We have therefore seen a sea change in the way in which governments approach economic management. In the post-war period the imperative of reconstruction and concerns about market failure predominated: so the approach was extensive government involvement in the functioning of an economy and frequent intervention. The consensus approach now, followed to one degree or another in most major economies, is government retreat from economic management, though without 3  BIS Review 114/2000  abdicating the responsibility for seeking to ensure that the arenas in which market forces come into play operate in a fair, equal and transparent way. 14. Hong Kong came into this new paradigm much earlier than most. In fact, the general view outside Hong Kong is that we are the most developed example of the paradigm. The philosophy of positive non-interventionism, coined twenty-odd years ago to describe the paradoxical but highly effective economic policy the government had already been following for some years, intersects neatly with the rise of global ‘market-oriented capitalist structures’ of whatever size and complexity. Our free market tradition and our openness to the world have positioned us well for the new globalism. 15. But globalisation has brought challenges of a scale and immediacy that we have not seen before, and our very openness has at times been our vulnerability.

7. How do banking and finance fit into all of this? We expect to see two main developments over the next few years. The first is the greater demand for banking services resulting from the growing volume of business that will follow WTO accession. The second is the financial deepening, stimulated by more rapid financial liberalisation, greater banking competition, and product innovation induced by the terms of WTO accession. These developments will accelerate the reforms already in train within China’s domestic banking sector – reforms that cover the whole spectrum of banking management and services from corporate governance to the professional training of staff. The developments will also progressively open China’s business environment to competition from banks from outside the Mainland. In two years’ time, foreign banks will be able to conduct RMB business with Chinese enterprises in Shanghai, Shenzhen, Tianjin and Dalian. Within five years, they will be able to deal with all Chinese enterprises without any geographical restriction. The advantages for banks with a base in Hong Kong are obvious. Many of them have a head start on the Mainland, with networks of branches and more than a generation of practical experience. They also have all the advantages of geographical proximity, a common language and culture, yet separate financial and legal jurisdictions that Hong Kong’s unique position in China brings. Forty per cent of the Mainland’s trade is routed through Hong Kong. Hong Kong is the Mainland’s largest source of foreign direct investment and China’s main financial conduit and funding centre.