mr. yam looks at the future of hong kong as a financial services centre for china and the asian region speech by the chief executive of the hong kong monetary authority, mr. joseph yam, jp, to coopers and lybrand financial services conference in hong kong on 28 / 10 / 97. i have been asked to speak on hong kong ’ s role as a financial services centre for china and the asian region. as you know, many of the economies of the asian region, including of course the mainland of china, have been undergoing a rapid process of financial liberalization. this has brought tremendous benefits to the region, through providing the mechanisms for channelling savings into investments, domestically and internationally, thus promoting growth and development of the region. the process has brought substantial risks to the region as well, as clearly you have witnessed in the past few months when financial turmoil spread in the region. 2. notwithstanding the financial problems now being faced by the region, the balance of opinion is still firmly that financial liberalization is of long - term benefit. the correct response to such problems is clearly, at least for the immediate future, to take the right medicine and implement the necessary economic adjustment programmes, prescribed if necessary by the international monetary fund. indeed, this has very much been the focus of recent attention when one looks at individual economies in this region that have been subject to financial turmoil. but prevention is always better than cure. much attention will also be required, in the fullness of time, to make sure that the financial systems through which financial intermediation takes place are robust so that the benefits of financial liberalization could be maximized and the associated risks could be minimized and prudently managed. 3. as a financial services centre which operates with a highly liberal regime, hong kong has important roles to play in all this. there is not enough time to go into details here on this occasion, so i shall just identify three general areas for your consideration. 4. the first area concerns financial intermediation within individual economies, in other words, the channelling of domestic savings into domestic investments. here hong kong, at this stage at least, largely only plays an advisory role. the less liberalized financial systems in this region are very much dominated by domestic financial institutions, particularly in the banking market. further, domestic politics and a desire to protect domestic financial institutions from undue competition are such that liberalization to admit foreign financial institutions to take part in domestic financial intermediation

investors managing institutional savings to come here and those in need of funds to raise them here. the opportunities in this region, in particular in china, are enormous, and international investors would have a preference to operate in markets in which the rules of the game are transparent and familiar to them, and are of internationally accepted standards. and that means coming to hong kong. 8. the banking market in hong kong is of course a very international one, with a total of 182 licensed banks, 151 of which are incorporated outside hong kong. 81 of the largest 100 banks in the world are licensed in hong kong. collectively they provide a wide range of banking and other financial services, not just for hong kong but for the region as a whole. the banking sector of hong kong is reputed to be amongst the most efficient and profitable in the world. 9. hong kong ’ s debt market, which has developed quite rapidly in the past eight years, is also playing a significant role in the region. financial intermediation through the debt market is still relatively underdeveloped in the region, but the prospects are good. as the very substantial savings of the region is increasingly institutionalized through the establishment of provident funds and pension funds, the demand for debt securities would grow, perhaps much faster than that for banking and equity instruments. at the same time, the huge investments envisaged for the development of the physical infrastructure in the region will require much debt financing, thus increasing the supply of debt securities. with the first class infrastructure in our newly developed debt market, hong kong is in a very favourable position to take advantage of these good prospects. 10. hong kong ’ s equity market is of course one of the largest and most liquid in the world, and, notwithstanding recent volatility, is the favourite market for institutional investors and for those wishing to raise funds. one popular area recently is, of course, the use of hong kong ’ s stock market for raising funds by chinese state - owned enterprises. up to late october, 38 enterprises from the mainland of china have made their initial public offerings in hong kong in the form of the issue of “ h ” shares. these shares were bought by investors both in hong kong and overseas. it is important to note that when mainland enterprises sought to be listed on the hong kong stock exchange, they are required to comply with all the listing rules and other relevant regulations in hong kong. no favouritism or preferential treatment has been or will be given to mainland companies