Report Summary
The expansion of CEPA is discussed at length later in this report.
China and Hong Kong are further expanding their Closer Economic Partnership Agreement (CEPA) to improve their economic and trade ties. A recent study carried out by the government of Hong Kong Special Administrative Region revealed that the CEPA has been of great benefit to the Hong Kong economy through creating jobs and boosting trade, investment and tourism. The recent expansion of financial ties will help Hong Kong cement its position as the main gateway to China.
Under the CEPA, products originating from Hong Kong do not face tariffs when they enter China, and Hong Kong companies are granted greater access to mainland markets. According to the Hong Kong government, as a result of the CEPA, along with China's World Trade Organisation commitments, 96% of Hong Kong's exports to China are now tariff free. A government report released in June concluded that the CEPA has given Hong Kong's economy a significant boost during the past three years. Some 2,600 enterprises in the manufacturing and services industries took part in the study, with 89% saying that the CEPA has benefited the overall economy and 77% stating that it has benefited the manufacturing sector.
An impressive 92% of participants said they thought the CEPA was beneficial to the services industry.
According to the report, the CEPA is estimated to have brought around HKD305mn (US$40mn) worth of investment to Hong Kong's manufacturing industry in 2005-06, and another HKD239mn is expected in 2007. In addition, HKD4.8bn worth of investment was channelled into the key services sector last year, a rise of 380% over 2004, with HKD2.4bn of investment forecast for this year. The agreement created some 36,000 new jobs in Hong Kong during 2004-06, and the government anticipates that a further 3,600 jobs will be created this year.
The Commercial Banking Sector As at December 31 2006, the loan/deposit, loan/asset and loan/GDP ratios were 51.8%, 29.7% and 167.1%, respectively. Over the preceding year all three ratios have been falling. Of the 59 countries for which we have compiled information, Hong Kong has the 55th highest loan/deposit ratio, the 56th highest loan/asset ratio and, bucking the trend, the 2nd highest loan/GDP ratio (eclipsed on this measure only by Bahrain).
As at the end of 2006, total assets, loans and deposits amounted to US$1,067.6bn, US$317.2bn and US$612.6bn, respectively. By all three measures, Hong Kong has one of the largest banking systems in the Asia-Pacific region. Meanwhile, bond holdings totalled nearly US$208bn and comprised approximately 19.5% of total assets after growing by 17.6% in 2006. Taken together, these figures suggest that Hong Kong's commercial banking system is on the verge of being highly exposed.
Press Reports The Standard has reported on the willingness of Hong Kong's banks to incorporate in mainland China, despite the cost of conforming to the stringent regulatory requirements of the banking regulator on the mainland. Despite those requirements, it does represent an opportunity for expansion in the region. In a related article, the Asia Insurance Review reported on a recent Standard & Poor's (S&P) publication that pointed out the strong growth potential in Hong Kong banks expanding into the Chinese markets, even though such expansion would lead to increased exposure. The S&P report also highlighted the strong position of most of Hong Kong's domestic banks, and despite the management problems expected to arise from the mainland's regulatory framework, it expected the credit profiles of most of Hong Kong's domestic banks to remain stable. The International Herald Tribune followed up the story of Hong Kong's expansion into mainland China by reporting how the Bank of East Asia was one of nine foreign banks granted permission by the Chinese regulator to incorporate on the mainland.
This growing trend is not one-way, however, as SinoCast China Business Daily News reported that mainland Chinese banks expect to hold 40% of the Hong Kong market by 2010. As things stand now, the mainland banks hold 25% of the Hong Kong market, with Hong Kong banks holding 7% of the mainland market.
Contents
Executive Summary
Projected Levels (HKDbn)
Projected Levels (US$bn)
Key Issues
Changes To The Commercial Banking Forecast
Hong Kong Commercial Banking SWOT
Latest Developments - Q307
International Context
Lending Trends And External Accounts
Total Assets, Loans And Deposits
Year-On-Year Growth Rates
Per-Capita Deposits
Macroeconomic Trends And Developments
Politics: BMI Core Scenario
Economic View: Core Scenario
Business Environment View: Core Scenario
Economic Activity
Industry Forecast Scenario
Comment On The Past
Projected Levels (HKDbn)
Projected Levels (US$bn)
Comment On Forecasts
Comment On Trends
Banks' Bond Portfolios
Competitive Landscape
Market Protagonists
Methodology
“Hong Kong Commercial Banking Report Q3 2007” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/
Piribo Product ID: BMI00474