1. Introduction
Hong Kong is characterized by its high degree of internationalization, business-
friendly environment, rule of law, free trade and free flow of information, open and fair
competition, well-established and comprehensive financial networks, superb transport
and communications infrastructure, sophisticated support services, and a well-educated
workforce complemented by a pool of efficient and energetic entrepreneurs. Added to
these are substantial foreign exchange reserves, a fully convertible and stable currency,
and a simple tax system with low tax rates.
Hong Kong a Free Economy
Hong Kong has retained its rating as the freest economy in the world in the
2004 Index of Economic Freedom released by The Heritage Foundation, for the 10th
consecutive year. The Cato Institute in the United States, in conjunction with more than
50 economic institutes worldwide, also ranks Hong Kong as the world's freest economy.
The International Monetary Fund classifies Hong Kong as an advanced economy. Other
highly regarded institutions—like the World Economic Forum, the International Institute
of Management Development and the Economist Intelligence Unit—also identify Hong
Kong as one of the world's most competitive business environments. And Hong Kong is
the best-performing host economy for foreign direct investment (FDI) in Asia, according
to the World Investment Report 2002 published by the United Nations Conference on
Trade and Development (UNCTAD).

2. Market structure
Hong Kong as a financial centre
Hong Kong is an international financial centre with an integrated network of
financial institutions and markets. The Government's policy is to maintain and develop a
sound legal, regulatory, infrastructural and administrative framework with the aims of
providing a level playing field for all market participants, maintaining the stability of the
financial and monetary systems and enabling Hong Kong to compete effectively with
other major financial centers.
A favorable geographical position, which bridges the time gap between North
America and Europe, strong links with the Mainland and other economies in South-east
Asia and excellent communications with the rest of the world have helped Hong Kong to
develop into an important international financial centre. The absence of any restrictions
on capital flows into and out of Hong Kong is another important factor.
Financial Markets
Hong Kong's financial markets are characterized by a high degree of liquidity.
They operate under effective and transparent regulations, which meet international
standards. A highly-educated workforce and ease of entry for professional staff from
overseas further contribute to the development of the financial markets.
The Banking Sector
The international financial community has a strong presence. At the end of 2003,
Hong Kong had 134 licensed banks, of which 121 were foreign-owned banks. Of the

3. world's top 100 banks, 75 have operations in the HKSAR, while 81 subsidiaries or related
companies of foreign banks operate as restricted licence banks and deposit-taking
companies. A further 87 foreign banks have local representative offices. The banking
sector's external assets are among the highest in the world.
Exchange Market
Hong Kong has a mature and active
foreign exchange market, which forms an
integral part of the global market. Links with
centres overseas enable foreign exchange
dealing to continue 24 hours a day around the
world. Hong Kong was the world's 6th largest
centre for foreign exchange trading, according
to the 2004 triennial global survey conducted by the Bank for International Settlements.
Stock Market
The stock market is one of the world's largest in terms of market capitalisation. At
the end of May 2004, 1 057 public companies were listed on the Hong Kong Exchanges
and Clearing Limited with a total market capitalisation of $5,484.4 billion (US$703.1
billion).
The stock market is the 2nd largest in Asia, behind Tokyo's. The Growth Enterprise
Market (GEM), a NASDAQ-style second board of the stock exchange, was launched in
November 1999 to provide 'start-up' companies, in particular those involved in high-tech
business, with access to equity market financing. As at May 2004, 195 companies were
listed on GEM with a total market capitalisation of $74.5 billion (US$9.55 billion). In a
pilot programme launched in May 2000, Hong Kong became the first city in Asia to offer
'live' trading on the Asian time-zone of seven leading US NASDAQ stocks.

4. The Hong Kong Foreign Exchange Market
Hong Kong has one of the largest foreign exchange (FX) markets in the world.
According to the most recent survey conducted by the Bank for International Settlements
(1996)1
, Hong Kong has overtaken Switzerland to become the fifth-largest FX market in
the world. In April 1995 Hong Kong's average daily trading volume was over 90 billion
U.S. dollars. The prominent FX market puts Hong Kong in a good position to be
recognized as one of the major international financial centers (IFCs).
The importance of the financial sector to the Hong Kong economy is well understood by
both Hong Kong and China officials. In fact, the Basic Law states that Hong Kong should
maintain its IFC status after returning to Chinese rule. Given Hong Kong's significant
position in the global FX market, a strong FX market has the ability to strengthen and
extend the role of Hong Kong as a renowned IFC. In addition, the fact that Hong Kong
enjoys IFC status means that a healthy climate exists in which to develop the FX market.
A New Generation of Trading System - AMS/3
AMS/3, the third generation of the Automatic Order Matching and Execution System, is
a new trading infrastructure developed by the Stock Exchange of Hong Kong (SEHK).
By electronic means, AMS/3 connects investors, Exchange Participants (brokers with
direct access to SEHK trading facilities) and the central market. As stock trading
becomes more electronic, investors' participation in the securities market will become
faster and more convenient. AMS/3's wide range of functions will also boost Hong
Kong's competitiveness in the world financial market.
About AMS/3
AMS/3 consists of five major components: Host System, Trading Terminals, Multi-
Workstation System (MWS), Open Gateway (OG) and Order Routing System (ORS).

5. AMS/3 Trading Terminals have more functions than the existing terminals,
but they cannot be connected to electronic trading channels such as mobile
phone or Internet.
MWS can receive electronic trading requests from investors via ORS.
Broker Supplied Systems (BSS) are trading facilities developed by
Exchange Participants themselves which capture investors' electronic
trading requests directly or via ORS.
OG connects Exchange Participants, ORS and SEHK Host System, but
investors cannot use it directly.
ORS is an electronic infrastructure developed by SEHK consisting of

6. SEHK-established Internet channel and the channel of Proprietary Network
Systems (PNS) set up by service providers. It enables investors to place
trading requests electronically through the Internet and mobile phone, which
are then routed to MWS or BSS of designated Exchange Participants.
Multiple Channels of Stock Trading
After AMS/3 rollout, investors will be able to enjoy multiple channels of placing orders
via systems and facilities provided by SEHK, Exchange Participants or service providers:
In person
Telephone
Internet
Mobile phone or other electronic devices (provided by service providers)
Faster and More Convenient Service
By increasing investors' access to the central market, AMS/3 speeds up and simplifies
stock trading.
Investors can enter, alter or cancel trading requests directly at any time via Internet or
mobile phone.
Investors can acquire the latest information about trade execution via eChannels such
as Internet or mobile phone.
Investors can obtain market information more conveniently.
MWS carries risk management functions that allow automatic endorsement by
Exchange Participants of an investor's trading request in accordance with pre-fixed
credit level. These functions enable quicker routing of trading requests to the market
for matching.
Public Key encryption/decryption technology can be used to ensure the confidentiality
of electronic trading information.
HK 6th in global foreign exchange market

7. Hong Kong has advanced one place to rank sixth in the global foreign exchange market, and
seventh in the global foreign exchange and over-the-counter derivatives market, according to
the latest Bank for International Settlements triennial survey results.
The Monetary Authority said the results are broadly in line with global trends, with Deputy
Chief Executive William Ryback adding: "The advance in Hong Kong's global ranking in
terms of foreign exchange trading is encouraging as it reinforces Hong Kong's position as a
competitive and active centre for foreign exchange and derivatives activities."
Foreign exchange up 52.9%
The survey found net daily turnover of foreign exchange transactions rose 52.9% to US$102.2
billion in 2004, compared with 2001.
Marked growth was seen in both spot and forward transactions, with the former rising 87.9%
to US$35.6 billion and the latter by 39% to US$66.5 billion.
Forwards, nonetheless, comprise a majority of the foreign exchange transactions and a large
proportion was of short maturity, less than seven days.
As expected, the Hong Kong dollar against the US dollar remained the most heavily traded
currency pair on the local market. Trading of other currency pairs also rose, reflecting the
deepening of Hong Kong's foreign exchange market.
Increased asset management activities in Hong Kong and the increase in treasury operations of
banks on the back of narrowed lending margins were probably the key factors behind the
growth. depreciation of the US dollar prompting investors to purchase non-US dollar foreign
currencies for valuation gains, also additionally contributed to the growth.

8. Although Hong Kong dollar contracts grew 97.5%, its share reduced from 59.3% to
27.7% to rank third after the US dollar and Japanese yen as contracts denominated in yen
increased strongly.
Over-the-counter derivatives up 2.6 times
Average daily net turnover of over-the-counter derivatives (both foreign exchange and
interest rate derivatives) rose by 2.6 times to US$14.9 billion.
Strong growth was seen in both foreign exchange derivatives and interest rate
instruments, particularly the latter due to growing anticipation of interest rate increases
in 2004.
In contrast to the significant rise in 2001, turnover in the Hong Kong dollar against the
US dollar shrank by 38.2% in 2004. Its share to total net turnover fell from 28.2% in
2001 to 7.2%.
On single currency interest rate derivatives, US dollar denominated contracts surpassed
Hong Kong dollar denominated contracts to represent the largest share of gross
turnover in 2004.

9. Forex market participants
Issuers
The Hong Kong Monetary Authority (HKMA) is one of the principal issuers of HKD
debt, particularly Exchange Fund Bills and Notes (EFBNs). Other significant issuers
include quasi-government institutions, supranational entities, offshore borrowers,
and local banks and corporations. Among the issuers of quasi-government debt are
the Hong Kong Mortgage Corporation, Hong Kong Airport Authority, Mass Transit
Railway Corporation and the Kowloon-Canton Railway Corporation.
Investors
Principal investors in the Hong Kong debt market include the pension fund system of
the Mandatory Provident Funds, licensed banks, authorized institutions, government-
related institutions, and individuals.
Securities Companies/ Dealers
The Hong Kong Securities and Futures Commission (HKSFC) maintains a Public
Registry of all licensed persons and institutions involved in the market. This includes
a comprehensive list of companies and individuals who are licensed dealers,
advisers, and asset managers, among others. A list of Recognized Dealers and
Market Makers of EFBNs is available at the web links below. EFBNs are traded
actively through Recognized Dealers and Market Makers.
Market Regulators
The HKMA and the HKSFC are the primary regulators of the debt market. A more
comprehensive discussion on market regulators and supervisory structures is
available under the section on Rules and Regulations.

10. Market regulations
1. General Policy Framework
Since becoming a Special Administrative Region of the People’s Republic of
China on July 1, 1997, Hong Kong has continued to manage its own financial and
economic affairs, its own currency, and its independent role in international economic
organizations and agreements.
The Hong Kong Government generally pursues policies of noninterference in
commercial decisions, low and predictable taxation, government spending increases
within the bounds of real economic growth, competition subject to transparent laws
(albeit without antitrust legislation) and consistent application of the rule of law. With
few exceptions, the government allows market forces to set wages and prices and does
not restrict foreign capital flows or investment. It does not impose export performance or
local content requirements, and allows free repatriation of profits. Hong Kong is a duty-
free port, with few barriers to trade in goods and services.
Until 1998, the government regularly ran budget surpluses and thus has amassed
large fiscal reserves. The corporate profit tax is 16 percent and personal income is taxed
at a maximum of 15 percent. Property is taxed but interest, royalties, dividends, capital
gains and sales are not. In the face of a possible structural deficit, the government has
faced pressure to identify new sources of revenue. A recent Advisory Committee report
suggested 13 options to broaden the tax base including a general consumption tax, capital
gains tax and tax on interest. However, Financial Secretary Antony Leung has indicated
that none of these reforms will be implemented in the near future.
stimulus measures, including infrastructure expenditures, small tax cuts, employment
generation, and development funds for small and medium enterprises. However,
authorities generally resisted pressure for large-scale government expenditures to kick
start the economy.
One exception to this traditional laissez faire approach was the creation of a new
Innovation and Technology Commission, which in mid-2000 was given responsibility for
spearheading Hong Kong’s move to create a “knowledge based” economy. The
government’s willingness to fund technology investment reflected the widespread belief

11. that Hong Kong cannot compete in the high tech sector without targeted government
support.
Because monetary policy is tied to maintaining the nominal exchange rate linked to
the U.S. dollar, Hong Kong's monetary aggregates have effectively been demand-
determined. The Hong Kong Monetary Authority, responding to market pressures,
occasionally adjusts liquidity through interest rate changes and intervention in the foreign
exchange and money markets. The Asian financial crisis provoked a sharp economic
downturn in 1998 and the first half of 1999, but Hong Kong's economic fundamentals
remained strong, with a stable banking system, prudent fiscal policy, and massive dollar
reserves. A strong, export-led recovery in 2000 and early 2001 stalled abruptly at mid-
year, following a slump in consumer demand in the United States and Europe. The
September 11 terrorist attacks in the United States and subsequent further economic
downturn in Hong Kong's major markets have worsened the short-term outlook.
Unemployment is increasing (to around five percent) and Hong Kong will
experience recession in 2001. The local community remains concerned about Hong
Kong's long-term competitiveness in the face of challenges from mainland China. In
response to these economic difficulties, the government unveiled a series of modest
2. Exchange Rate Policies
The Hong Kong dollar is linked to the U.S. dollar at an exchange rate of HK$7.8 =
US$1.00. The link was established in 1983 to encourage stability and investor confidence
in the run-up to Hong Kong's reversion to Chinese sovereignty in 1997. PRC officials
have supported Hong Kong's policy of maintaining the link. In December 2000, the Hong
Kong Monetary Authority completed the third and final phase of the implementation of
Hong Kong's U.S. dollar payment system, which allows local firms to achieve real-time
settlement of U.S. dollar transactions. The establishment of the system is aimed at
reinforcing monetary stability.
There are no foreign exchange controls of any sort. Under the linked exchange rate,
the overall exchange value of the Hong Kong dollar is influenced predominantly by the
movement of the U.S. dollar against other major currencies. The price competitiveness of
Hong Kong exports is therefore affected by the value of the U.S. dollar in relation to third
country currencies, with Hong Kong exports suffering during periods of strong U.S.
dollar exchange rates.

12. 3. Structural Policies
The government does not have pricing policies, except in a few sectors such as
energy, which is a regulated duopoly. Even in these controlled areas, the government
continues to pursue sector-by-sector liberalization. Hong Kong’s personal and corporate
tax rates remain low and it does not impose import or export taxes. The Monetary
Authority implemented the final phase of interest rate deregulation covering savings and
current accounts in July 2001. Interest rates on all types of deposits are determined by
competitive market forces. Consumption taxes on tobacco, alcoholic beverages, and some
fuels constrain demand for some U.S. exports. Hong Kong generally adheres to
international product standards.
Hong Kong's lack of antitrust laws has allowed monopolies or informal cartels,
some of which are government-regulated, to dominate certain sectors of the economy.
These informal cartels can use their market position to block effective competition
indiscriminately but do not discriminate against U.S. goods or services in particular.
4. Debt Management Policies
The Hong Kong government has minuscule public debt. Repeated budget surpluses
have meant the government has not had to borrow. To promote the development of Hong
Kong's debt market, the government launched an exchange fund bills program with the
issuance of 91-day bills in 1990. Since then, maturities have gradually been extended up
to 10 years. In March 1997, the Hong Kong Mortgage Corporation was set up to promote
the development of the secondary mortgage market. The Corporation is 100 percent
government owned through the Exchange Fund. The Corporation purchases residential
mortgage loans for its retained portfolio in the first phase, followed by packaging
mortgages into mortgage-backed securities for sale in the second phase.
In October 2000, the government launched a partial privatization of the Mass
Transit Railway Corporation to the general public in Hong Kong and domestic and
international professional and institutional investors. The Initial Share Offer of this first-
ever Hong Kong government privatization raised about US$1.3 billion, accounting for 23
percent of government’s total shareholding.
Hong Kong does not receive bilateral or multilateral assistance.

13. 5. Significant Barriers to U.S. Exports
Hong Kong is a member of the World Trade Organization, but does not belong to
the WTO's plurilateral agreement on civil aircraft. As noted above, Hong Kong is a duty-
free port with no quotas or dumping laws, and few barriers to the import of U.S. goods.
Hong Kong requires import licenses for textiles, rice, meats, plants, and livestock –
most of which are related to health standards. These licensing requirements do not have a
major impact on U.S. exports.
There are several barriers to entry in the services sector, as follows.
The government decided in May 1999 to maintain a moratorium on additional
licenses for the local fixed telecommunications network services (FTNS), now contested
by five companies, until January 2003. In January 2000, the Hong Kong government
began opening of other telecom sectors, issuing five licenses for FTNS using wireless
networks and 12 licenses for external FTNS providers using satellites. In February 2000,
the government issued Letters of Intent to 13 applicants for cable-based external
facilities, and since then at least two American companies have been licensed to land
international data cables in Hong Kong. In September 2001, the government issued four
Third Generation (3G) mobile services licenses. Under the terms of the license, 3G
operators must offer 30 percent of their network capacity to non-affiliated service
providers. The government plans to invite additional FTNS licenses by the end of 2001
and will fully open the sector effective January 1, 2003.
The Hong Kong government limits foreign ownership of free-to-air television
stations to 49 percent and imposes strict residency requirements on the directors of
broadcasting companies. In June 2000, the Legislative Council (LEGCO) passed a
Broadcasting Bill that ended the foreign ownership limit for cable broadcasters and
substantially liberalized Hong Kong's television market. By adopting a more open and
flexible regulatory framework, the bill aims to expand program choice, encourage
investment and technology transfer in the broadcasting industry, promote fair and
effective competition and spur the development of Hong Kong as a regional broadcasting
and communications hub. The Information, Technology and Broadcasting Bureau moved
quickly to exercise the new authorities granted by this bill, announcing five new
television licenses in July 2000. These new broadcasters (several of which are foreign
owned) will create new outlets for U.S. entertainment companies, which already enjoy a

14. substantial presence in the Hong Kong market.
Our bilateral civil aviation agreement does not permit code sharing and restricts the
ability of U.S. cargo and passenger airlines to carry fifth freedom traffic to and from
Hong Kong and other points. These restrictions limit the expansion of U.S. carrier
services in the Hong Kong market.
In June 2000, the LEGCO passed a Legal Practitioners (Amendment) Bill that
removed the privileges conferred on barristers from England, Scotland, Northern Ireland
and other Commonwealth countries. A Hong Kong court may admit a foreign lawyer to
practice as a barrister if he is considered a fit and proper person and has complied with
the general admission requirements, including passing any required examinations.
Foreign law firms are barred from hiring local lawyers to advise clients on Hong Kong
law, even though Hong Kong firms can hire foreign lawyers to advise clients on foreign
law. Foreign law firms can become "local law firms" and hire Hong Kong attorneys, but
they must do so on a 1:1 ratio with foreign lawyers.
Foreign banks established after 1978 are permitted to maintain only three branches
(automated teller machines meet the definition of a branch). The Hong Kong Monetary
Authority has promised to consider further relaxation of this limit in 2001. In the
meantime, foreign banks can acquire local banks that have unlimited branching rights.
6. Export Subsidies Policies
The Hong Kong Government neither protects nor directly subsidizes manufacturers
who export. It does not offer exporters preferential financing, special tax or duty
exemptions on imported inputs, resource discounts, or discounted exchange rates.
The Trade Development Council, a quasi-governmental statutory organization,
engages in export promotion activities and promotes Hong Kong as a hub for trade
services. The Hong Kong Export Credit and Insurance Corporation sells insurance
protection to exporters.

15. 7. Protection of U.S. Intellectual Property
The Berne Convention for the Protection of Literary and Artistic Works, the Paris
Convention on Industrial Property, and the Universal Copyright Convention (Geneva,
Paris) apply to Hong Kong by virtue of China’s membership. Hong Kong, a WTO
member, passed a new Copyright Law in June 1997 and a modernized Trademark Law in
May 2000. Enforcement of copyright and trademarks has improved measurably in recent
years, but eliminating intellectual property piracy will require sustained effort.
Copyrights: Sale of pirated discs at retail shopping arcades is much less widespread
than it used to be but remains a problem. The United States has encouraged the
government at senior levels to crack down on this retail trade, and on the distributors and
manufacturers behind them. Hong Kong has responded by doubling Customs’
enforcement manpower, conducting more aggressive raids at the retail level, passing new
legislation and engaging in public education efforts to encourage respect for intellectual
property rights. Recent raids have closed down some of the most notorious retail arcades
and dispersed this illicit trade. In the first eight months of 2001, Customs seized 5.79
million pirated optical discs with a market value of US$14.1 million, and arrested 1,049
people. Hong Kong Customs intelligence operations and raids on underground
production facilities have shut down most pirate manufacturing and forced retailers to
rely increasingly on smuggled products. The judiciary has also begun to increase
sentences and fines for copyright piracy, handing down 524 piracy-related jail sentences
in the first half of 2001.
With the government's success against optical disc pirates, increasing attention has
turned to the problem of computer end-user piracy. In 1999, Hong Kong courts handed
down a first conviction for unauthorized dealer hard-disk loading. The LEGCO also
passed in June 2000 an IPR miscellaneous amendments bill which makes it clearly illegal
for companies to use unlicensed software in trade or business. Faced with intensive
public criticism of the new criminal provisions for photocopying newspapers and
magazine articles, the LEGCO passed a bill in June 2001 to suspend criminal provisions
for unauthorized copying of materials other than computer programs, movies, television
dramas and music. The bill also suspended criminal penalties for the use of parallel-
import computer software. The suspension is an interim arrangement expiring on July 31,
2002. The government will consult the community with a view to formulating a long-
term solution before then.

16. Broadcast satellite signal piracy is also a growing concern for U.S. companies, and
industry associations have asked the government to take action against pubs and other
public venues that use satellite signals without compensation.
Trademarks: Sale of counterfeit items, particularly handbags and apparel, is
widespread in Hong Kong’s outdoor markets. Customs officials have conducted
numerous raids, but these actions have had little impact on the overall availability of
counterfeit goods.
New Technologies: U.S. industry associations report that Hong Kong-based web
sites are being used to sell and transmit pirate software and music. Since April 2000,
Hong Kong Customs has raided nine establishments believed to be engaged in Internet
piracy. None of these cases has gone to court, but these raids put Hong Kong well ahead
of its neighbors in tackling the problem of Internet-based piracy.
Hong Kong's stepped-up IPR enforcement effort has helped to reduce estimated
losses to U.S. film and music companies. The Business Software Alliance reported in
May 2001 that software piracy in Hong Kong rose from 56 percent in 1999 to 57 percent
in 2000. However, estimated total losses for the software industry decreased from
US$88.6 million to US$86 million. U.S. film and music distributors also report
increasing levels of legitimate sales in Hong Kong.
8. Workers Rights
a. The Right of Association: Local law provides for right of association and the right of
workers to establish and join organizations of their own choosing. Trade unions must be
registered under the Trade Unions Ordinance. The basic precondition for registration is a
minimum of seven persons who serve in the same occupation. The government does not
discourage or impede the formation of unions Workers who allege antiunion
discrimination have the right to have their cases heard by the Labor Relations Tribunal.
Violation of antiunion discrimination provisions is a criminal offense. Although there is
no legislative prohibition of strikes, in practice, most workers must sign employment
contracts that state that walking off the job is a breach of contract and can lead to
summary dismissal.

17. b. The Right to Organize and Bargain Collectively: In June 1997, the Legislative Council
passed three laws that greatly expanded the collective bargaining powers of Hong Kong
workers, protected them from summary dismissal for union activity, and permitted union
activity on company premises and time. However, the Provisional Legislature repealed
these ordinances, removing workers’ new statutory protection against summary dismissal
for union activity. Legislation passed in October 1997 permits the cross-industry
affiliation of labor union federations and confederations, and allows free association with
overseas trade unions (although notification of the Labor Department within one month
of affiliation is required), but removed the legal stipulation of trade unions’ right to
engage employers in collective bargaining and banned the use of union funds for political
purposes. Collective bargaining is not widely practiced.
c. Prohibition of Forced or Compulsory Labor: Compulsory labor is prohibited under
the Bill of Rights Ordinance. While this legislation does not specifically prohibit forced
or bonded labor by children, there are no reports of such practices in Hong Kong.
d. Minimum Age for Employment of Children: The "Employment of Children"
Regulations prohibit employment of children under age 15 in any industrial
establishment. Children ages 13 and 14 may be employed in certain non-industrial
establishments, subject to conditions aimed at ensuring a minimum of nine years of
education and protecting their safety, health, and welfare. In 2000, there were three
convictions for violations of the Employment of Children Regulations.
e. Acceptable Conditions of Work: Aside from a small number of trades and industries in
which a uniform wage structure exists, wage levels are customarily fixed by individual
Agreement between employer and employee and are determined by supply and demand.
Some employers provide workers with various kinds of allowances, free medical
treatment and free Subsidized transport. There is no statutory minimum wage except for
foreign domestic workers (US$500 per month). To comply with the Sex Discrimination
Ordinance, provisions in the Women and Young Persons (Industry) Regulations that had
prohibited women from joining dangerous industrial trades and limited their working
hours were dropped. Work hours for people aged 15 to 17 in the manufacturing sector
remain limited to 8 per day and 48 per week between 6 a.m. and 11 p.m. Overtime is
prohibited for all persons under the age of 18 in industrial establishments. Employment in
dangerous trades is prohibited for youths, except 16 and 17 year old males.

18. The Labor Inspectorate conducts workplace inspections to enforce compliance with these
and health and safety regulations. Worker safety and health has improved, but serious
problems remain, particularly in the construction industry. In 2000, a total of 58,092
occupational accidents (33,652 of which are classified as industrial accidents) were
reported, of which 199 were fatal. Employers are required under the Employee’s
Compensation Ordinance to report any injuries sustained by their employees in work-
related accidents.
f. Rights in Sectors with U.S. Investment: U.S. direct investment in manufacturing is
concentrated in the electronics and electrical products industries. Aside from hazards
common to such operations, working conditions do not differ materially from those in
other sectors of the economy. Relative labor market tightness and high job turnover have
spurred continuing improvements in working conditions as employers compete for
available workers.

19. Forex market activities of the treasuries, reserve,
government
GDP (purchasing
power parity): $254.2 billion
GDP (official
exchange rate):$181.6 billion
GDP - real growth
rate:7%
GDP - per capita:
purchasing power parity - $36,800
GDP - composition
by sector:agriculture: 0.1%
industry: 10%
services: 89.9%
Inflation rate
(consumer prices):0.9%
Investment (gross
fixed):21.2% of GDP
Budget:
revenues: $31.31 billion
expenditures: $32.3 billion, including capital expenditures of $5.9 billion (2005
est.)
Public debt:
1.8% of GDP
Current account
balance:$23.85 billion
Exports:
$286.3 billion f.o.b., including reexports
Exports - partners:
China 44%, US 17%, Japan 5.3%
Imports:
$291.6 billion

20. Imports - partners:
China 43.5%, Japan 12.1%, Taiwan 7.3%, US 5.3%, Singapore 5.3%, South
Korea 4.8%
Reserves of
foreign exchange
and gold:
$122.3 billion
Debt - external:
$416.5 billion
Currency (code):
Hong Kong dollar (HKD)
Exchange rates:
Hong Kong dollars per US dollar - 7.79 (2005), 7.788 (2004), 7.7868 (2003),
7.7989 (2002), 7.7988 (2001)
Fiscal year:
1 April - 31 March
People's Republic of China, Hong Kong Special Administrative Region:
Selected Economic and Financial Indicators
2002 2003 2004 2005 2006
Proj.

21. Real GDP (percent change) 1.8 3.1 8.2 7.0 5.5
Real domestic demand
(contribution)
-0.7 0.1 4.5 1.8 2.0
Foreign balance (contribution) 2.5 3.1 3.7 5.2 3.5
Inflation (percent change)
Consumer prices -3.0 -2.6 -0.4 1.2 1.5
GDP deflator -3.5 -6.4 -3.3 -0.5 1.3
Employment (percent change) -0.6 -0.4 2.8 3.8 3.0
Unemployment rate (percent) 7.3 7.9 6.8 5.4 3.8
Real wages 1.3 0.2 -1.2 ... ...
Government budget (percent
of GDP) 1/
Revenue 13.9 16.8 20.4 18.6 17.9
Expenditure 18.7 20.1 18.8 18.6 17.8
Consolidated budget balance -4.8 -3.3 -0.3 0.0 0.1
External balances (in billions of
US$)
Merchandise trade balance -5.1 -5.8 -9.3 -4.5 -0.8
(In percent of GDP) -3.1 -3.6 -5.6 -2.6 -0.4
Current account balance 12.4 16.5 16.4 17.8 19.2
(In percent of GDP) 7.6 10.4 9.6 10.2 10.3
Foreign exchange reserves

22. Foreign exchange reserves (in
billions of US$, end of period)
111.9 118.4 123.6 123.8 124.8
(In percent of GDP) 68.4 74.5 74.4 70.8 66.8
Currency
1 Hong Kong dollar (HK$) = 100 cents
Exchange rates: Hong Kong dollars per US dollar - 7.799 (April 2005), 7.798 (January
2002), 7.7994 (2001), 7.7918 (2000), 7.7589 (1999), 7.7462 (1998), 7.7425 (1997); note -
the Hong Kong dollar is linked to the US dollar at a rate of about 7.8 Hong Kong dollars
per US dollar
The future of Hong Kong
At the start of the 21st century, the HKSAR Government has undertaken a review
of Hong Kong's long-term development strategies, partly to cope with the changes and
capitalise on the opportunities arising from the reunification with the Mainland, and
partly in response to the many challenges in the face of globalisation and the emergence
of a knowledge-based economy. The review follows a two-year study by the Commission
on Strategic Development which encompasses a vision and a strategic framework for
Hong Kong to become, not only a major city in China, but also Asia's world city.

23. Asia's Cyber City for the Cyber Century
Hong Kong has set itself on course to become the centre for innovation and
technology in East Asia—a cyber city in the cyber century. Much is being done to realise
this goal and to capitalise on the enormous opportunities thrown up by the information
revolution.
Cyberport
Cyberport — Hong Kong's IT flagship — is a HK$15.8 billion (US$2 billion)
landmark project managed by Hong Kong Cyberport Management Company Limited and
owned by the HKSAR Government. It is creating an interactive environment that will be
home to a strategic cluster of more than 100 information technology (IT) companies and
more than 10 000 IT professionals. This clustering of local and overseas companies and
professional talent is envisioned as a catalyst and hub for the growth of local and regional
IT industries, with particular emphasis on IT applications, information services and
multimedia content creation. Cyberport will also provide IT education for the broader

24. community. Cyberport represents a commitment on the part of the Government of the
HKSAR to facilitate Hong Kong's development as a leading digital city in the region. The
project is being developed on a 24-hectare site at Telegraph Bay in the southern district
of Hong Kong Island. Cyberport is being completed in phases extending through 2004,
and when complete will feature 100 000 square metres of 'intelligent' office space.
Science Park
The Science Park aims to establish and nurture a world-class technology
community dedicated to applied research and development. It is being developed along a
clustering concept, with four clusters of electronics, IT and telecommunications,
biotechnology and precision engineering. The first phase of the Science Park opened in
June 2002. Phase II of the Science Park is to be completed by the end of 2007.
Infrastructure Projects for the 21st Century
An efficient and reliable infrastructure has played a key role in maintaining Hong
Kong as a leading trade, finance, business and tourism centre in the region. Infrastructure
development enables us to meet demands arising from population growth and help
support our economic and trade development.
The HKSAR Government continues to invest heavily in capital works projects. It
plans to spend under the Capital Works Programme an average of $29 billion (US$3.7
billion) per year for the next 5 years.
Railway Development
Further to the commissioning of West Rail in December 2003, four new railways
are scheduled for completion between 2004 and 2007. Both the Tsim Sha Tsui Extension,
which will provide a second rail interchange between the KCR and the MTR systems,
and the Ma On Shan Rail, which will connect new towns in the eastern parts of Hong
Kong with the urban areas, will be completed by 2004. The Penny's Bay Rail Link
connecting Sunny Bay with Disneyland on Lantau Island is expected to be completed in
2005. A new rail passenger boundary crossing at Lok Ma Chau connecting Huanggang in
Shenzhen is expected to be completed before mid-2007.
The 'Railway Development Strategy 2000' provides a blueprint for Hong Kong's
rail network expansion up to 2016 or so. This involves a total investment of some $100
billion to complete five new passenger rail projects (the Kowloon Southern Link (KSL),

25. Shatin to Central Link (SCL), Island Line Extensions (ILE), Northern Link (NOL), and
Regional Express Line (REL)) and a Port Rail Line for freight. Upon their completion,
Hong Kong's rail network will expand by some 40 per cent to over 250 kilometres. The
railways' share of the public transport system will be boosted from 30 per cent to about
40 per cent.
New Urban Development
The West Kowloon Reclamation project was completed in 2003. The reclamation
has provided about 340 hectares of land to house a planned population of about 190 000.
At the southern tip of the reclamation, another major development proposal is the West
Kowloon Cultural District (WKCD), which is currently under active planning. The
intention is to develop the area into an arts, cultural, commercial and entertainment
district with a distintive identity. The Government has invited proposals internationally
for development of the WKCD.
The Outline Zoning Plan to guide redevelopment of the former Kai Tak Airport site was
approved in June 2002. In view of a recent court ruling on reclamation in Victoria
Harbour, a comprehensive review of the current development scheme will be carried out
to ensure its compliance with the legal requirements. The review which covers the
planning and engineering aspects, is expected to take two years. It will include extensive
public involvement to gauge the community's wishes for this major waterfront site and to
help build public consensus on revising the development scheme.
Road Projects
New strategic roads will alleviate urban congestion and provide vital new links
into the New Territories and beyond. Among the major road projects are the Hong Kong-
Shenzhen Western Corridor, Deep Bay Link and Route 8 including the Stonecutters

26. Bridge.
The 1 596-metre Stonecutters Bridge, with a main span of 1 018m, will be the
longest cable-stayed bridge in the world. It is the first long-span bridge located in an
urban environment in Hong Kong and will be highly visible from Hong Kong Island and
Kowloon Peninsula. The bridge design was adopted from the winning design of an
international competition in 2000 which elicited participation from the best design and
engineering firms in the world.
This bridge is an important part of Route 8 between Tsing Yi and Sha Tin. On
completion of the works in mid-2008, Hong Kong will be adding an east-west strategic
route linking the eastern part of the New Territories to the airport. This new highway will
provide direct access to Container Terminals No 8 and No 9 in Kwai Chung, which will
further enhance Hong Kong as an important international logistics and transportation hub
Conclusion
The economy of Hong Kong has often been cited by people such as Milton Friedman and
the Cato Institute as an example of the benefits of laissez-faire capitalism. Many analysts
believe that this characterization of the Hong Kong economy is not entirely accurate, as
the Hong Kong government, both under British and Chinese rule, have occasionally
intervened in the economy.

27. ‘
Frequently Asked Questions about Hong Kong Forex market
Q1 What channels are there for investors to place orders after the full
implementation of AMS/3?
A1 The channels available depend on the type of trading facility used by the Exchange
Participant of an investor. If trading is conducted via a trading terminal which cannot
be connected to other eChannels, investors will have to place orders with the
Exchange Participant by telephone or in person. If the Exchange Participant adopts
Multi-Workstation System (MWS) or Brokers Supplied System (BSS), an investor
can opt for any channel provided by the Exchange Participant to place his order
(traditional method or the Internet/mobile phone). Since BSS are developed by

28. Exchange Participants or suppliers, services vary and investors should select
Exchange Participants that suit their needs.
Q2 Is online trading faster than the traditional method of placing orders?
A2 In normal cases, online trading serves investors faster. However, as the experience of
most Internet users indicates, there is always the possibility of congestion of Internet
lines resulting in delays in trading which is something SEHK cannot control.
Q3 Is it possible for an investor to input trading requests via ORS after trading
hours? Will BSS of Exchange Participants continue to receive trading
instructions after market close?
A3 Technically, ORS can support the input of trading requests after market close.
However, actual ORS operating hours depend on market needs. Exchange
Participants decide on their own whether their BSS will continue to entertain trading
requests after market close.
Q4 How do investors place orders online via SEHK's Internet channel?
A4 Before trading shares, investors should first apply to Hongkong Post for an e-
certificate and register with their Exchange Participants. The Exchange Participant
will record the e-certificate number of an investor in ORS to provide identity
authentication during online trading. An investor who owns more than one securities
account needs only one e-certificate, but he/she is required to register with Exchange
Participants separately for the use of ORS. An investor who has accounts in more
than one Exchange Participant should select his preferred Exchange Participant in
the SEHK web page for securities transactions before entering his trading request.
Web pages of some Exchange Participants are connected to the SEHK web page for
securities transactions to collect investors' trade requests.
SEHK's Internet channel aside, web facilities provided by Proprietary Network
System (PNS) vendors, such as the Internet, mobile phone, or PDA palm computer,
may also be used by investors to enter order instructions. Order instructions placed
via these means should first be verified and approved by an Exchange Participant
before they can be routed to the market for matching.
Q5 How can investors be prevented from inputting wrong trading requests
accidentally during online trading?
A5 SEHK cannot prevent investors' input errors. SEHK will strengthen its investor
education programme by organising a series of public seminars and producing

29. investor educational material. As trading requests have to go through an Exchange
Participant before being routed to the central trading system, Exchange Participants
will continue to perform advisory and risk management functions after the launch of
AMS/3.
Q6 How can online securities accounts be protected from embezzlement?
A6 SEHK's Internet channel adopts the latest Internet technology to offer investors a
security-tight online trading environment and make use of accredited e-certificates to
ensure the integrity and confidentiality of trades. Before trading securities online,
investors should apply to Hongkong Post for an e-certificate. By means of Public
Key Infrastructure which encrypts and verifies investors' identity and online trade
information, an e-certificate protects investors' interests from being infringed by
eavesdropping, tampering, forgery and other misconducts. Investors should note that
as BSS and PNS are developed by Exchange Participants and PNS vendors, not all
their facilities adopt these security measures.
Q7 Will an investor still be required to trade shares via an Exchange Participant
after the launch of AMS/3?
A7 Yes. Before dealing in shares, an investor is required to open an account with an
Exchange Participant. Whichever channel an investor chooses, his trading
instructions should first be verified and approved by an Exchange Participant before
it is routed to the market for matching. Exchange Participants will continue to play
an advisory and verification role after AMS/3 has come into service.
Q8 What impact will electronic trading have on brokerage commission?
A8 The level of brokerage commission is a matter of commercial arrangement between
Exchange Participants and their clients. SEHK's minimum brokerage rule will still
apply after implementation of AMS/3. Brokerage commission will remain 0.25 per
cent of the value of the transaction with a minimum of HK$50. The minimum
brokerage rule is scheduled for abolition on 1 April 2002 after which commission
will be fully negotiable between Exchange Participants and clients.
Q9 Will the new trading system be insured? Will SEHK compensate investors or
market participants for losses caused by AMS/3 defects?
A9 Due diligence will be exercised to ensure the normal functioning and operation of
AMS/3. According to the Exchanges and Clearing Houses (Merger) Ordinance,

30. SEHK is not liable for anything done or omitted to be done in good faith. SEHK has
developed a set of contingency arrangements, including the switch of AMS/3
primary site to AMS/3 backup site in case of hardware failure and, in the event of
emergencies in the first two weeks of its launch, a fallback to AMS/2.