The Mainland China Dimension of the Hong Kong Securities Market

Charles Lee Chairman, HKEx

China Financial ForumOrganised by Nomura Securities Co., Ltd

26 November 2004

2

1. Highlights of the Hong Kong Securities Market

2. Mainland China Dimension

3. HKEx Positioning

4. Conclusions

Agenda

3Source: World Federation of Exchanges, includes main board and parallel markets

HKEx is currently ranked 8th among global exchanges by market capitalisation …

11,657

3,1273,124 2,505

2,095

1,047 1,013 764 760 725 648 637 381 345 342 334 149

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

NY

SE

Tok

yo

Nas

daq

Lond

on

Eur

onex

t

Tor

onto

Ger

man

y

Hon

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ong

Spa

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Exc

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BM

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Sw

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Ital

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Aus

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Tai

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Sha

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i

Kor

ea

Joha

nnes

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She

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US$ billion

HK:ranked 8th

Shanghai: ranked 14th

Shenzhen: ranked 24th

Sum of HK, Shanghai and Shenzhen ranked 6th in the world

(Market cap = US$1,258 bn)

Sum of HK, Shanghai and Shenzhen ranked 6th in the world

(Market cap = US$1,258 bn)

201

Sin

gapo

re

Singapore: ranked 21st

Sep 2004

4Source: World Federation of Exchanges (not including exchanges for which statistics are not available). Includes capital raised by issuers cross-listed on other exchanges, i.e. some double-counting involved.

… and 2nd by equity fund raised

82.9

28.4

23.9

18.7 17.515.4 15.0 15.0

11.89.9

6.4 5.6 5.22.7

0

10

20

30

40

50

60

70

80

90N

YS

E

Hon

g K

ong

Lo

ndo

n

To

kyo

TS

X G

rou

p

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Spa

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Aus

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Mu

mb

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Ind

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JSE

So

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Afr

ica

Sha

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She

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HK:ranked 2nd

Shanghai: ranked 13th

Shenzhen: ranked 20th

Sum of HK, Shanghai and Shenzhen ranks 2nd in the world

(Capital raised = US$36.3 bn)

Sum of HK, Shanghai and Shenzhen ranks 2nd in the world

(Capital raised = US$36.3 bn)

Sin

ga

po

re

Singapore: ranked 28th

1.3

US$ billion Jan - Sep 2004

5

Total turnover (US$bn)

Total # of derivatives contracts traded (mn)

# of new listings – equity

Average daily turnover (US$bn)

Average daily # of derivatives contracts traded

2003 2002

Total fund raised (US$bn)

331.3

1.3

14.5

59,011

73

7.6

19.8

27.4

210.6

0.9

11.0

45,018

117

6.7

7.5

14.2

YTD Oct 2004

401.1

2.0

16.2

79,554

56

8.9

21.5

30.4

Hong Kong cash and derivatives markets –Key statistics

Fund raised by IPOs (US$bn)

Fund raised in secondary market (US$bn)

6

1. Highlights of the Hong Kong Securities Market

2. Mainland China Dimension

3. HKEx Positioning

4. Conclusions

Agenda

7

Quotes from China’s Vice Premier, Huang Ju

“HK had established increasingly close ties with the Mainland finance sector in recent years”

“It is a win-win situation which:

­ encourages reforms within the Mainland listed enterprises

­ contributes to the development and prosperity of the Hong Kong financial sector”

“HK had established increasingly close ties with the Mainland finance sector in recent years”

“It is a win-win situation which:

­ encourages reforms within the Mainland listed enterprises

­ contributes to the development and prosperity of the Hong Kong financial sector”

“Room for further development was substantial”

“CEPA clearly states that the Mainland and HK will strengthen cooperation on various fronts in the financial sector”

“With its implementation, finance practitioners on the Mainland and in HK will cooperate in a greater number of areas and on a higher plane, allowing HK to develop better as an international finance centre”

“Room for further development was substantial”

“CEPA clearly states that the Mainland and HK will strengthen cooperation on various fronts in the financial sector”

“With its implementation, finance practitioners on the Mainland and in HK will cooperate in a greater number of areas and on a higher plane, allowing HK to develop better as an international finance centre”

On HK’s statusOn HK’s status

On further co-operation between Mainland & HK

On further co-operation between Mainland & HK

8

Since the 1980s, Hong Kong has played a key role as a bridge between Mainland China and the world

1980 1993 2003

Many HK listed companies had manufacturing operations in Pearl River Delta

HK- or foreign-incorporated Mainland enterprises listed in HK as Red Chips

H-shares market developed

Some H-share and Red-Chip companies dual listed on HK and overseas markets

H-shares Index Futures launched

Key Events

A total of US$230 billion raised in the past ten years

Since 1993, US$113 billion of equity capital (49% of total) raised by Mainland enterprises listed in Hong Kong

H-shares Index Futures an early success (>7,000 contracts a day)

2004

H-shares Index Options launched

Stock options, futures and warrants for individual Mainland enterprises

1994 onwards

9

Mainland enterprises listed in HK are subject to market discipline in accordance with international standards

Management practices

Accounting

Corporate governance

Key elements

Code of Corporate Governance

Initial listing obligations

Continual listing obligations

Enforcement by regulators

Areas subject to market discipline

International Accounting Standards; or

Hong Kong Financial Reporting Standards

Compete with other internationally recognised companies

10

Mainland China dimension of the Hong Kong securities market

As at 31 Oct 2004 or Jan-Oct 2004

Listed issuers

Fund raised by IPOs (US$bn)

Avg daily turnover (US$bn)

Total HK market

Mainland enterprises*

Market capitalisation (US$bn)

1,084

769

2.0

58

8.9

21.5

30.4

286

226

1.0

33

6.4

4.2

10.6

26%

29%

48%

57%

72%

20%

35%Total fund raised (US$bn)

# of new listings – equity

Fund raised in secondary market (US$bn)

* Includes H shares, red chips and private enterprises

11

The 10 largest IPOs in HK since 1993 have all been by Mainland enterprises

Capital RaisedRanking Company Date of Listing (US$ bn)

1

2

3

4

5

6

7

8

9

10

China Unicom

China Mobile

China Life

Sinopec

PetroChina

BOC (HK)

Ping An Insurance

SMIC

China Telecom

CNOOC

2000

1997

2003

2000

2000

2002

2004

2004

2001

2001

5.6

4.2

3.4

3.4

2.9

2.6

1.8

1.8

1.5

1.4

Largest IPO in the world in 2003

12

In 2003, 8 out of the 10 largest IPOs were Mainland enterprises

2003 Capital RaisedRanking Company (US$ mil)

1

2

3

4

5

6

7

8

9

10

China Life

PICC

Sinotrans

Hopewell Highway Infrastructure

China Resources Power

Weiqiao Textile

AviChina Industry & Technology

Great Wall Automobile

Fujian Zijin Mining

Lee & Man Paper Manufacturing

3,424

798

502

386

380

313

261

224

169

148

13

6 out of the 10 highest turnover HK-listed companies are Mainland enterprises

2004 Jan-Oct TurnoverRanking Company (US$ bn)

1

2

3

4

5

6

7

8

9

10

HSBC

PetroChina

Hutchison Whampoa

China Mobile

Sun Hung Kai Properties

China Life Insurance

BOC (HK)

Cheung Kong

Sinopec

China Telecom

36.6

16.3

13.8

13.4

11.7

10.5

9.8

9.7

9.4

7.1

14

6 out of the 10 highest net profit HK-listed companies are Mainland enterprises

2003 Net ProfitRanking Company (US$ bn)

1

2

3

4

5

6

7

8

9

10

HSBC

PetroChina

China Mobile

China Telecom

Sinopec

Hutchison Whampoa

CNOOC

Cheung Kong

Hang Seng Bank

BOC (HK)

8.8

8.5

4.3

3

2.6

1.8

1.4

1.3

1.2

1.0

15

1. Highlights of the Hong Kong Securities Market

2. Mainland China Dimension

3. HKEx Positioning

4. Conclusions

Agenda

16

Business focus

Geographical focus

Focus on core market operations:­ Listing­ Trading­ Clearing­ Information Services­ Market systems

Focus on Hong Kong and Mainland China

HKEx strategic vision

Goal

Operate a quality market through enhancing regulation and market infrastructure in accordance with international best practices and standards

17

HKEx’s major 2004 achievements and 2005 initiatives

Enhance market quality

Enhance market quality

2004 Achievements 2005 Initiatives

Enhanced corporate governance standards

Enhanced regulation of Sponsors & IFAs

Support enshrining of key listing rules in statute

Facilitate simultaneous listing of A & H shares

Improve market infrastructure

Improve market infrastructure

Maintained 100% uptime for all market systems

Launched integrated derivatives system

Upgrade capacity of trading systems

Consolidate network for all market systems

Enhance Mainland business development

Enhance Mainland business development

Strengthened Beijing Office

Organised listing promotional conferences on the Mainland

Promote listing of foreign-controlled companies with Mainland operations

Introduce more Mainland products

Introduce more Mainland products

Launched a number of Mainland-related products

Launch additional Mainland- related products

Expand information dissemination in selected regional markets

18

Mainland finance sector and Hong Kong are in a win-win

situation which:

­ Encourages reforms within the Mainland enterprises

­ Contributes to development and prosperity of the Hong Kong financial

sector

To be successful, HKEx is committed to:

­ Focusing on developing the opportunities presented by Mainland

enterprises

­ Further enhancing market quality

Conclusions

19

Thank you