December 21, 2006. The Hong Kong Census and Statistics Department says that in November inflation in Hong Kong accelerated to 2.2% on higher clothing, housing and food prices. To compare this figure, the Department indicates 2% inflation in October 2006.
However, inflation could get higher if Hong Kong imports more inflation from China due to its stronger currency, the government says. Further strength in the Chinese yuan would make imports into Hong Kong more expensive, mostly through food prices, which are 25% of the composite consumer price index. Since currency reforms in July 2005, the Chinese yuan has risen around 3.6% against the USD, while the Hong Kong dollar has remained relatively steady because of its peg to the USD.
The rising pace of inflation has slowed since August, when the year-on-year monthly consumer price reading reached an 8-year high of 2.5%.
---------------------------------------------
November 8, 2006. According to the International Monetary Fund, the economy of Hong Kong is expected to grow by 6% this year and maintain growth of 5% in 2007.
Concluding a visit to Hong Kong for the annual Article IV Consultation, the International Monetary Fund stated that growth prospects will depend on the management and expanding the evolving financial integration with the Mainland.
The main risks to the Hong Kong's economy could be conditioned by a possible global economic downturn, particularly in the USA, and a rise in protectionist sentiment against the Mainland.
All in all, the Hong Kong government's efforts to strengthen market infrastructure and promote financial integration with the Mainland, including its fiscal and exchange rate systems, were praised by the IMF.
Also, the IMF welcomed progress made by the country authorities in enforcing anti-money laundering and counter-terrorist financing guidelines, introducing the deposit insurance scheme, assessing potential sources of stress in equity markets and strengthening corporate governance.
---------------------------------------------
October 30, 2006. Last week the information appeared that 2 new banking regulations have been gazetted in Hong Kong, and they will be tabled at the Legislative Council on November 1. These 2 regulations are the Banking (Capital) Rules and Banking (Disclosure) Rules. The rules are to be in force from January 1, 2007.
The rules form part of the implementation of the Basle II capital adequacy standards and outline how the capital adequacy ratio of locally incorporated authorised institutions must be calculated. They also outline what information on the state of affairs, capital adequacy ratio and profit and loss must be publicly disclosed.
In accordance with the Authority's Deputy Chief Executive William Ryback, the adoption of the rules will contribute to greater robustness of the banking system as well as to more banking stability.
---------------------------------------------
October 18, 2006. According to the UN's World Investment Report 2006, Hong Kong attracted USD 35.9 billion in foreign direct investment (FDI) last year, up 5.6% on 2004. So, Hong Kong is the 2nd-largest FDI destination in Asia after China, which amassed USD 72.4 billion.
The FDI that flowed into Hong Kong was larger than the combined total FDI for Singapore (USD 20.1 billion), South Korea (USD 7.2 billion) and India (USD 6.6 billion). Hong Kong was the 6th in FDI inflows in 2005, and it continues to be a major destination for FDI and one of the "front-runner" economies.
In accordance with the latest figures of the Census & Statistics Department, Hong Kong's inward FDI in the 1st half of this year has already amounted to USD 20.66 billion.
---------------------------------------------
October 16, 2006. Hong Kong is likely to refuse discussing joining the European Union's tax information-sharing scheme applied under the Savings Tax Directive.
The European Commission recently announced its intention to extend the Directive to major Asian banking entrepots. The EU would like to sign the Agreement and include information-sharing there. However, Hong Kong's Deputy Secretary for Financial Services & the Treasury in Hong Kong Martin Glass, last week explained the Society of Trust and Estate Practitioners' Trusts & 'Tax in Asia' conference that the government and the commissioner of inland revenue did not have the power to share information with other tax authorities, their powers were relatively limited and extend only to information which is required for Hong Kong's own tax purposes.
The Savings Tax Directive extending to a number of '3rd countries' like Switzerland, the Channel Islands and Caribbean offshore territories was introduced in July 2005 to facilitate the exchange of information between EU tax authorities on some particular types of savings and investments held by EU residents in their territory. So, in accordance with it, interest earned could be taxed in the investor's home state.
There are several ways for investors to avoid the directive such as to switch assets to vehicles not covered by the legislation, however the most obvious avoidance strategy for investors seems to be the shift of their money to more tax-friendly jurisdictions. Some suggest that Hong Kong, Dubai and Singapore have been major beneficiaries.
---------------------------------------------
