Hong Kong and Singapore

1. Comparison of Exchange Fund between Hong Kong and Singapore

2. Index • Background of Hong Kong Exchange Fund • Comparison between Hong Kong and Singapore • How Exchange Fund affect us

3. Background of Hong Kong Exchange Fund • Established in 1935 by the Currency Ordinance • Objective: • back the issue of Hong Kong's banknotes • regulate the value of HKD currency

4. Background of Hong Kong Exchange Fund The War Period (1935-1945) • Sharp increase in shipping and insurance costs • Assets of the Fund were managed by the Crown Agents in London • Duress notes: Banks were forced by the Japanese military to issue notes without backing

5. Background of Hong Kong Exchange Fund Recovery from the War (1945-1947) • Duress notes :impossible to cancel them as worthless • The reestablished Government was very short of revenue

6. Background of Hong Kong Exchange Fund Bank crises in the 1980s • Several banks became insolvent • Exchange Fund was involved in the rescue of the banks • Collapse of a major local bank • had unacceptable effects on the interbank market • banking system • exchange value of the HK dollar

7. Comparison between Hong Kong and Singapore • Background: • Hong Kong Exchange Fund • Singapore: • 1975 (Temasek Holdings) • 1981 (GIC) • Holdings: • Hong Kong: • The Hong Kong Monetary Authority • Singapore: • Singapore government (1935)

8. Comparison between Hong Kong and Singapore • Objective: Singapore: • To support the local company for development • To manage foreign reserves Hong Kong: To affect the exchange value To maintain the monetary stability and integrity

9. Comparison between Hong Kong and Singapore Official Reserve Ranking (Asset Under Management) US$ Billion At the end of 1. China Dec 2006 2. Japan 909.0 Mar 2007 3. Russia 338.8 Mar 2007 4. Taiwan 297.5 Mar 2007 5. Korea 243.9 Mar 2007 6. India 199.2 Mar 2007 7. Singapore 137.5 Mar 2007 8. Hong Kong Mar 2007 1,066.3 135.4

10. Comparison between Hong Kong and Singapore Component • Hong Kong: • Marketable interest-bearing instruments and equities in foreign currencies • Singapore: • Multi layer system, comprised by four main areas: • 1. public markets • 2. real estate • 3. special investments • 4. corporate services

11. Comparison between Hong Kong and Singapore • Strategies • Hong Kong • Backing function - To ensure that the monetary base is fully backed • Investment function - To preserve the fund's value for future generations • Singapore • To affect the foreign exchange market • To earn a long term return by investment

12. Comparison between Hong Kong and Singapore • Risk Management • Singapore • risk reducing rule – strict analysis and revaluation of investment • Diversification • Hong Kong • Limits set on the amount • Monitoring and guiding external managers

13. Comparison between Hong Kong and Singapore • Transparency • Hong Kong • Annually Publishing the accounts since • Bi-annual since 1995 • Figures of foreign exchange reserves since 1997 • Singapore • Company nature : unnecessary to disclose the financial information to the public, only report to the Prime Minister • Until , disclosed brief capital amount and investing information 1992 2001

14. Comparison between Hong Kong and Singapore • Summary • Substantially differences: • Monetary Safety Vs Profit Objective • Stable Vs Aggressive • Different Mix with • policies, components, risk management

15. How Exchange Fund affect us • Taxes • Incomes of Government increase or • Having surpluses with expenses • Higher possibility for the Government to • keep the tax rate unchanged • returning taxes to Hong Kong citizen • tax rate decreases

16. How Exchange Fund affect us • Investment • Provide stable return • try to study the investment distribution of HK Exchange Fund.

17. END