Bringing Sustainable Success to the Hong Kong Primary Market China IPOs Conference 2005

1. Bringing Sustainable Success to the Hong Kong Primary MarketChina IPOs Conference 2005 Paul Chow Chief Executive, HKEx 28 September 2005

2. Agenda • Highlight of Hong Kong Securities Market • Mainland China Dimension • HKEx’s Major Initiatives in Primary Market • Conclusion

3. US$ 939 bn as of Jul 2005 US$ 956 bn (HK$ 7.5 tr) as of 20 Sep 2005 HKEx ranks 9th among global exchanges by market capitalisation Jul 2005 market capitalisation, US$bn

4. US$ 261 bn as of YTM Jul 2005 US$ 309 bn (HK$ 2.4 tr) as of 20 Sep 2005 HKEx ranks 16th among global exchanges by equity turnover YTM Jul 2005 turnover, US$bn

5. HKEx ranks 4th among global exchanges by equity fund raised YTM Jul 2005 equity fund raised, US$bn US$ 17.3 bn as of YTM Jul 2005 US$ 19.6 bn (HK$ 153 bn) as of YTM Aug 2005

6. HKEx key market statistics

7. Agenda • Highlight of Hong Kong Securities Market • Mainland China Dimension • HKEx’s Initiatives in Primary Market • Conclusion

8. Since the 1980s, Hong Kong has played a key role in bridging between Mainland China and the world 1980 1993 1994 2003 2004 2005 1960-80 • Many HK listed companies had manufacture operations in Pearl River Delta • HK- or foreign-incorporated Mainland enterprises listed in HK as Red Chips • H-shares market developed • Some H-share & Red-Chip companies dual listed on HK & overseas markets • Stock options, futures & warrants for individual Mainland enterprises developed • H-shares Index Futures launched • H-shares Index Options launched • iShares FTSE/Xinhua A50 China Tracker launched • Promote listing of foreign-controlled companies with Mainland operations • Mostly British hongs, utility companies& property companies Since 1993, over HK$1 trillion (as of 20 Sept 2005) of equity funds were raised by Mainland China enterprises, representing 50% of market total

9. 1962 Hongkong Bank Whampoa Dock HK Land China Light KM Bus (1933) HK Electric HK Telephone Yaumati Ferry HK Tram Wheelock Jardine Swire Lane Crawford Kwong Sang Hong GI Cement Of the 15 largest companies in 2005, 5 of them are Mainland enterprises 1973 Hongkong Bank HK Land Jardine Matheson Hutchison Intern’l E.A. Navigation New World Dev. Wharf China Light Wheelock Marden Taikoo Swire HK Telephone HK Electric Hang Seng Bank Whampoa Dock HK & Shanghai Hotels 1983 Hongkong Bank Hang Seng Bank China Light Hutchison HK Electric HK Land Wharf & Godown Swire Pacific Jardine Matheson General Oriental HK Telephone Swire Properties Cheung Kong SHK Properties New World Dev. 1993 HSBC HK Telecom SHK Properties Hang Seng Bank Hutchison China Light Cheung Kong Swire Pacific Henderson Land Wharf HK Land HK Electric New World Dev. Jardine Matheson CITIC Aug 2005 HSBC China Mobile Hutchison Whampoa CNOOC Standard Chartered Hang Seng Bank Cheung Kong SHK Properties Bank of China Swire Pacific PetroChina CLP Holdings HK & China Gas China Netcom MTR • Largest companies since 1962 in term of market cap. Other largest companies in 1973/1983/1993in term of market cap.  New largest companies in Aug 2005 in term of market cap.  Mainland enterprises

10. Definitions of Mainland enterprises

11. Mainland China enterprises contribute significantly to the Hong Kong securities market

12. Top 10 IPOs since 1986 are all by Mainland enterprises

13. 7 of the top 10 IPOs in 2005 are by Mainland enterprises

14. % of market capitalisation and equity turnover contributed by Mainland enterprises increase significantly over time % of market capitalisation % of equity turnover no. of Mainland enterprises 49% 50.0% 350 46% 316 45% 45.0% 300 42% 300 40.0% 38% 242 250 35.0% 33% 33% 30% 30% 29% 30.0% 198 28% 27% 200 27% 27% 26% 25.0% 152 21% 150 20.0% 127 16% 111 101 14% 15.0% 90 100 12% 12% 9% 64 10.0% 9% 9% 53 50 50 38 5% 5% 5% 5.0% 0.0% 0 Aug 2003 2004 2005 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

15. Mainland enterprises listed in Hong Kong cover a diversified range of industries As of Aug 2005

16. Mainland enterprises listed in Hong Kong cover many different regions • 22 provinces • 5 autonomous region (Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang) • 4 municipalities directly under the Central Government (Beijing, Chongqing, Shanghai and Tianjin) As of Aug 2005

17. Agenda • Highlight of Hong Kong Securities Market • Mainland China Dimension • HKEx’s Initiatives in Primary Market • Conclusion

18. HKEx’s initiatives related to primary markets are parts and parcels to the success of Hong Kong as a premier capital formation centre for Mainland enterprises

19. HKEx’s initiatives related to primary markets are parts and parcels to the success of Hong Kong as a premier capital formation centre for Mainland enterprises (cont’d)

20. Continuous supply of IPO applications in the pipeline

21. Next Steps Current progress HKEx’s initiatives in primary market: IPO activities • Finalise conclusions and Listing Rule amendments with the SFC, HKEx Listing Committee and HKEx Board • Issue consultation conclusions by end of 2005 • Published consultation paper in Feb 2005 on: • Composition and operation of Listing Committees • Proposals for a more efficient framework for decision-making in matters such as listing applications and suspected breaches of Listing Rules • Appointment of an adjudicator as first instance disciplinary decision-maker and aspects of the adjudicator’s procedures • Received 18 submissions including 7 from industry associations • Responses are published on HKEx website in May 2005 Review of new structure of listing decision making

22. Next Steps Current progress HKEx’s initiatives in primary market: IPO activities • Review operational procedures in key listing areas to further improve process automation and response efficiency • Further strengthen senior management team of Listing Division • Mainland China liaison • Legal and accounting • Enforcement • Set up an enhanced case database to capture corporate information of listed issuers and directors • Organised professional training programmes for Listing Division (e.g. HKAS/IFRS) Enhancement of internal operations of Listing Division

23. Next Steps Current progress HKEx’s initiatives in primary market: Fund raising platform • Established an internal working group to develop proposals for the comprehensive review of GEM • Completed internal research on historical performance of GEM • Prepared comparisons of overseas second board designs • Seek informal views from members of HKEx Listing Committees, members of HKEx Board, professional bodies and market participants • Issue public consultation via a formal consultation paper by end of 2005 or early 2006 to: • Outline possible strategies to strengthen liquidity and corporate governance of GEM • Outline options to improve the robustness of the GEM platform to meet issuers’ capital-raising needs Review of GEM

24. Next Steps Current progress HKEx’s initiatives in primary market: Fund raising platform • Continue to leverage HKEx BJO and special branch representatives in Shanghai & Guangzhou to undertake Mainland liaison activities • Continue to organise major conferences to promote Hong Kong securities market: • Conference in Fuzhou in Sep 05 • Conference in Wuhan in Dec 05 • Regular communications with Mainland authorities to exchange views on regulations and market developments • Organised and participated in over 100 conferences with over 6,600 participants including Mainland enterprises and intermediaries Mainland liaison and promotional activities

25. Next Steps Current progress HKEx’s initiatives in primary market: Market quality assurance • SFC issued proposed Securities and Futures (Stock Market Listing) Rules and guidelines (SMLR) in Jan 2005 • FSTB issued Consultation Paper on Proposed Amendments to the SFO in Jan 2005 • HKEx submitted combined response to SFC and FSTB in Mar 2005 • Prepare a comparison of regulatory regimes in UK, US, Australia and under IOSCO principles on financial reporting, connected transaction and price sensitive information • Continue discussions with FSTB and the SFC on the draft SMLR, and solicit inputs from market practitioners • Propose to enshrine the following provisions in statute: • Regular financial reporting obligations • Disclosure obligations of corporate transactions that require prior independent shareholder approval (e.g. connected transactions) • Obligation to disclose price-sensitive information Statutory backing of certain provisions of the Listing Rules

26. Next Steps Current progress HKEx’s initiatives in primary market: Market quality assurance • Implemented revised Code on CG Practices and CG Report in Jan 2005 • Implemented revised listing rules on CG in Mar 2004 • Implemented revised Code Provision on internal controls and the relevant disclosure requirements in the CG Report in Jul 2005 • Conducted training programmes for 124 finance, accounting executives and board secretaries of H-share companies • Allow time for listed issuers to adapt to new CG provisions • Analyse responses from issuers on questionnaire sent out in Jul 2005 regarding market readiness to comply with the recent changes • Continue to promote a compliance culture through issuer and investor education Continual promotion and education of corporate governance

27. Next Steps Current progress HKEx’s initiatives in primary market: Market quality assurance • Proposals on total abolition of paid advertisements and mandatory use of eSubmission system (currently account for 24% of submissions) endorsed by HKEx Listing Committee in Jul 2005 • Implemented a Disaster Recovery Site for HKEx website in Sep 2005 to enhance its resilience as a central dissemination platform for issuer disclosures in the future • Establish an enhanced dissemination infrastructure of listed issuer information • Enhance security features and user-friendliness of the eSubmission system • Publish Exposure Paper by end of 2005 to seek public views on: • Transitional arrangements (e.g. summary announcement vs. notifications) • Proposed rule changes • Requirement of listed issuers to establish their own websites and/or use of third party websites Enhancement of dissemination of listed issuers’ disclosures

28. Agenda • Highlight of Hong Kong Securities Market • Mainland China Dimension • HKEx’s Initiatives in Primary Market • Conclusion

29. Hong Kong competitive advantages • China’s growth & development presents tremendous business opportunities • Hong Kong is in a unique & favourable position to capture these opportunities - No foreign exchange controls & withholding tax - No capital gain tax, and no controls on foreign investment and investors - Freely convertible currency - Proximity to Mainland China - Active retail & institutional participation - A free, transparent and fair securities marketplace - Rule of Law - International accounting standards and management best practices - Abundant of professional expertise (investment bankers, accountants, lawyers, valuers) • HKEx is committed to build on its historic success and further strengthen its role as a premier capital formation centre for China enterprises as well as an international financial centre

30. HKEx’s strategic focus Operate a quality market through enhancing regulation and market infrastructure Focus on Hong Kong and Mainland China • Focus on core market operations: • Listing • Cash & Derivatives Trading • Clearing • Information Services • Market systems

31. HKEx’s mission statement The mission of HKEx is to operate a world-class marketplace for Hong Kong and Mainland China securities and derivatives products. By offering issuers access to international capital markets and maintaining an open, secure, fair, orderly, efficient and transparentmarketplace, HKEx contributes to Hong Kong’s status as an international financial centre and the premier capital market for Mainland China. By servicing China’s substantial long-term demand for capital and exchange services in accordance with international standards and practices, HKEx has the potential to become one of the world’s pre-eminent exchanges. .

32. Thank you www.hkex.com.hk