Some said that the development in the last three decades was a miracle and was almost incredible. Instead, I would describe it as a “world-shaking” development. Having encountered enormous difficulties and challenges at every single stage of reform and opening up, China, as the country with largest population in the world, managed to carry out an unprecedented transformation from a planned economy to a market economy. As there was no precedent to learn from, China could only rely on its own efforts and took one step at a time. Hong Kong has played an extremely important and irreplaceable role during the process of China’s reform and opening up. At the initial stage of opening up, China focused on attracting foreign investors to set up manufacturing factories. Hong Kong manufacturers were the first to move their operations to Mainland China. In the past 30 years, Hong Kong has always been the largest source of direct investment in the Mainland. In 2009, Hong Kong invested $ billion in China, accounting for one half of the total foreign investment in the country. In the course of investing in China, not only has Hong Kong injected capital but, more importantly, it has introduced skills in production and management. In the past decade, the Mainland projects in which Hong Kong invested have gone through some significant changes. The focus has been shifted from investment in the manufacturing industry to a range of diversified and multi-dimensional investments that include investment in all kinds of service industries.
In addition, Hong Kong will contribute to the improvement of the regulatory standard of Mainland financial institutions through regulatory co-operation, technological exchanges and staff visits between the regulatory bodies in Hong Kong and on the Mainland. Secondly, with the expansion and diversification of international trade and investment activities in China, Mainland financial institutions (particularly banks) have to expand and engage in cross-border and overseas businesses. However, banks on the Mainland have to be cautious when “going global” because the operating environment, legal and regulatory requirements and staff employment system of the Mainland market are very much different from those of the overseas markets. Therefore, Hong Kong acts as a suitable “window” or “springboard”. Many Mainland banks, such as the Bank of China, have a long history in Hong Kong and have accumulated much operating experience. These banks are generally trusted and welcomed by the Hong Kong people due to their pragmatic ways of doing business. In 1996, the total asset of Mainland banks in Hong Kong was $ billion, accounting for 11% of the total assets of banks in Hong Kong. In 2009, the total asset of Mainland banks in  2  BIS Review 166/2010  Hong Kong increased to $ trillion, accounting for 19% of the total assets of banks in Hong Kong.