Concessionary tax for debt securities profit

Since May, interest income and trading profits derived from eligible debt securities have been subject to a concessionary tax rate equal to 50% of the standard profits tax rate. All debt instruments, regardless of their currency denomination, will qualify for the tax concession if they fulfill certain criteria (Table 4).

Active private sector debt market

There is a large and active market of private sector Hong Kong dollar debt instruments such as Negotiable Certificates of Deposit (NCDs) and bonds issued by corporates and multilateral agencies. Total NCDs outstanding reached $180 bn by end of 1996, up 36% from a year ago. During 1996, the market benefited from a stable interest rate environment and saw the value of paper issued reaching over $70 bn, representing an increase of 21% over 1995. Of this, the floating rate debt instruments accounted for 70% of the total issue activity. In terms of the maturity structure, 79% of all the private sector paper issued during the year had an original maturity of three years or more. During the year, 85 debt issues denominated in Hong Kong dollar as well as foreign currencies were listed on the Hong Kong Stock Exchange, bringing a total outstanding number of listings to 256.

Debts issued by multilateral agencies and Chinese enterprises increased

Multilateral agencies such as the World Bank and the European Investment Bank stepped up their issue activities in the Hong Kong market. Total outstanding paper issued by the multilateral agencies amounted to $19 bn at the end of 1996 (up 36% from 1995). There were also a number of debt issues by mainland Chinese enterprises during the year, including the Bank of China's issue of the $4 bn NCD. Alongside the rapid economic development in China, fund raising activities of Chinese enterprises in the Hong Kong debt market are likely to increase in the next few years.

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