At the end of last month, when I was in Hong Kong for a week's visit, the local stock market, known internationally as the Hang Seng Index, went through a series of record highs, breaching first the 26,000 level, then the 27,000 level and, since my return, even the 28,000 level.

Apart from visiting the exchange and seeing the trading floor, I got some official insight into the financial services scene, with parallels to Malta, from Sarah Kwok, Deputy Secretary for Financial Services, within the Secretary (ministry) for Financial Services and the Treasury.

"In Hong Kong, we do not have an overarching regulator like your MFSA," she observed from her office at the Admiralty Centre on Hong Kong island. "The Hong Kong Monetary Authority performs both the central bank function and the banking regulator.

"The Insurance Commissioner regulates the insurance industry (and) the Mandatory Provident Authority oversees the funds and regulates the operators in the system. Different markets are regulated by independent regulators."

With the need for co-operation among them in mind, Ms Kwok said MOUs (memoranda of understanding) have been signed between them, "particularly in areas where they feel a need for co-operation (like areas where) there would be convergence or cross-sector business".

The only exception is the Commission for Insurance, which is headed by a civil servant, "but we are in the process of turning it into an independent authority in a few years' time in line with international trends".

The securities market is overseen by a three-tier regulatory structure, she explained: "The first tier is in the government: we deal with the policies and the legislation; the second tier is the statutory regulator - the Securities and Futures Commission (SFC).

"This is formed under the law and has the statutory authority and the power to discipline, sanction and enforce the law for the regulation of the securities market to make sure it is run in an open, transparent manner to ensure shareholders' and investors' interests are protected; and the third tier is the stock exchange. This is a listed company but at the same time it is also a front-line regulator, which regulates the listed companies."

The SFC has a law enforcement division with investigative powers. Where necessary it deals with cases, and where there is a criminal element, the police and criminal justice system step in. "In case of need, the SFC can seek the help of (Chinese) mainland enforcement agencies."

Financial services, along with insurance and real estate, is one of the five pillars of investment that the Hong Kong government is seeking to attract to this Special Autonomous Region (SAR) of China. The others are tourism, logistics/transport, air (air transport and cargo), and business services (outsourcing and trading).

Financial services not only contribute 12.7 per cent of Hong Kong's GDP and uses about six per cent of its manpower but, as Ms Kwok pointed out, this is a high value-added sector with high wages and a strong multiplier effect on the economy, creating jobs in support services, entertainment and property, including office rental.

"The growth of this sector has been phenomenal in the past 20 years," she said, with the stock market more than doubling since the Asian financial crisis and SARS in 2003. Daily average turnover has risen from HK$10 billion (Lm390 million) to HK$140 billion (Lm5.5 billion) today."

Hong Kong's close economic relationship with China has been a major motor of that growth with the Chinese government committing itself in its latest five-year plan (the 11th) to support Hong Kong's continued development as an international financial centre.

This can be coupled with a continuous stream of mainland listings, many on a large scale, and also investment schemes that enable Chinese nationals to invest in Hong Kong. "In April 2006, the Chinese government announced the launching of the QDII (Qualified Domestic Institutional Investors) scheme.

This enables mainland investors to put money in three main types of institutions: banks, asset managers and insurance. These at first covered fixed income and some structured products, but last summer were extended to equities.

In the latest development, in August, mainland investors were allowed to convert their savings through certain designated banks and custodians into investments on the Hong Kong stock market.

This is despite the growth of mainland stock exchanges in Shanghai and Shenzhen, which are expected to merge in two years' time, according to the China People's Daily. Ms Kwok said each stock exchange had its distinct characteristics and had a different role to perform.

Earlier this year, Chinese Premier Wan Jiabao said he sees Hong Kong playing a greater intermediation role for the mainland. Ms Kwok explained: "As there are more mainland enterprises growing, seeking funding, wanting to raise funds through venture capital, private equity, listing or the issuing of bonds, they need more financial services to support them. And Hong Kong can play a great part in that. So, our aim is to be China's international financial centre of global significance. You can call it an opportunity or a challenge."

Listing the advantages and attractions of Hong Kong as the place to do business and for financial services firms to be located, Ms Kwok started by mentioning the tax regime. "We do not have tax concessions but we don't need that. Hong Kong has a simple, low tax regime.

"The corporate tax is a flat rate of 17.5 per cent, which is very low. That is why we do not need to pick sectors to give tax concessions. You do not pay tax on dividends so long as you pay corporate tax. So it is very simple and very low tax, which in itself is very attractive."

Another advantage was "a level playing field, and companies like the business environment here. We have one of the freest economies in the world." In terms of financial competitiveness, she pointed to Hong Kong's third ranking in a City of London global financial centres index (after New York and London).

Hong Kong's proximity to China was also listed as an attraction. "The global business community is eying mainland China, whether it be as a business partner, as a market for its products or services, or to gain market access to the mainland. Hong Kong is the place to be, the gateway through which international businesses can come here."

Elaborating on the gateway concept, Ms Kwok said many international businesses first set up a small operation in Hong Kong, gradually expanded those operations, and then extended them to the mainland. "International businesses would find it like a seamless transition coming to Hong Kong.

"We speak their language, we know how international businesses operate, but at the same time we can offer them knowledge, and introduce them to how to work with mainland businesses - the business culture there across the boundary."