ABSTRACT
The most important form of mainland business presence in Hong Kong at the time of the Asian Financial Crisis was the so-called ‘red chip.’ Guangdong had a special place of importance among the red chips. The red chip experiment can be viewed as part of the process of reforming China’s state-owned enterprises, since in most cases the enterprises that were injected into the red chips were from the portfolio of assets owned by the local government or other mainland government entity that owned the red chip’s parent. To a considerable degree the red chips were able to exploit shortcomings in the regulatory environment for all firms in Hong Kong. In the late 1990s the profitability of the international trust and investment companies was considerably greater than that of the banks. The lack of adequate internal control mechanisms compounded the difficulties for the central authorities.
