IN HONGKONG supposedly only one in 10 persons earn enough to pay the full rate of tax but, surprisingly enough, a lot of investors could together lay their hands on $240 billion to punt on the recent public offering from Denway Investment. Denway was 657 times oversubscribed and left a huge hole in Hongkong's monetary system. For the statistically minded, the oversubscription represented about 40 per cent of Hongkong's GNP. Obviously a lot of the potential investors are institutional investors but many were individuals hoping to make quick profit from the shares. So where does the money come from? It comes from extremely flexible lending arrangements by mainland Chinese banks. Anybody can wander into the securities department of Yien Yieh Commercial Bank and borrow a maximum of $20 million to subscribe for new shares without any security or establishing his or her financial position. All you are required to do is lay down a deposit of five to 10 per cent of the amount you borrow and a couple of hundred dollars for the general expenses. The interest rate will be around two per cent above the Hongkong inter-bank offered rate (HIBOR). You do not have to guarantee the rest of the loan. All Yien Yieh bank asked for was a name and a contact telephone number ''in case there are any hot tips''. The Sheung Wan branch of the bank was crowded with punters watching market prices on a large screen. Different shares require different minimum deposit rates. The rates depend on the popularity of the shares. More popular the share, the less deposit required. Kosonic, for example, required a 20 per cent minimum deposit, while Denway required only five per cent. Also, a table of subscription times and deposit rate will be set out by the bank to clients. The total cost of the Denway subscription was around $2.30 for each share, while the offer price was just $1.22. Theoretically, you will not make any money until Denway trades above $2.30 on the grey market but you will not be required to borrow the money unless the grey market price is higher than the price you pay. Yien Yieh bank is happy to tell you the grey market price as well. However, the grey market price is only an indication. The share could rise or fall in value before trading starts. ''We are very prudent in the services we provide but we base our criteria on the market reaction to the company, its financial position and capitalisation,'' said Mr Tang Joe-kwok, deputy general manager of Yien Yieh Commercial Bank. ''One of the conditions is that either the Bank of China, Hongkong Bank or Standard Chartered Bank is the receiving bank, to make sure that there will not be any problems if such a huge amount of money is tied up,'' he added. The bank will not bear much risk by offering such loan services - the risk is lesser when shares are oversubscribed many times over. But of more concern is that such services may encourage market speculation on new issues. The government has set up a working group to conduct a review of the issue and look at possible problems that may arise when such a huge amount of money is tied up in any new issues. ''We started meeting some banks, brokers and underwriters last week. We are going to have meetings with some other banks this week to understand the situation [arising from] the loan offered by the banks to subscribe new shares. The total number of institutions we meet will be about 20,'' said Mr Albert Cheok Say-chuan, Deputy Commissioner of Banking. ''It is too early to say there are any problems arising due to such subscription mechanisms. We will meet the major banks to understand the loan arrangements. We'll do it step by step, to find out the problems first followed by solutions,'' he said. With several mainland enterprises expected to list locally this year, the authorities are anxious to identify what if any threat is posed to the system. Such is the enthusiasm among retail investors for the so-called China play stocks, whose share prices tend to rocket immediately upon listing, that at least three recent mainland-related public offerings have been more than 400 times oversubscribed, eachby a wider margin than the last. Car manufacturer Denway Investment, which starts trading tomorrow, was 658 times over subscribed, preceded by hot-pot restaurant chain Tack Hsin Holdings, 552 times oversubscribed two weeks ago and China Travel Service, 411 times oversubscribed.