Chinese authorities are looking to the new Wealth Connect scheme to increase the flow of capital between the mainland and Hong Kong and strengthen the links between the two areas.
Investors will get the chance to use the Wealth Management Connect Pilot Scheme from mid-October at the earliest, following its official launch in Beijing, Guangzhou and Hong Kong on September 10.
The Greater Bay Area is serving as a testing ground for new policy, products and services facilitated by global interoperability, according to a newly published report by World Economic Forum on September 8, in collaboration with Oliver Wyman.
China’s asset management industry hit Rmb118 trillion ($18 trillion) last year, nearly quadruple the size of the sector in Hong Kong, says the report. The driving force behind the much-anticipated launch of The Wealth Connect on September 10 is for more high net worth individuals and family offices to transact more of this wealth more frequently between the mainland and Hong Kong.
The Wealth Connect scheme will initially lead to a combined Rmb300 billion in the GBA, benefiting asset managers and banks, and could attract more family offices to set up in Hong Kong, say experts.
The scheme is based on bank-to-bank trading, greatly enhancing the role of banks. However, Josephine Kwan, asset management partner at PwC, thinks other market participants such as private banks, alternative asset managers and family offices will benefit too.
"Hong Kong recognises the importance of family offices and has recently launched many policy initiatives to encourage their setting up in Hong Kong. For the wealthy business owners in the GBA, Hong Kong would be an attractive location to set up their family offices," she told AsianInvestor.
The success of the scheme will also add confidence to the roll-out of other GBA initiatives, such as Insurance Connect and can act a reference point for other initiatives in terms of its operating model. Billy Wong, PwC Hong Kong insurance leader, told AsianInvestor.
After the success of the Bond Connect and the Stock Connect between the two regions, in June this year, the first pair of exchange-traded funds (ETF) under a cross-listing scheme went public in Shanghai and Hong Kong. Investors can invest directly in the ETFs through the Shanghai-Hong Kong ETF Connect.
Source: World Economic Forum Report
TIGHTENING AND OPENING
Although the industry is predicting booming growth driven by multiple engines, regulators are cautious about the challenges ahead and market observers point out how it has taken other markets decades to develop regulatoryexpertise.
"While most international markets are mature, highly regulated, follow similar principles and have sophisticated institutional investors, their framework and governance is often unique. Understanding, assessing and adhering to international markets framework, takes maturity and experience, which has taken many of the leading financial markets 30 to 50 years to develop and maintain," Caroline Higgins, senior vice president, head of Hong Kong, Macau and Taiwan for Northern Trust, told AsianInvestor in an email reply.
At the same time, the government is continuing to welcome foreign participation in the country’s financial industry. Ithas awarded a series of licenses to Wall Street banks and overseas asset managers as it further opens up its domestic financial markets. One of them, US asset manager BlackRock, which obtained a mutual fund operation license. It launched a set of mutual funds and other investment products for Chinese investors on August 30, which has already raised Rmb6.7 billion ($1 billion).