Western over-regulation will drive investment to Asia: CIC

The sovereign wealth fund’s executive VP, Jesse Wang, labels proposed US and UK regulatory change “anti-globalisation” and challenges Hong Kong to step into the breach.
Western over-regulation will drive investment to Asia: CIC

The deputy head of China’s $400 billion sovereign wealth fund CIC has ridiculed UK and US regulatory change and challenged Hong Kong to step into the breach as a global financial hub.

Speaking at the Asian Financial Forum in Hong Kong this week, Jesse Wang labelled Vickers Report recommendations for British banks to separate high street and investment banking operations as “anti-globalisation”.

The executive vice-president of China Investment Corporation argued that the pending UK rules, scheduled to become law in 2015 and implemented by 2019, amounted to over-regulation that would impair banks’ competiveness and could push global banks to switch investments to Asia.

He added that new prudential standards planned for foreign banking organisations (FBOs) in the US under the Dodd-Frank Act would be counter-productive to Chinese institutional expansion.

Under the proposals, FBOs – defined as global institutions with consolidated assets of $50 billion or more – would be required to set up a separately capitalised intermediate holding company for all their US subsidiaries.

Evidently CIC would be caught by this regulation. As an institution it has $400 billion, and although it does not currently have a US office itself, it owns state investment arm Central Huijin, which has shares in all of China’s big four banks.

“This [FBO regulation] is counter-intuitive,” suggested Wang. “The competition among the big four state-owned commercial banks is already as intense as a mud-fight. Are they expecting CIC to consolidate these under one intermediate holding company?”

Addressing the packed 300-seat conference room, Wang then asked whether Hong Kong was ready to expand as a global hub where international banks would increasingly base their operations. 

“In order to survive [Western over-regulation],” he said, “financial institutions will ultimately have to come out [from UK or US jurisdictions], so is Hong Kong ready?

“We should welcome these international financial institutions to Hong Kong, so that in future they can become Hong Kong Co. Limited instead of US Co. Limited.”

On a separate note, Wang, who previously worked as CFO and executive vice-president at Bank of China International, shared his views on the inefficiencies and lack of innovation in China’s financial system.

Despite having grown in scale, the nation’s mutual fund industry still exhibits retail-like investment behaviour, he said. “This has to do with the lack of corporate governance among these [mutual fund] organisations, and the fact that in China we still do not have a well-developed [market] valuation mechanism.”

He observed that the lack of financial instruments with reasonable return prospects meant that Chinese investors were paying too much attention to stock-market indices.

Wang suggested that both fundraisers and investors needed to be able to access the domestic market at low cost to turn the situation around. Moreover, regulators needed to step in to improve structural issues, such as market infrastructure and legal framework, and focus on encouraging innovation rather than clamping down on it.

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