June 29, 2020 / 9:49 AM / 14 days ago

China unveils cross-border wealth management scheme with Hong Kong, Macau

HONG KONG/SHANGHAI (Reuters) - China announced details of a long-expected pilot scheme on Monday that links investments and financial services between the semi-autonomous economies of Hong Kong and Macau and their neighbouring cities on the mainland.

Wealth Management Connect will allow residents of the two offshore centres and those in nine cities on the mainland to buy financial products in each other’s markets.

It is part of Beijing’s grand project, revealed early last year, to build a Greater Bay Area (GBA) economic powerhouse in southern China by encouraging cross-border flow of capital and people and further integrating these centres with the mainland.

The area’s combined gross domestic product is similar to that of Australia or South Korea. [nL3N21Q23D]

The announcement comes as China seeks to impose a new national security law on Hong Kong, and only two days before the 23rd anniversary of the territory’s return to Chinese rule.

The People’s Bank of China (PBOC) and the two cities’ central banks will pilot the scheme with adjustable investment quotas, they said in a joint statement on Monday.

Mainland China has strict capital controls, while Hong Kong and Macau do not. Cross-boundary remittances will be conducted in yuan and currency conversions will be performed offshore, the statement said, adding that the pilot’s official launch date would be announced later.

“It represents a major breakthrough in Hong Kong’s offshore renminbi business development and a significant step to foster closer financial cooperation in GBA,” Eddie Yue, chief executive of the Hong Kong Monetary Authority, said in a separate statement. The yuan is also known as the renminbi.

Hong Kong leader Carrie Lam said it reflected “solid backing” from Beijing and that “Hong Kong continues to play a leading role in the country’s economic development and opening up of financial markets”.

Similar links quickly became major channels for global investors trading Chinese bonds and shares after they were launched in recent years, boosting the yuan’s use.

While details of the new scheme have not been disclosed, the central banks said on Monday that it will allow Hong Kong and Macau residents to invest in wealth management products sold by Chinese banks in mainland cities in the Greater Bay Area while also allowing residents in those cities to buy products sold by Hong Kong and Macau banks.

China is also touting a new futures exchange and plans to pilot cross-border private equity investments in the area. [nB9N2CC01I]

Peter Alexander, managing director of fund consultancy Z-Ben Advisors, said that foreign firms should temper their expectations given the lack of details, such as timing of the launch or types of eligible products.

“What has been most problematic is ... the gross misunderstanding globally as to what exactly ‘wealth management’ is in the eyes of the Chinese,” he said.

Additional reporting by Beijing monitoring desk; Editing by Jacqueline Wong, Vidya Ranganathan and David Goodman

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