China sets limits in plan to ease capital controls in Greater Bay Area under cross-border wealth management scheme

24-Oct-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

China is moving a step closer to easing capital controls within the Greater Bay Area by setting the amount of fund flows allowed under an investment scheme with Hong Kong and Macau from early next year.

Authorities on both sides of the borders have set an aggregated quota of 300 billion yuan (US$45 billion) in fund movements in both directions between the nine cities in southern Guangdong province and the two special administrative regions.

Beijing, Hong Kong and Macau have also limited individual investors to 1 million yuan worth of investment products they can each purchase under the scheme, known as Wealth Management Connect, a Hong Kong Monetary Authority spokesman said.

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The newest Connect scheme, an extension to the popular stock and bond programmes, first unveiled in June without an explicit timetable, will give more than 70 million residents in the bay area access to investment products to strengthen the financial bond in the region.

The aggregate quota and investment limits were decided after several months of consultation with market participants, the HKMA spokesman said in reply to a query from the Post on Thursday. The scheme is expected to kick off early next year.

“Like other connect schemes, we envisage the Wealth Management Connect would take an incremental approach, starting with a smooth launch, with possibilities for enhancements down the road,” he said. “Therefore, regulatory authorities aim to be pragmatic and prudent in the design of the scheme features, with proper risk controls.”

For a start, only simple investment products with medium to low risk profiles can be sold through the new scheme, the HKMA said. More details will be available as they are finalised, it said.

The 150 billion yuan one-way quota for the Wealth Management Connect is half the limit of a mutual fund recognition scheme introduced in 2015. It is also lower than the 550 billion yuan quota for the two-way Shanghai-Hong Kong Stock Connect, first announced in 2014 and scrapped two years later.

The city’s fund industry would prefer a bigger quota, a larger universe of funds, and the ability to provide investment advisory and other supporting services, according to Sally Wong, chief executive of the Hong Kong Investment Funds Association.

“However, it is fully understandable that regulators wish to start off with great prudence, especially as this scheme is targeted at retail investors,” she said. “We can work on enhancements, such as expanding the product scope or increasing the quota” at a later stage, she added.

The Wealth Management Connect mechanism gives Hong Kong another critical advantage over other Asian financial hubs such as Tokyo and Singapore in tapping China’s wealth and financial markets. The mainland’s wealth management industry is worth about 25 trillion yuan, according to fund consultancy Z-Ben Advisors.

China is home to more dollar-denominated billionaires than the US, accounting for nearly four in every 10 new ultra-wealthy individuals, according to the Hurun Report.

The bay area is already home to some of China’s richest home-grown tycoons, including He Xiangjian, the founder of the world’s biggest home appliances maker, Midea Group, and Pony Ma Huateng of Tencent Holdings.


Category: China

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