Today, we welcome a new member to our suite of Connect schemes linking up capital markets in the Mainland and Hong Kong. Following the launch of the Stock Connect in 2014 and the Bond Connect in 2017, the HKMA, the People’s Bank of China and the Monetary Authority of Macao jointly announced the introduction of a cross-boundary “Wealth Management Connect” scheme (WMC) in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), and unveiled the scheme’s overall policy framework. This marks the conclusion of the joint exploratory work for the WMC. The three authorities will proceed to the next stage to flesh out the implementation details, a major step towards the official launch of the WMC.
The WMC is an initiative to facilitate cross-boundary wealth management within the GBA. It has attracted significant interest from various sectors since the Leading Group for the Development of the GBA announced plans last November to explore the establishment of the scheme. Indeed, even the outbreak of coronavirus has not disrupted the work of the HKMA in developing a conceptual framework to implement the WMC together with the relevant regulatory authorities across the boundary. In the process, we drew reference from our experience in the Stock Connect and Bond Connect schemes. We are also guided by several principles: (i) meeting the actual needs of GBA residents; (ii) maintaining the respective regulatory regimes and practices on the Mainland and the two Special Administrative Regions; (iii) taking an incremental approach with proper risk controls; and (iv) protecting the legitimate interests of investors throughout the investment cycle.
The GBA is an open and economically vibrant region. It not only boasts a cutting-edge innovation and technology hub and diversified industry chains, but is also one of the most affluent regions in the country. With a population of over 70 million, the GBA has a combined GDP of US$1.6 trillion, greater than some of the G20 economies; and its per-capita GDP of US$23,000 is comparable to some middle-income countries. According to a wealth report on the Mainland in 2019, the GBA accounted for over one-fifth of the entire country’s high-net-worth households with assets amounting to RMB10 million or more. The continued growth of the economy and personal wealth will generate increasing demand by Mainland residents for diversification of investment to offshore assets.
Meanwhile, the Mainland’s stable economic growth and enormous potential in the “new-economy” sectors have prompted many international investors to increase their exposure to Mainland-related investments, in particular renminbi assets. Hong Kong investors who wish to capture the growth potential of the Mainland may find it attractive to invest in Mainland wealth management products for yield enhancement and further diversification. The launch of the new two-way WMC is therefore most timely to meet the demand for cross-boundary investment opportunities by GBA residents. It will provide a new avenue to facilitate the efficient flow of capital within the region.
Indeed, a major breakthrough of the scheme is the considerable degree of flexibility given to individual retail investors to open and operate cross-boundary investment accounts directly, through a formal and convenient channel, and choose their preferred products. This is enabled by coordination among the authorities to find common ground and policy space within their regulatory regimes and practices, under the shared objective of an early launch of the scheme.
An incremental approach and proper risk controls are keys to the continued enhancements of the Stock Connect and Bond Connect schemes. For the initial stage, therefore, the three regulatory authorities will need to be pragmatic and prudent in the design of the scheme features. This is evident in the implementation framework, which is characterised by: (i) a product scope covering mainly simple investment products of relatively low risk; (ii) one-to-one bundling of the remittance and investment accounts set up by investors in banks in the two places; and (iii) closed-loop cross-boundary renminbi fund flow.
A cautious start will prepare us to go faster and further in the period ahead. As with the existing Connect schemes, we aim to roll out the WMC smoothly, safely and swiftly in the initial phase. So the scheme parameters would lean on the side of caution, with room for refinements and expansion in future. After all, the scheme involves three different regulatory regimes and is a novel attempt for most participating financial institutions and investors. We are confident that a smooth launch and operation, along with appropriate protection for investors, will prepare the ground for further enhancement.
The WMC is designed to provide investors with greater flexibility in making investment decisions. For many of them, it will be their first attempt in investing across the boundary, so it is particularly important to ensure adequate investor protection is in place. For this reason, we are emphasising in today’s joint announcement that the regulatory authorities will introduce measures and establish sound mechanisms for regulatory co-operation, liaison and co-ordination in order to protect the interests of investors. This will be a focus area of our discussions with the industry in devising the implementation arrangement.
The WMC will create a much greater customer base and generous room for growth for Hong Kong’s financial services industry. While promoting the organic growth of our local wealth management market, it will drive the development of the entire financial services value chain, encompassing product development, distribution, asset management and related professional and support services. More broadly, the WMC will expand the catchment area of our wealth management industry, providing greater incentives for global financial institutions to set up and expand their presence in Hong Kong to serve Mainland investors. This will no doubt further consolidate Hong Kong’s roles as an international financial centre and the world’s offshore renminbi business hub.
As we undertake the final steps in preparations for the WMC, we are prepared for the challenges ahead. In the coming months, we will engage our regulatory colleagues across the boundary and stakeholders in the financial industry to finalise the implementation details, in the hope of rolling out the scheme before long. Stay tuned for more details.
Hong Kong Monetary Authority
29 June 2020