To further explore business opportunities for financial integration between the Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area) and the European Union (EU), as well as Hong Kong’s role and functions in it, the Chamber and the Office of the EU to Hong Kong and Macao earlier jointly organized the “Hong Kong, GBA and EU: Examples of Financial Integration” seminar, which was held online and offline simultaneously with Brussels where the EU’s HQ is located.
Michael Wong: Take advantage of policies to connect EU for investment in Mainland
Amid a global economic reset, how to achieve financial integration between the GBA and the EU is a topic worthy of future study for Hong Kong. Michael Wong, Deputy Financial Secretary, is certain that the “Hello Hong Kong” campaign will not only attract tourists to come and spend in Hong Kong, but also enable them to experience Hong Kong’s safety and hospitality, thus enticing them to come to Hong Kong for business and investment.
Hong Kong has advantages as springboard to enter the Mainland
Wong recalled that when he attended the Global Financial Leaders’ Investment Summit hosted by the Hong Kong Monetary Authority (HKMA) in November last year, some guests told him that it is still worth visiting Hong Kong, and as a bridgehead linking the Mainland with international markets, Hong Kong is a must-visit place. Such remarks are very encouraging for Wong. In fact, Hong Kong has good advantages as the best springboard for investors from all over the world to enter the Chinese market.
All along, the pace of financial development in Hong Kong has never stopped. According to Wong, under the unique arrangement of “One Country, Two Systems”, Hong Kong, which among the Greater Bay Area cities has the highest level of openness, the highest level of freedom of entry/exit of production factors, and the most comprehensive global business network, can actively become a participant in domestic circulation and a facilitator of international circulation, thus greatly contributing to and benefiting from the development of the Greater Bay Area.
Continuing pace of financial development
Wong further said that the China Securities Regulatory Commission (CSRC) and the Securities and Futures Commission of Hong Kong (SFC) launched the ETF Connect mechanism in July last year. He noted that trading under ETF Connect has been active, with southbound trading under the mechanism coming to nearly HKD1 billion in average daily turnover.
Separately, the Financial Services and the Treasury Bureau (FSTB) and Shenzhen’s Qianhai Authority jointly issued 18 measures in September last year to support joint Shenzhen-Hong Kong venture capital investments. Wong said that the 18 measures, which cover a wide range, will provide facilitation and preferential policies for the Hong Kong private equity industry, and promote the development of a mechanism that links Shenzhen and Hong Kong venture capital investments.
Wong also said that the HKMA signed a memorandum of understanding with the People’s Bank of China (PBoC) in October 2021 to link up the PBoC’s Fintech Innovation Regulatory Facility with the HKMA’s Fintech Supervisory Sandbox in the form of a “network”, and under the premise of compliance with laws and regulations, the “network link-up” will promote financial technology innovation cooperation in a steady and orderly fashion. He believes that this move will help enhance the quality and efficiency of financial services in the Greater Bay Area, and foreign investors including the EU can also seize the opportunity within it.
In Wong’s view, Hong Kong can serve as a bridge connecting the Mainland and the global market, helping Mainland companies expand their business to EU member states, while attracting EU investors and foreign-funded enterprises to Mainland cities, thus facilitating economic and trade interconnection between the two sides. He looks forward to the Hong Kong business community actively taking advantage of the policies for interconnection between the country and Hong Kong to enable overseas investors including the EU to enter the Mainland market.
Jour-Schroeder: Work with Hong Kong to promote steady financial development
Alexandra Jour-Schroeder, Deputy Director-General at the Directorate-General for Financial Stability, Financial Services and Capital Markets Union of the European Commission, said that Hong Kong can strengthen collaboration with the EU, especially to jointly explore more opportunities in areas such as advancing capital market integration and promoting green financial development.
In 1957, six European countries signed the Treaty of Rome to promote the free movement of workers, goods, capital, and services among member states. Later, the Single Market was formally established in 1993. It took years for the EU member states to transform the common market into a truly single market. Subsequently, the European Commission repeatedly put forward legislation to continuously coordinate the laws on goods and services in order to eliminate the trade barriers within the community.
The past and future of “single passport”
Jour-Schroeder said that one of the key decisions of the EU in its history is the “single passport” that allows financial institutions to freely conduct business in other EU member states. In Jour-Schroeder’s view, this institutional arrangement has eliminated obstacles for financial institutions to conduct business across borders in the EU, which facilitates the free flow of capital, thus playing an important role in promoting EU financial market integration.
It has been 30 years since the establishment of the European single market. Jour-Schroeder said that it has made transactions smoother, but it also faces challenges, such as in digital finance, which still needs to be improved. She said that digitalization is the future of finance, but Europe faces obstacles due to market disunity, which hinders cross-border development and expansion of fintech start-ups.
Therefore, the EU is currently thinking about how to embrace the challenges of digital finance. Jour-Schroeder said that the EU is addressing issues such as deepening the single market for digital financial services, expanding its scale, and promoting related financial sectors. The EU also wants to maintain technology neutrality and stimulate innovation. For example, it has proposed laws on encrypted assets and blockchain technology with the aim of giving the EU a comprehensive regulatory framework to fill the gaps in the current EU financial regulatory framework, while ensuring that regulatory oversight will not lead to any loss in market vitality due to too many restrictions on innovative activities.
Increase in market liquidity for green transition
In addition, Jour-Schroeder mentioned that the EU has proposed a “capital market union” (CMU). At present, the EU is reviewing relevant financial market regulations in order to make them better to facilitate the flow of capital among member states.
Regarding green finance, Jour-Schroeder believes that it is the current general trend. She said that the EU will strengthen collaboration between public financing and the European CMU to drive private funds to invest heavily in green transition and make it easier for member states to provide subsidies. Meanwhile, the EU also wants to attract more private capital to support green transition amid the post-pandemic economic recovery.
Jour-Schroeder looks to the EU moving in conjunction with the global economy towards a green transition. She noticed that many Mainland and overseas institutions are interested in issuing green bonds in Hong Kong, which is a testament to the commendable efforts of the HKSAR Government in promoting green finance. She looks forward to seeing Hong Kong, as an international financial centre, connecting China with foreign countries to help the Greater Bay Area and other Mainland provinces and cities move towards a green transition.
Mutual Market Access Brings New Opportunities
Facilitated by Walter Van Hattum, Head of Trade and Economic, European Union Office to Hong Kong and Macao, the discussion panel was joined by Joseph Chan, Under Secretary for Financial Services and the Treasury; Tim Lui, Chairman of the Securities and Futures Commission and Laurence Li, Chairman of the Financial Services Development Council. Panel guests discussed how to construct a more convenient and more effective platform for the financial cooperation between the Greater Bay Area and the EU under the new mutual market access mechanisms.
Joseph Chan: Further deepening mutual market access
Chan reckoned that Hong Kong has quite many competitive edges, including its law and order, free circulation of capital, the Common Law system and a simple tax structure. Hong Kong’s connection with the Mainland market is yet another advantage, which gives it the unique connector role that links up the Mainland with the global capital market.
“The development of Hong Kong’s capital market is crucial for both the Mainland and the city itself. Therefore, the HKSAR government has rolled out a series of mutual market access mechanisms, including Shanghai Connect, Shenzhen Connect, and most recently, ETF Connect, etc. These can facilitate the investment of Mainland capital in overseas market, and vice versa. Hong Kong can undertake the important role of ‘connector’ here.”
Chan recalled that Tsingtao Beer, the first-ever H-share listing in Hong Kong, went public in 1993. Thirty years on, the value of Mainland companies now makes up over 80% of the Hong Kong stock market. This shows that the capital potentials of the mutual market access between Hong Kong and the Mainland are indeed enormous. He believes that as the Chinese economy continues to boom, and as the country becomes increasingly open, Hong Kong’s role as the “connector” will stay strong.
Tim Lui: Shanghai- and Shenzhen-Connect are well received by investors’
Prior to the launch of Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect, it was very difficult for foreign investors to tap into the Mainland stock market. There were investment restrictions, and capital flow was limited by a quota.
Lui said that the launch of Shanghai Connect in 2014 marked the arrival of a novel investment channel for foreign investors. “The channel is highly popular among foreign investors, including those from Europe. Many of them are sizeable institutional investors and funds. Figures reveal that as of 2022, the net inflow of capital that went to the Mainland through the mutual market access mechanisms amounted to a remarkable RMB 2.2420 trillion.”
Lui added that although some EU countries have already established connection schemes with Chinese stock exchanges, the mutual market access mechanisms between Hong Kong and the Mainland are still evidently better. This is because Hong Kong is the only place that allows both domestic and overseas investors to directly trade stocks of their counterparty’s market.
Laurence Li: Hong Kong plays a key role in China’s financial liberalization
The financial markets of Hong Kong and the Mainland are interconnected in two main aspects. The first is the “hard” connection of the infrastructures; the second is the “soft” connection of the policies. Li said that while Hong Kong is not geographically situated at the heart of the Greater Bay Area, proximity with other Greater Bay Area cities is much improved following the opening of the Hong Kong-Zhuhai-Macau Bridge.
With regard to the soft connection, Li explained that the establishment of Hong Kong and Mainland’s full mutual access for their financial markets is a gradual process. At the very beginning, Shanghai Connect operated with close-loop management, which was relatively simple. The mutual access for the bonds market that followed saw an expanded capital scale. Next came the mutual access for wealth management products. By this time, the mechanisms are no longer reserved for a few institutions, but expanded to cover the wealth of individuals.
Swap Connect, which is currently under discussion, is a new initiative for mutual access between interest rate swap markets in Hong Kong and the Mainland. Operation is much more complicated as it involves interest rate risks. It is also a prelude to a further expansion to the risk management product market. “The history of mutual market access shows that the Chinese financial market is progressively connecting with the global market through Hong Kong.”