New research by Hong Kong's Securities and Futures Commission has suggested that participation by mainland firms in Hong Kong's fund-raising markets is helping to raise standards of corporate governance in China.
According to the paper, Hong Kong can serve as a platform to speed up the reform process in the Mainland and to create a "win-win" situation for the Mainland and Hong Kong.
The Mainland’s share reform, and the accompanying pause in its fund-raising activities on domestic exchanges, fortified Hong Kong’s position as a prime fund-raising centre for Mainland companies in 2005, the SFC's report observed.
While some have raised concerns that the recent resumption of fund-raising activity by Chinese on the Mainland may affect business in Hong Kong, the SFC points out that such concerns underestimate the full extent of Hong Kong’s contribution. This is because Hong Kong does not simply provide a platform for Mainland companies seeking to raise funds, but also serves as a platform for raising their corporate governance standards and international visibility.
"As long as Hong Kong continues to strengthen its competitive advantages, it should be able to maintain its position as the prime fund-raising centre for Mainland companies," the SFC stated.
The research also concluded that the implementation of the QDII - or qualified domestic institutional investors - scheme will enable these investors to see the benefits of adopting international standards and practices, and encourage them to demand these same standards and practices in the Mainland. Over time, it is thought that this will improve the further development of Mainland markets in terms of the level of market sophistication and internationally-recognised best practices.
However, while the QDII scheme opens up opportunities for Hong Kong as well, the SFC noted that innovation is key, and stated that the territory needs to continue offering more and better financial products and services to meet the varying needs of different investors.
The full text of the Securities and Futures Commission research can be found in the Tax News Resources section.
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