Hong Kong's Financial Services Free To Grow

by Mary Swire, Tax-News.com, Hong Kong

19 May 2008

Hong Kong constantly reviews its regulatory model to ensure it does not hamper financial innovation or stifle the development of Hong Kong's financial services industry, Secretary for Financial Services and the Treasury, Professor KC Chan told a recent seminar.

Speaking at the Carnegie Endowment for International Peace luncheon in Washington, DC, on 14th May, Professor Chan revealed that spectacular economic growth on the Mainland is bringing scores of business opportunities to Hong Kong.

He noted that the Mainland's high growth has resulted in quick and massive accumulation of wealth, which translated into a huge demand for high-end and sophisticated financial products not yet available there. Mainland firms are scouring for funds to expand their businesses.

He added that Hong Kong has become the darling of Mainland enterprises wanting to list in other jurisdictions. With its trusted financial system, the city has become a trusted manager of Mainland money.

"Since 1993 when the first Mainland company was listed on our stock exchange, more than 440 Mainland enterprises have done so, raising more than USD240bn."

"In recent years Mainland authorities have been progressively allowing its banks, securities and fund management companies and insurance companies to invest overseas through Qualified Domestic Institutional Investors (QDII)," he observed.

This is considered an orderly outflow for Mainland funds. Hong Kong is likely to be the principal beneficiary of QDII because it is a market Mainlanders know well, culturally and financially.

When Mainland authorities want to use untried ways of conducting financial transactions with the outside world, Hong Kong is favoured as the first outlet. Chan suggested that this gives Hong Kong an enormous early advantage.

"We are third worldwide, just behind London and New York in terms of financial centre competitiveness. This is not my ranking, but the ranking of the Global Financial Centres index published by the City of London in March," he stated.

Prof Chan went on to ask: "How can Hong Kong help you to tap this rich vein of opportunities on the Mainland? The people who can help you are the smart financial professionals, and we have many of them. Our financial talent has an intimate knowledge of the Mainland market. Most importantly, they are Mainland networking specialists who can help you avoid costly mistakes and make the right moves."

He added: "Mainland intermediaries such as banks, insurance companies, securities and futures broker dealers are also establishing operations in Hong Kong and we expect to see Mainland fund managers set up operations here later in the year."

Overseas investors can capitalise on the Mainland's economic growth by investing in Chinese enterprise shares listed on the Hong Kong Stock Exchange.

There are about 440 of these enterprises to choose from, ranging from financial institutions, telecommunications, coal and gold mining, oil, gas, and car making to supermarkets.

"Fund managers can leverage on Hong Kong's strengths to tap the huge domestic savings of China. We are already Asia's leading wealth management centre with 80 fund management houses currently operating in Hong Kong, including firms from the US, the UK and Switzerland," Professor Chan concluded.

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