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Hong Kong Welcomes Chinese Support Measures

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

22 August 2011


Hong Kong’s government has welcomed the package of measures disclosed during his recent visit by the Vice-Premier of China’s State Council, Li Keqiang, to support economic and financial development in Hong Kong.

"The measures announced by the Central Government cover a wide range of areas which include finance, the economy and trade, transport, tourism, supply of food and energy, health-care services and education, creating a win-win environment by bringing benefits to the whole community of Hong Kong as well as boosting the country's further development. The collaboration between the Mainland and Hong Kong is also strengthened," Hong Kong’s Chief Executive Donald Tsang said.

A large number of the announced measures are related to the financial area, reflecting the support of the Chinese government to strengthen Hong Kong's position as an international financial centre. Furthermore, while the measures will benefit the whole financial market in Hong Kong, they will also help China's plan to build a multi-layer financial market in its 12th Five-Year Plan period, and its goal to expand the cross-boundary use of the renminbi (RMB).

Policies beneficial to the development of offshore RMB business include a revision of measures for the management of foreign investment projects, to support and encourage Hong Kong enterprises to use RMB for direct investments in the Mainland, and to allow investments in the Mainland’s equity market by means of the RMB Qualified Foreign Institutional Investor scheme.

Regarding the development of the offshore RMB bond market, Li said that the issuance of RMB-denominated bonds in Hong Kong would be a long-term institutional arrangement, and that the scale of issuance will be gradually expanded. In addition to expanding the number of Chinese enterprises issuing RMB-denominated bonds in Hong Kong and the scale of the bond issuance by these enterprises, the Chinese government will also allow non-finance-related domestic enterprises to issue RMB-denominated bonds in Hong Kong.

It is expected that these measures will be a huge boost to the development of the offshore RMB capital market and innovation in RMB financial products. The Chief Executive of the Hong Kong Monetary Authority Norman Chan said: “The expansion of the bridges linking the onshore and offshore RMB markets to facilitate the orderly flow and circulation of RMB funds is an important process for the development of the Hong Kong offshore RMB business centre.”

He added that “the Central Government’s new measures will greatly promote financing activities in RMB in Hong Kong by Hong Kong and overseas corporates for their foreign direct investments in the Mainland, allow Mainland non-financial entities to have access to an attractive RMB financing platform, increase the usage for the growing pool of RMB funds in Hong Kong, and at the same time promote the further and continued development of Hong Kong’s RMB bond market.”

With reference to the equity market, the Central Government will roll out an exchange-traded fund, consisting of Hong Kong stocks in the Mainland, and continue to support the listing of Mainland companies in Hong Kong. These measures will be important to the Hong Kong equity market, which has been serving as the key capital-raising platform for Mainland companies.

In a further demonstration of the developing cooperation between Hong Kong and the Mainland following Li’s visit, Hong Kong Exchanges and Clearing Limited (HKEx) has announced that it has agreed in principle to enter into detailed discussions with China’s Shanghai and Shenzhen Stock Exchanges with a view to establish a joint venture company to be incorporated in Hong Kong.

Currently, it was said, the possible areas of business operation of the joint venture company include, but are not limited to, the development of index and other equity derivative products and the compilation of new indexes.

In addition, Li has confirmed that Beijing will also explicitly support Hong Kong's insurance companies to enter the market in the Mainland by setting up offices or taking up stakes, which will bring more business opportunities to the industry.

To open up further the markets for Hong Kong's trade in services, the Central Government has also announced a target for the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), which gives preferential treatment to Hong Kong enterprises to enter Mainland markets, and which, currently, covers more than 1,600 products and 40 services sectors, to achieve the full liberalization of trade in services for Hong Kong by the end of the 12th Five-Year Plan period.

In the short term, Li indicated that a CEPA Supplement would be signed by the end of this year to intensify the liberalization of the trade in services.

On regional economic cooperation, China has noted that Hong Kong's major trading partners are actively seeking negotiations on bilateral and multilateral free trade agreements, and, so that Hong Kong does not lag behind, the Central Government will support Hong Kong's active participation in multilateral and regional economic cooperation so as to enhance its status as an international trading, shipping and financial centre.

Hong Kong’s government also expressed their gratitude to Beijing for supporting Hong Kong as an international shipping centre, including support for Hong Kong to increase its air services capacity in the region; and the development of Hong Kong’s tourism industry, particularly by encouraging Hong Kong’s travel agents to operate in the Mainland, and supporting the development of cruise vessels home-porting in Hong Kong.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
TAGS: investment | free trade agreement (FTA) | law | aviation | capital markets | insurance | equity investment | China | travel and tourism | offshore | agreements | stock exchanges | Hong Kong | trade | alternative investment | services

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