Former HKMA head Norman Chan says capital circulation is not as seamless as it used to be
A more liberal exchange of capital between the mainland and Hong Kong should be facilitated to enhance the city’s international competitiveness and allow China to participate more freely in the world’s majorkets, panellists told the China International Finance Forum on Wednesday.
“We need stronger policy initiatives to support freer capital flow between Hong Kong, the Greater Bay Area and the rest of the mainland,” said Norman Chan Tak-lam, the former CEO of the Hong Kong Monetary Authority (HKMA). “Innovation in this area is essential as we navigate the profound changes of our time.”
At the event, held at the Ritz-Carlton hotel in Kowloon, Chan said capital circulation – external and internal – is not as seamless as it used to be given the changes occurring in the international geopolitical and economic landscape.
“We need to rely on external circulation by strengthening the link between Hong Kong and mainland hubs like Shanghai and Shenzhen,” he said. “I think this is a direction we need to seriously consider moving forward.”
Chan’s remarks came after China’s securities regulator said on Tuesday that it planned to “steadily widen the openings in the commodities and financial futures market” to global capital, furthering the effort to improve connections with Hong Kong and global financial markets.
Chan’s comments were echoed by Charles Li Xiaojia, the former CEO of Hong Kong Exchanges and Clearing and co-founder of the small business financing platform Micro Connect. He warned that Hong Kong is “unlikely to see a significant influx of global capital in the current climate” and it must exploit its role as a gateway for Chinese wealth to secure a “baseline allocation” from global investors.
“The main task of Hong Kong’s financial markets today is to use the money that is already here, or the southbound capital from the mainland … to negotiate with the world … and get them to allocate to China,” Li said.
He said one particular area of growth would be to include initial public offerings (IPOs) in the connect programme that links markets in Hong Kong with those on the mainland. He said this would present a significant opportunity when China’s capital markets are ready to support such developments.
“Countries like Saudi Arabia currently have little reason to list in Hong Kong,” Li said. “However, if these nations could access Chinese capital through the connect scheme’s southbound flow, allowing investors to directly participate in their IPOs, they would have much stronger incentives.”
“This would enable Chinese capital, under regulatory oversight, to invest in the equities of these resource- and energy-rich nations without breaching China’s capital controls … The sovereign states could also use the proceeds to purchase Chinese government bonds, diversifying their own balance sheets while creating a natural hedge for China.”
David Liao, the co-CEO of HSBC Asia-Pacific, said Hong Kong has long been China’s window to the world, especially in the financial sector.
“Over the past three to five years, many have observed a significant outflow of US capital,” Liao said. “However, following the policies introduced after September, we can see that as long as there is growth and a compelling story, capital will return – not necessarily speculative funds, but participation-driven money.”
“Whether in mainland China or elsewhere, [investors] have been utilising Hong Kong’s capital markets,” he said, noting that even during the “down cycle” of the past three to five years, the capital flowing from the mainland “was only the beginning”.