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New stage, new space, new development

Two important policies relevant to Hong Kong were launched last week, namely the Plan for Comprehensive Deepening Reform and Opening Up of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone (Qianhai Plan) and the Cross-boundary Wealth Management Connect Pilot Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area (Cross-boundary WMC). The financial sector in Hong Kong had been looking forward to the launch of the Cross-boundary WMC, which is a crucial policy breakthrough in connecting the two markets and brings enormous new opportunities to the industry, marking a remarkable milestone for the cross-boundary flow of capital in the Greater Bay Area. As regards the Qianhai Plan, it is an even more important blueprint for the long-term and robust development of Hong Kong’s overall economy and our further integration into the national development plan.

Let me first begin with Cross-boundary WMC.

I attended the launch ceremony of the Cross-boundary Wealth Management Connect Pilot Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area last Friday.

Under “one country”, we enjoy the benefits of “two systems”. Hong Kong’s financial market development enjoys the unique advantage of facilitating international and Mainland capital in conducting cross-boundary investments through closed-loop channels, such that investment opportunities can be explored in a risk-controlled manner. From Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, Northbound trading under Bond Connect, mutual recognition of funds, to the launch of Cross-boundary WMC last week – it demonstrates how we expand the mutual market access mechanism from covering stocks, bonds, funds and now to eligible wealth management products distributed by banks.

Under Cross-boundary WMC, there will be an aggregate quota of RMB 150 billion in each direction for the Southbound Scheme and Northbound Scheme, and an individual investor quota of RMB 1 million. Initially, the scheme will only cover investment products with low to medium risk. The Southbound Scheme is applicable for residents of the Mainland cities in the Greater Bay Area while the Northbound Scheme is applicable for residents of Hong Kong and Macao. Eligible individual investors of the two places can make cross-boundary investments in relevant authorised products through this channel.

For financial institutions, the addressable market for wealth management products is significantly expanded at once as the Greater Bay Area is the most prosperous region in the Mainland in terms of economic development with the largest wealth accumulation. It was found that Chinese families’ investment in financial products only accounts for 17% of their total assets, which is much lower than that of the United Kingdom (27%), Japan (38%) and the United States (58%). As the number of households with higher net worth continues to increase, there is a pressing demand in the market for diversified investment and international allocation.

On the other hand, Hong Kong is the largest private wealth management centre in Asia with a global ranking second only to Switzerland. As at the end of last year, assets under management by Hong Kong’s asset and wealth management industry amounted to nearly HK$ 35 trillion with a year-on-year growth of 21%. Hong Kong offers a wide variety and diversified mix of financial products which can serve various investment and risk management needs of Mainland residents – this is where the potential of the Southbound Scheme lies. The Northbound Scheme also opens a channel for Hong Kong and Macao residents to invest directly in the wealth management products of the Mainland, providing more options for investors.

One can say that Cross-boundary WMC has brought about historic development breakthrough and enormous new opportunities for the wealth management markets of the two places.

At a more macro level, Cross-boundary WMC serves two major functions.

Firstly, by making use of the unique advantage of “one country, two systems” and three monetary systems, Cross-boundary WMC further deepens the collaboration and integration and promotes the interactive development of the onshore and offshore market. It enhances the scope and level of the mutual market access mechanism despite the differences in the financial and legal systems within the Greater Bay Area. This scheme allows financial factors to flow more conveniently within the area, such that the financial sector can better support the development of the real economy as the regional economy grows, turning the Greater Bay Area into an open community for coordinated innovation in the Country. Developing along this direction, the Greater Bay Area can gradually become an important bridge connecting the economic and financial systems of the domestic circulation and those of the international circulation for the Country. This is how Hong Kong can play our role as a unique financial centre in a better way to serve the needs of our Country.

Secondly, Cross-boundary WMC can provide room conducive to promoting internationalisation of Renminbi in a steady and prudent manner. The Scheme provides a risk-controlled testing space for facilitating individual investment and capital account convertibility within the Greater Bay Area.

While the Cross-boundary WMC can bring new opportunities to Hong Kong’s financial sector, the Qianhai Plan has formulated a new blueprint for the overall long-term development of Hong Kong.

The QianHai Plan is a national development strategy, and it provides unlimited opportunities for Hong Kong’s future development and prosperity. Some may make comparison between the Qianhai Plan and the Hengqin Plan. Some may worry the development of Qianhai will surpass Hong Kong, even leading to the loss of talents, capital and opportunities in Hong Kong. However, only by cooperation and co-development can we seize the new opportunities brought by the national development. Only by expanding the capacity of usable land in the region can we create space for more industries to develop. Only through cooperation can we promote the robust development of industries where Hong Kong enjoys clear advantages. Only by setting our perspective right can we see the new landscape.

As regards strategic positioning, the Hengqin Plan puts emphasis on the integration of Guangdong and Macao development, and promotes the diversified development of Macao’s industry to an appropriate extent through in-depth cooperation. The Qianhai Plan focuses on the co-development of Guangdong, Hong Kong and Macao. By putting institutional innovation as its core, the Plan aims to promote the bridging of rules and mechanism across the border, and enrich the models of co-development.

As for the development of industry, the Hengqin Cooperation Zone will concentrate in the development of four new major industries. For Qianhai, it aims at opening up more service sectors, speeding up the institutional reform and innovation for technology development, and creating a world-class environment for doing business.

After all, what opportunities will the whole development bring to Hong Kong?

First, Hong Kong will enjoy a greater space for development. The area of the Qianhai Cooperation Zone will expand from 14.92 sq km to 120.56 sq km. By strengthening planning and development, bridging the rules and mechanism, and cooperation among the industries, it can help Hong Kong to alleviate the constraints on development of industries due to shortage in land supply.

Second, Hong Kong will gain a stronger impetus in the upgrading of industries. Hong Kong’s pillar industries and other industries with advantages will be benefitted. The Qianhai Plan will open up more service sectors for Hong Kong and Macao, and promote the connections in areas such as finance and technology and innovation. With more enterprises enjoying the support of technology development and financial services, Hong Kong could gradually realise the upgrade of our industry structure.

Third, Hong Kong young people could have a broader platform for development. The Qianhai Plan has proposed to facilitate young people from Hong Kong and Macao to study, work, reside, live and start their own businesses in the Qianhai Cooperation Zone. As at June this year, the Qianhai Shenzhen-Hong Kong Youth Innovation and Entrepreneur Hub has already incubated more than 200 Hong Kong start-up teams. It is not hard to see that the Cooperation Zone will provide Hong Kong people with more choices of high-end post, thus creating a greater space of development for Hong Kong young people.

Now it is crucial that Hong Kong’s enterprises and people could adjust the perspective and see the opportunities for future development. By having a deeper understanding in the framework and direction of the overall development, Hong Kong enterprises and people could seize the new development opportunities, allowing Hong Kong’s economy to progress towards the high value-added end and better integrate into the national development plan.

September 12, 2021