Published On: Sat, Jan 22nd, 2011

Mainland Pledges Support to HK Financial Industry

CSRC Chairman: China to continue to open up its financial markets

More cooperation at the policy level between the mainland and Hong Kong financial sectors is on the cards, said China Securities Regulatory Commission (CSRC) Chairman Shang Fulin at the Asian Financial Forum in the city Monday.

He said the moves would further boost Hong Kong’s status as an international finance center, and is clearly stated in the nation’s next five-year plan.

Shang indicated that a raft of policy initiatives to boost capital market cooperation between the two sides would be undertaken. However, he did not give any indication as to when they would start or what the timetable may be.

He announced that CSRC will introduce a mini-QFII (Qualified Foreign Institutional Investor) scheme, an arrangement to channel yuan funds raised in Hong Kong back to the mainland for investment purposes. Such a mechanism has been widely anticipated by the market.

Shang said CSRC will revise the relevant rules in order to help mainland companies issue yuan-denominated bonds in Hong Kong, particular companies already listed on the local bourse.

As a testing ground for yuan internationalization, yuan-denominated bonds have seen tremendous growth since 2007 when it first hit the market.

Up until now there have been 27 instances of yuan bonds issued in Hong Kong, raising a total of 62 billion yuan. The issuers are also diverse as well, ranging from foreign enterprises such as McDonald’s to supranational institutions like the Asian Development Bank.

On the listing front, CSRC will give further support to eligible mainland enterprises seeking to list on overseas bourses – although Hong Kong will remain the priority destination. Meanwhile, Shang said CSRC is working to revise overseas listing rules, with the aim of facilitating private and small-and-medium sized enterprises on the mainland to go public more easily in Hong Kong.

According to statistics from Hong Kong Exchanges and Clearing Ltd (HKEx), there were 592 mainland companies listed in the city at the end of 2010. The market capitalization of these companies reached HK$11,935 billion in 2010, accounting for 57 percent of total market capitalization. The percentage a decade ago was only 27 percent. Hong Kong topped the world in 2010 in terms of initial public offering (IPO) funds raised, out of which 49 percent, or HK$220 billion, went to mainland enterprises.

CSRC will work closely with HKEx to improve arrangements regarding clearing, settlement and delivery. When the proper time comes, according to Shang, exchange-traded-funds (ETFs) based on H-shares will be allowed to list in mainland bourses.

Other than equity and bonds, CSRC is also very eager to seek cooperation in the futures market with Hong Kong, according to Shang. He said joint efforts in this area will further boost Hong Kong’s competitiveness as an international financial hub and better serve the economic development of both sides.

“Hong Kong has become an important platform for mainland securities brokerage companies, fund management firms and futures companies to go out to tap the international market,” said Shang.

As of end 2010, there were 18 securities companies, 10 fund management companies and six futures companies from the mainland that set up branches in Hong Kong. Meanwhile, 40 percent of QDII (Qualified Domestic Institutional Investor) investment is in Hong Kong. While 13 Hong Kong-based institutions have gained QFII status from the mainland regulator, representing 13 percent of the total.

Besides the capital market, the insurance market also presents a lot of room for the mainland and Hong Kong to work together, said Wu Dingfu, chairman of the China Insurance Regulatory Commission (CIRC) at the same forum.

Wu said that Hong Kong’s experiences, technology and talent are important assets for the mainland insurance market, which has huge untapped potential.

According to Wu, with the joint efforts of regulators on both sides, eligible Hong Kong insurers will be able to conduct business on the mainland.

According to a report by PricewaterhouseCoopers (PWC), one of the “big four” accounting firms, the insurance penetration rate in China falls into the lower range among regional markets. The insurance penetration rate measures premium as a percentage of a country’s economic output. And according to PWC, the insurance penetration rate on the mainland was around 4 percent in 2008, with the insurance premium reaching $140.8 billion, almost 40 percent year-on-year growth.

The picture in Hong Kong was the opposite, with the insurance premium totaling $24.1 billion and down around 3 percent compared with 2007. The insurance penetration rate in Hong Kong reached nearly 12 percent.

As of 2010, the mainland insurance industry managed total assets of 5 trillion yuan and the industry made a profit of 60.7 billion yuan last year, according to Wu.

Source: China Daily

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