As the Greater Bay Area (GBA) continues to grow, recent publications from the Mainland authorities have provided further guidance to the region’s development and opening up.
In particular, the “Circular 95” guideline released in May contains 30 articles specifically covering financial services in the GBA.
“Circular 95 is important because its sets the foundation for the various developments affecting financial services in the near future,” said Florence Yip, Asia Pacific Tax Leader Financial Services, Asset & Wealth Management, PwC Hong Kong, speaking at a Chamber webinar on 3 August.
The key elements of Circular 95 are that cross-border financial services should serve the real economy, be mutually beneficial and market-led, promote innovation and manage risk.
The guideline outlines further opening up of investment and insurance products, and has an emphasis on green finance. Shortly after Circular 95, the Wealth Management Connect scheme was announced, which will allow cross-border investment in the banking sector.
The GDP of the GBA is now 12% of China’s total, and is ahead of that of South Korea. This offers huge potential for financial services, Yip said, but some hurdles still remain.
“For any financial market to become a leader, you need to have free flow of people, data and capital. Obviously, in Hong Kong, we have already achieved this, but there are still challenges across the GBA.”
These include the ability to deploy staff across the region. Recognition of qualifications would help, however, according to the “mutual benefit” principal of Circular 95, this would have to be reciprocal.
“Hong Kong people who want to work in the nine Mainland cities want their qualifications to be recognised,” Yip said. “But if they open the door to Hong Kong professionals, will Hong Kong also open the door for professionals from the nine cities?”
Yip also shared the results of a PwC survey carried out in June on developing a GBA mindset, which found that investors from across Asia were expected to be interested in investment opportunities in China.
Dixon Wong, Head of Financial Services at Invest Hong Kong, said that the GBA’s expected continued growth would offer huge B2B and B2C opportunities for the financial services sector.
“The key contributor to the success of the Greater Bay Area is the great infrastructure that is unequalled anywhere else in China,” he said. The Mainland’s return to growth in recent months as the pandemic has retreated gives further reason for confidence.
“Surveys show that companies in the Greater Bay Area expect to see continued normalisation in China, backed by aggressive monetary and fiscal support,” he said.
The strategic focus going forward will be in areas including wealth management, especially in green products, offshore RMB and fintech.
“Wealth Management Connect will offer broader diversity for GBA residents, and for financial institutions including banks,” he said. “There is increasing demand for diverse investment including offshore investment by Mainland investors. Meanwhile, Hong Kong investors are attracted by higher rates in Mainland savings accounts.”
Looking ahead, a proposed Insurance Connect may be the next step, and it is likely that Hong Kong companies will be able to set up centres to serve new clients in the Mainland.
The changes also offer opportunities for family offices, especially as the number of high-net-worth individuals on the Mainland continues to grow, Wong said. “Basically, Greater Bay Area billionaires see Hong Kong as the natural choice for setting up family offices.”
Looking forward, as industry in the GBA continues to prosper, more top talent will move to the region, so the demand for financial services can only grow, Wong concluded.
Esmond Lee, CEO of Euroclear Bank Hong Kong Branch, said that one of the most important criteria of the Wealth Management Connect was the bundling of remittance and investment banks.
“For example, investors in the Mainland investing in financial products in Hong Kong will need to engage a remittance bank in Mainland China to remit the money to an investment bank in Hong Kong.”
Any funds returned to the Mainland will go back to the same remittance bank. This will create a closed loop and ensure that funds only go to approved products.
Besides the three Connect schemes – stock, bond and wealth – Lee noted that there are other ways that capital can flow within the GBA. For example, he suggested, could Hong Kong’s Faster Payment System be used for cross-border payments?
This would have the benefit of providing an alternative to SWIFT, Lee said, which would be more attractive to the Mainland authorities.
Digital RMB is another development, and Mainland banks could potentially issue digital RMB to banks across the GBA, including in Hong Kong. “Digital RMB is different from paper currency because they can track and record the transmission, as well as the transmission channel.”
The GBA also offers further potential for Hong Kong’s foreign exchange market, which is already considerable, with US$632 billion-equivalent average daily trading.
“The Greater Bay Area, in the longer term, could become a very large economy, and it will need a large and well-developed foreign exchange market,” Lee said. “That role will be played by Hong Kong. The foreign exchange market is the jewel in the crown of the financial services that investors can benefit from in Hong Kong.”