Dr Charles YEUNG (Chairman of the 48th, 49th terms of office) September 2016
Hong Kong must get itself ready, be proactive in enhancing its competence in financial and professional services, seize the opportunities made available by the interconnectivity amongst the markets of the three places, further consolidate Hong Kong’s position as a financial center.
The State Council’s approval of the Shenzhen-Hong Kong Stock Connect earlier this month does not only symbolize an important step in the opening up of the Mainland’s capital market, but also paves way for the construction of more systematic interactive arrangements for deepening the collaboration of the Chinese and Hong Kong financial markets. We believe that Hong Kong should give full play to its exiting advantages in finance, integrating them with the opportunities arising from “Shenzhen-Hong Kong Stock Connect” and “Shanghai-Hong Kong Stock Connect” to propel closer connection amongst the financial markets of Shanghai, Shenzhen and Hong Kong, as well as to jointly exploit the enormous room for development in the financial industry.
Complementing the development needs of Mainland’s capital market
Following “Shanghai-Hong Kong Stock Connect”, the launch of “Shenzhen-Hong Kong Stock Connect” will offer another means for Mainland investors to take part in the Hong Kong stock market; it will also provide convenient access for Hong Kong and overseas investors tapping directly into Shenzhen’s stock market. The full implementation of “Shenzhen-Hong Kong Stock Connect” and “Shanghai-Hong Kong Stock Connect” will bring about a positive impact on the financing quality and functions of the three sites. As the aggregate quota restriction is lifted, investors will be enjoying more flexibility in their fund movements.
As of June of this year, the total market values of the Shanghai, Shenzhen and Hong Kong stock exchanges rank the fourth, the seventh and the eighth in the world respectively. The aggregate market value of the three locations ranks second globally, a place only preceded by the New York Stock Exchange. The trading volumes of the three stock markets have recorded significant increase over the past few years. In 2015, Hong Kong became the world’s top market for initial public offering. One can foresee that the official operation of “Shenzhen-Hong Kong Stock Connect” and the further optimized “Shanghai-Hong Kong Stock Connect” will help increase the trading volume of the three stock markets. The cooperation of their financial industries will also further deepen. In the long run, the three locations will be setting up an important milestone in accelerating the internationalization of the RMB and the “going out” of RMB capital.
Furthermore, the further implementation of interconnectivity between the Chinese and Hong Kong capital markets is expected to facilitate more frequent activities in RMB related businesses – such as savings, loans, cross-border remittance – in Shanghai, Shenzhen and Hong Kong. The broadened categories of investment products will be able to provide more investment options for domestic and international funds to participate in the financial markets of the Mainland and Hong Kong, and also help financial industries uncover more diversified cooperative opportunities. We believe that Shanghai, Shenzhen and Hong Kong should explore strengthening cross-border cooperation in systemic financial risk management and other areas; the three places should also look into formulating contingency solutions to respond to the potential changes in the financial market, acting as key contributors to driving the country’s integration into the international financial scene.
Consolidating the financial industry and the role as “super connector”
The “13th Five-year Plan” has clearly stated its support for Hong Kong in consolidating and enhancing its position as an international financial center, as well as strengthening its function as a global offshore RMB business hub. Hong Kong has the world’s largest offshore RMB capital pool in which funds can flow freely. The launch of the interconnected mechanisms amongst Shanghai, Shenzhen and Hong Kong can further establish Hong Kong’s advantages in the area, fortifying its position as an important interchange to attract funds for investment and deployment from different regions.
The strategic development of “the Belt and Road Initiative”, as actively driven by the country, will bring about enormous infrastructure financing demand in the region. Hong Kong financial institutes are widely recognized for their strengths in driving market listing for capital raising, asset and wealth management, etc. Building on the foundation of stronger financial interaction amongst Shanghai, Shenzhen and Hong Kong, Hong Kong should be able to further put its role as “super connector” for the Mainland and overseas funds into full play, rallying the active participation of more financial companies and professional service providers of the Mainland and Hong Kong, and further strengthening the financing abilities of Shanghai, Shenzhen and Hong Kong to provide the funds and relevant complementing financial services needed by “the Belt and Road Initiative” market.
In conclusion, the implementation of “Shanghai-Hong Kong Stock Connect” and “Shenzhen-Hong Kong Stock Connect” will be very important to propel the further opening up of the Mainland’s capital market. Shanghai, Shenzhen and Hong Kong can jointly strengthen the appeal and competitiveness of one another by actively shaping the development of a common securities market, achieving mutual benefits and an all-win situation. Hong Kong must get itself ready, be proactive in enhancing its competence in financial and professional services, seize the opportunities made available by the interconnectivity amongst the markets of the three places, further consolidate Hong Kong’s position as a financial center, and make greater contribution to driving the progress of complete internationalization of the Chinese financial market.