Dr. Charles Yeung 【President】
Silver Bauhinia Star, JP
After months of preparation, the Shanghai-Hong Kong Stock Connect scheme (“Stock Connect”) will be implemented soon. We believe that the scheme is highly significant for the longterm development of financial sectors in the Mainland and Hong Kong. To capture the Stock Connect opportunities, Hong Kong is expected to strengthen its financial services and forge closer cooperation with the Mainland’s financial and professional service sectors.
Enhancing Hong Kong Financial Center’s Bridging Role
With Stock Connect coming into operation, the stock and financial markets of Shanghai and Hong Kong will have closer interaction. It is anticipated that Stock Connect will attract more overseas investors to participate in the Mainland stock market through Hong Kong and encourage capital flow from the Mainland to the Hong Kong market. This will not only boost the trading volumes of the Shanghai and Hong Kong stock markets, but also bring huge business opportunities for the related financial and professional services.
In our opinion, bourses and regulators in Shanghai and Hong Kong can build a more effective communication mechanism to coordinate and provide clearer guidelines on settlement arrangements, quoting systems, the related taxation and legal systems and other issues that may be involved after the implementation of Stock Connect, so that the relevant system management and supervisory arrangements can be progressively enhanced. Promotional efforts should also be stepped up to raise investors’ confidence in the Stock Connect mechanism. By doing these, both cities can upgrade the architectures of their financial centers; meanwhile Hong Kong can strengthen its role as a bridge between the Mainland and international financial markets.
Promoting Offshore RMB Business Development
Hong Kong has been developing its offshore RMB businesses in recent years. Trade and investment interactions between the Mainland and Hong Kong are also getting more frequent. Demand for RMB funds is thus very keen. After Stock Connect comes into operation, Mainland investors can directly invest in stocks in the Hong Kong market using RMB funds, which will further expand the pool of RMB funds and the RMB trading volume in Hong Kong. This will also open up new channels for cross-border RMB usage and for the currency to flow back to the Mainland; RMB’s investment functions will thus enhanced. In this sense, Stock Connect is conducive to Hong Kong’s offshore RMB business development and the accelerated process of the RMB internationalization.
As the demand for RMB funds is expected to grow with the implementation of Stock Connect, we hope the relevant authorities can relax the quota for RMB conversion in Hong Kong and, after taking the actual market circumstances into account, further streamline procedures for RMB exchange application and remittance information reporting. As a further step, they can explore the feasibility of relaxing RMB exchange rate controls on a pilot basis, so as to expand the development scope of Stock Connect and provide more favorable conditions for the growth of Hong Kong’s offshore RMB businesses.
Strengthening Exchanges of Financial and Professional Services Talents
Stock Connect can not only prosper the capital markets of Shanghai and Hong Kong, but also stimulate the two cities’ demand for financial and professional services talents. To meet the huge demand for professionals under the upcoming Stock Connect regime, the securities sectors of the two cities are recruiting staff and expanding their businesses, while their banking sectors are also hiring many programmers, system analysts and e-trading security professionals.
We believe that financial companies in Shanghai and Hong Kong can strengthen cooperation in training professionals. For example, they can have personnel exchanges so that the frontline and backoffice staff of the two cities’ financial companies can get familiarized with the actual operation of Stock Connect in each other’s market. In the existing CEPA context, furthermore, the governments of both places can explore the possibility of expediting the mutual recognition of professional qualifications, loosening the grip on practice in some sectors, simplifying administrative procedures, and offering more attractive financial and tax policy incentives. All these can encourage more extensive exchanges of professional talents and services between both cities, which will be translated into stronger support for the development of Stock Connect.
To sum up, Stock Connect will not only enhance capital flows and financial cooperation between the Mainland and Hong Kong, but also reinforce the longterm development of financial centers in Shanghai and Hong Kong. Under this background, Hong Kong should endeavor to capture the opportunities arising from Stock Connect and the Mainland’s deepening of financial reforms, strengthening its unique advantages in financial and professional services so that the city can consolidate its position as a financial center and make more contribution to the Mainland’s long-term financial reforms and development.