China prompts shift in focus to funds
Government hopes to repeat success of bond promotion by pitching HK expertise to mainland insurers
The government will shift its policy focus from bonds to the fund industry, in hopes of attracting the vast stores of untapped capital held by mainland insurance companies.
Secretary for Financial Services and the Treasury Frederick Ma Si-hang told the South China Morning Post that developing the Hong Kong fund industry was now a top priority, after the successful campaign to promote government bonds earlier this year.
'After the bond launch, I think I should put more time into promoting the fund industry in the coming months,' he said. 'Bonds are still important, but the fund industry will be the next focus.'
The mainland's cash-rich insurance industry is Mr Ma's first target. He plans to lead a delegation of fund managers to Beijing to meet insurers and finance officials on November 25 and 26.
Hong Kong Exchanges and Clearing chief executive Paul Chow Man-yiu will also join the delegation.
At the end of May, mainland insurers had combined assets of 1.03 trillion yuan, with 388 billion yuan in premiums collected last year - up 29 per cent from 2002, according to the China Insurance Regulatory Commission.
Most of their premium revenues are invested in low-yield mainland bank deposits and government bonds. Only 15 per cent can be invested in domestic mutual funds. The commission said in April mainland insurance companies would be permitted to invest part of their assets overseas for better returns.
Mr Ma said that Hong Kong's fund industry would be the natural first choice for mainland insurers, which had no experience as yet investing overseas and would be seeking trusted fund managers for help.
Another rich vein of capital lies with China's National Society Security Fund (NSSF).
The State Council in April announced it would allow the state pension body to invest some of its 1.3 trillion yuan of assets in overseas securities markets.
Both the insurance industry and the NSSF have been lobbying hard for the liberalisation, as the poor returns and minimal risk diversification available at home jeopardise their ability to meet their long-term commitments to policyholders and pensioners.
'The timetable has not been fixed, but the central government has set the policy,' Mr Ma said. 'Hong Kong fund houses are well placed to invest for these mainland institutions. This is the right time for the Hong Kong government to promote the local fund industry.'
Hong Kong Investment Funds Association executive director Sally Wong welcomed the government effort, noting that many Hong Kong fund houses had extensive experience serving insurance companies. 'We believe that fund managers in Hong Kong would be able to contribute throughout the value chain,' Ms Wong said. 'We can offer mainland insurers expertise in research, risk management, and middle and back office administration.'
She said mainland insurance companies would be facing a range of unfamiliar issues, including different regulatory compliance requirements and trading platforms.
'The Hong Kong fund industry has a pool of knowledge and the necessary platform to cater for these needs,' Ms Wong said.
