Prejudice feeds ignorance of the system to the north
with Shirley Yam
We advertise ourselves as the gateway to China. We promote our excellent ties and unrivalled knowledge of the motherland. But when you look into the system, this is not the case - and you don't have to look very far.
The regulatory system of our equity market, where mainland players have the deepest involvement, is already very telling. Until this month, mainlanders rarely sat on any of the policymaking or advisory committees of the Securities and Futures Commission or the Hong Kong stock exchange.
Locally listed firms and brokers, as well as American and European financial intermediaries, have dominated the committees for decades, wielding significant influence in a system ruled more by consensus than voting.
This is despite the fact that mainland-related companies account for 51 per cent and 65 per cent of our market capitalisation and turnover, respectively, compared with a meagre 4.78 per cent and 11 per cent in 1993, and that half of our blue chips are mainland-related companies.
We all know these numbers are going to keep growing, but it is only in the past two weeks that Hong Kong Exchanges and Clearing has appointed two mainlanders to its listing committee, while the government has appointed another two to the advisory committee of the SFC (see tables).
They include the Hong Kong chief of Haitong Securities, one of the mainland's top brokerage houses; a Lenovo Group vice-chairman who was named one of the most influential women in China; a managing director of China International Capital Corp, one of the country's largest investment banks; and the president of the influential China Merchants Group.
Unlike previous mainland-related appointees, people who were mainly Hong Kong professionals working for a mainland firm or brokerage house, these four are all mainland-groomed. It is impossible to understand the importance of this baby step without knowing the political background, which is better told by a story.
It's 2003. The Hong Kong exchange has just lost its chief executive to the penny-stock fiasco. The name of Gao Xiqing, then deputy chairman of the China Securities Regulatory Commission, is mentioned to then financial secretary Antony Leung Kam-chung. He runs it past some mainland officials. The answer is no. The reason is that it would reflect badly on the 'one country, two systems' and 'Hong Kong people ruling Hong Kong' principles. The fact that Mr Gao got his degree and practised law in the United States and worked briefly as an investment banker in Hong Kong does not matter.
The story reflects on the political sentiment and sensitivity about mainland-related appointments that still prevails in Hong Kong today.
Playing down the political concerns, an insider pointed to the 'technical reasons' - English-language ability and seniority of an individual - for the limited number of mainland appointees. I do not doubt their importance (although looking at the credentials of some of the incumbents on committees, I wonder if they have been fairly applied). However, given the growing sophistication of mainland players, they should be increasingly less of a barrier.
It is more about the removal of prejudice and a determination to bring key players on board.
Our regulators spent much effort in the 1990s educating international investment banks about our committee system and the need for them to nominate representatives. There is no reason why we should not have done the same with mainland players. The need for their input is pressing.
Here's an example why. Less than 12 months ago, a Hong Kong company doing business on the mainland applied for a listing. The numbers were so good that regulators asked for proof. The firm tabled piles of invoices issued by mainland entities to confirm its figures. Our frontline regulators spent nights trying to verify the invoices, to no avail, until they called on a mainland counterpart who was in town on secondment. It took him just one look to tell that the invoices were fake.
'The serial numbers are not right. By the way, you can do the cross-checking online,' he said.
It is 16 years since the first listing of a mainland firm here, and we remain shockingly ignorant of the system up north.
At stake is not just the effectiveness of our regulatory regime, or, to put it bluntly, whether we can catch the cheats, but also our ability to seize the once-in-a-lifetime opportunity that comes with the liberalisation of the mainland economy.
Including more mainland talent in our policymaking system is a short cut to a better understanding of the mainland as well as our own evolving market. It's time to put away the paranoia and prejudice.
Securities and Futures Commission advisory committee
Fu Yuning, president, China Merchants Group
Lin Yong, chief executive, Hai Tong (HK) Financial Holdings
Henry Cheong Ying-chew, director, WAG Worldsec Corporate Finance
Margaret Leung Ko May-yee, chief executive, Hang Seng Bank
Mark Dickens, head, listing division, Hong Kong Exchanges and Clearing
Christophe Lee Kin-ping, chief executive, Sun Hung Kai Fund Management (2007)
Jack Maisano, president, American Chamber of Commerce (2005)
Blair Pickerell, Asia head, Morgan Stanley Investment Management (2004)
Ada Tse Koon-hang,chief executive, AIG Global Investment Corp (Asia) (2005)
Yip Lai-shing, chief executive, Ping An Securities (2005)
Hong Kong Exchanges and Clearing listing committee
Carmelo Lee Ka-sze, partner, Woo, Kwan, Lee & Lo
Jack Chow Siu-lui, partner, KPMG
Jiang Guorong, managing director, China International Capital Corp
Leung Siu-tung, partner, Ernst & Young
Mary Ma Xuezheng, non-executive vice-chairman, Lenovo Group
Ng Meng-hua, managing director, BOCI Asia
Edith Shih, company secretary, Hutchison Whampoa
Richard Sun Po-yuen, partner, PricewaterhouseCoopers
Stephen Hui Chiu-chung, chief executive, OSK Asia Holdings
Gage McAfee,* managing director, Asia Pacific Capital
Tony Tsoi Tong-hoo,* chief executive, Varitronix International
Paul Go Kai-lung, partner, Ernst & Young
Alex Ko Po-ming,* chief executive, Piper Jaffray Asia Holdings
Roger Best,* partner, Deloitte Touche Tohmatsu
Raymond Lee,* chief executive, Dickson Concepts (International)
Ernest Ip Koon-wing,* partner, PricewaterhouseCoopers
*Stepped down after reaching the limit of their term of office