New openings to invest in mainland welcomed

PUBLISHED : Thursday, 18 August, 2011, 12:00am
UPDATED : Thursday, 18 August, 2011, 12:00am


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Beijing is offering Hong Kong and overseas businesses new opportunities to invest in the mainland - a development likely to boost economic integration.

Vice-Premier Li Keqiang announced yesterday that local companies would be allowed to invest in mainland assets, and qualified foreign institutional investors would be permitted to buy mainland stocks.

His speech at an economic forum in the city came as a relief to Hong Kong's financial industry, which has been concerned the city could lose its role as the centre for the offshore yuan trade.

Although Li outlined a number of initiatives, he did not offer a timetable or details of how the measures would work in practice.

Bankers said his most significant announcement was that mainland investors will be allowed to buy into an exchange-traded fund linked to Hong Kong stocks, which might increase stock market turnover.

It might also help develop the market for yuan-denominated shares listed in Hong Kong. So far, the only such stock is Hui Xian, tycoon Li Ka-shing's real estate investment trust, which has not been popular with investors.

'What Li [Keqiang] said was very positive,' said Andrew Fung, head of treasury and investment at Hang Seng Bank. 'The most significant [policy] is ensuring the distinctive advantage of Hong Kong [over other cities] as an offshore yuan centre. It's a big promise.'

Beijing's other plans include standardising a framework to allow local and foreign companies to use the yuan in their cross-border transactions.

This could accelerate the circulation of yuan-denominated funds into and out of the mainland, said Donna Kwok, a HSBC economist.

Yuan-denominated deposits in Hong Kong have grown rapidly since the second half of last year, and reached 553.6 billion yuan (HK$676.2 billion) in June this year.

In addition to the existing US dollar-denominated Qualified Foreign Institutional Investor (QFII) scheme - in which US dollars can be invested in mainland securities, subject to approvals and quotas - Beijing is setting up a new yuan-denominated QFII scheme.

Under the new scheme, the central government has set an initial quota of 20 billion yuan for approved asset managers to invest in mainland securities.

Bonn Liu, managing partner of capital markets at KPMG China, said the quota was not large enough to have a significant influence on the mainland's stock markets. 'But it's meaningful to start with,' Liu said.

He said he expects the quota to be increased in the future, as was the quota for the US dollar scheme.

The yuan-denominated QFII plan will benefit mainland fund managers and brokers, who have been increasing their presence in Hong Kong, as they will be investing yuan-denominated funds in their home markets.