Lai See

Of course Hong Kong can handle mainland capital

PUBLISHED : Thursday, 16 January, 2014, 2:40am
UPDATED : Thursday, 16 January, 2014, 2:40am

We've been musing on the wisdom emanating from the recently concluded Asian Financial Forum. We noted yesterday the remarks by stock exchange CEO Charles Li Xiaojia who apparently labours under the impression that such will be the rapidity of change in the mainland over the next six years that, "economically, mainland China and Hong Kong will be one country, one system by 2020". But we overlooked the remarks of someone else on the panel, Lawrence Lau Juen-yee, chairman of CIC International (Hong Kong), who also believed Hong Kong needed to do more to remain competitive. He reportedly said the mainland has "too much capital" and warned: "When the capital is coming out, I challenge you, Hong Kong is not ready for that."

For all its shortcomings our view is that if there is one thing Hong Kong can do, it is to handle capital coming out of the mainland. Indeed a report by Global Financial Integrity reported recently that illicit capital flows into the mainland from Hong Kong totalled some US$155 billion in 2012. Our colleague Jake van der Kamp has also elegantly spelt out how mainland exporters "export" capital without it even reaching the mainland by under-invoicing its wholly owned agent in Hong Kong which then adds its premium before passing the goods on to the final destination. The "premium" can either return as foreign direct investment or stay outside the mainland. Mainland financial institutions have also been imaginative in the way that they have "facilitated" property purchases in Hong Kong by mainland investors, despite capital restrictions.

So we think the problem is not so much whether Hong Kong is ready for the deluge of capital should it ever happen, but whether the mainland is prepared for it. Because should restrictions on the capital account be lifted any time soon, it will be like opening a floodgate. Which is why we think that these gentlemen are a tad optimistic in assuming that Hong Kong and mainland China will be one country, one system by 2020.


Why 18 per cent is good

Canning Fok Kin-ning, chairman of Power Asset Holdings, was in an ebullient mood as he presided over a press conference to announce details of the HK Electric Investments IPO, which is being spun out of Power Assets. This was a rare appearance by Fok, who usually eschews such events. But it was all in a good cause since Power Assets stands to raise some US$3.6 billion from the IPO. HK Electric comprises all of the group's Hong Kong electricity assets.

Fok was queried about why cornerstone investor State Grid Corp of China had been allowed to purchase 18 per cent of HK Electric. The other cornerstone investor, Oman Investment Fund, a sovereign wealth fund of the Oman government, agreed to subscribe to 0.7-0.8 per cent of the total number of units issued.

"18 is quite a good number," Fok cheerily replied. In Cantonese 18 is sup bat. "It sounds like sut fat in Cantonese, which means 'surely we will become prosperous'. It is a testament of the quality of our assets and State Grid's confidence in our company." Such are the intricacies of high finance.


An odd discussion

More fun and games from the Asian Financial Forum, where we understand that the workshop on Strategic Opportunities with the Upcoming Asean Economic Community turned out to be a strange affair. The hour-long session kicked off with remarks lasting some 20 minutes from Ngurah Swajaya, Ambassador/Permanent Representative of Indonesia to Asean. The rest of the panel got about two minutes each thanks to, shall we say, robust management by the bow-tied moderator, Alexander Wan, who is a senior adviser with China Daily.

There then followed a rather odd period when Wan and Li Yao, CEO of China-Asean Investment Co-operation Fund, zeroed in on Swajaya with a series of questions, while excluding the rest of the panel and the audience, until he finally agreed with them that mainland Chinese investment in Asean had been a "fantastic" thing. Then the session was opened up to the floor for questions. Wan selected two friends who didn't have their hands up to speak. After that, time ran out leaving some people scratching their heads and wondering, "What was that all about?"


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