Hong Kong Exchanges and Clearing Ltd is the holding company for the city’s stock exchange, futures exchange and clearing company. Its market capitalisation made it the world’s biggest listed bourse as of the end of 2012. In December 2012, the HKEx clinched the US$2.2 billion takeover of the London Metal Exchange, the world's biggest marketplace for industrial metals.
H-shares feast gives way to slimmer pickings in Hong Kong
After the listings boom years, the city's accountants and brokers say reforms that allowed in mainland rivals have not been reciprocated
Hong Kong's accounting and financial professionals have enjoyed 20 profitable years looking over the books of H-share companies. But now they are facing tough competition from their mainland peers.
When these companies first listed in the city as H shares in July 1993, the then Stock Exchange of Hong Kong required they use Hong Kong-based accounting firms for audits and adopt International Accounting Standards. The rationale was that the local accounting profession would act as a gatekeeper to ensure mainland firms had transparent books to present to international investors.
The Big Four firms hired thousands of young accountants to audit those companies across the country and their headcount fluctuated with the ups and downs of H-share listings. But those halcyon days are gone. Hong Kong Exchanges and Clearing, now the holding company of the stock exchange, changed the rules in 2011. They allowed accountants from 12 mainland firms endorsed by the mainland's Ministry of Finance to audit Hong Kong-listed mainland firms.
Hong Kong Institute of Certified Public Accountants president Susanna Chiu said the mainland firms had taken away a lot of auditing business from Hong Kong accounting firms. So far, 41 H shares, including big players such as Industrial and Commercial Bank of China and Bank of China, have appointed mainland accounting firms.
Now the city's accountants are seeking a level playing field across the border. "This has impacted Hong Kong accounting firms and we would like to see China also make a rule change to provide more business opportunities for Hong Kong accountants," she said.
Chiu said the HKICPA wanted Beijing to allow Hong Kong accountants to audit companies listed on its proposed international board in Shanghai, which would allow non-Chinese firms to list on the mainland. She would also like to see the mainland allow Hong Kong companies to list in mainland markets and hire Hong Kong-based accountants to do the audits.
Brokers face similar competitive challenges from the mainland. Christopher Cheung Wah-fung, legislator for the brokerage industry, said scores of mainland brokers and fund houses had been operating in the city, competing directly with Hong Kong-based brokers.
"When Hong Kong allowed the mainland players to operate here, there were no Hong Kong-based brokers allowed to operate on the mainland. Likewise, we have the H shares come here but Hong Kong firms cannot go north to tap funds," Cheung said.
"This is too one-sided and I would like to see the mainland government make a change so that Hong Kong brokers can operate on the mainland."
King Au King-lun, chief executive of BOCHK Asset Management, said H-share listings had brought many business investment opportunities for the fund industry, leading to the creation of Chinese equity as a new asset class. In addition, the success of the H-shares scheme encouraged the mainland authorities to carry out further reforms to facilitate cross-border trading. He cited as key reforms the establishment of the qualified domestic institutional investor and qualified foreign institutional investor schemes.
Au set up BOCHK Asset Management three years ago.
"The H shares have given confidence to the central government to carry out the various types of financial reforms in the past 20 years. It has also provided a lot of job opportunities for investment professionals. This trend is going to continue with the internationalisation of the yuan and other financial reforms," Au said.