Haitong cautious over expansion to Qianhai

Shenzhen has announced plans for the special economic zone to be a mini-HK, but the securities firm is not keen for a broking licence yet

PUBLISHED : Monday, 17 March, 2014, 2:27am
UPDATED : Monday, 17 March, 2014, 2:27am

Haitong International Securities has decided discretion is the better part of valour when it comes to Qianhai as details of the special economic zone's liberalisation plans are still sketchy even weeks after it unveiled its timetable of building a "mini-Hong Kong" this year.

The Hong Kong arm of the nation's second-biggest brokerage says it is not considering applying for a brokerage licence in Qianhai for now as it is yet to find out if the zone will offer faster and easier access to the benefits of the mainland's financial reforms.

"We treasure the opportunity in Qianhai and we hope to participate actively. But we are not considering a brokerage licence at the moment," Haitong chief executive Lin Yong said. "Financial reforms in China are driven by multiple forces and levels.

As businesspeople, we always prefer faster and effective channels."

Qianhai, which the Shenzhen municipal government wants to build into what it calls the Manhattan of the Pearl River Delta, announced a timetable for reforms last month, with the hope of roping in Hong Kong companies to help in building the zone.

In the document, which mentions 46 initiatives, the most significant was the QDII2 (qualified domestic institutional investor) scheme, a long-awaited programme allowing mainland individual investors to buy stocks offshore through accounts opened with institutions registered in the economic zone.

But Lin finds no novelty in QDII2. "What Qianhai or Shanghai is piloting now, Hong Kong has been doing for years," he said. "QDII2 was called the through-train scheme and was suspended in 2007. But in the past seven years, Hong Kong has been doing QDII2, although it doesn't carry a formal name.

"I believe most investors who want to trade Hong Kong stocks already can and have the necessary accounts."

Despite a series of land auctions for the "mini Hong Kong" financial and yuan hub, Qianhai has so far struggled to garner the interest of Hong Kong and other overseas institutions.

On February 28, Qianhai authorities said they had obtained the approval for setting up two securities companies with shareholding by Hong Kong capital in the zone. They were also cleared to set up a fund management firm whose controlling shareholder can be a Hong Kong-registered firm.

Hong Kong brokers and fund management firms would be able to bid for the licence after the China Securities Regulatory Commission announces detailed rules to regulate joint-venture brokerages.

But Lin believes a better solution would be to remove the obstacles to liberalisation of the capital account as a top-down initiative rather than have individual local governments try the same bottom-up.

"We appreciate the efforts of local governments - Qianhai, Hengqin, Binhai in Tianjin and the free-trade zone in Shanghai - but they will face huge difficulties. I have always felt a top-down, systemic approach is the best way to go about in financial reforms," he said.

He is pinning his hopes on the mutual fund recognition scheme that would allow Hong Kong asset management firms to sell products on the mainland and vice versa.