'Everybody has his own way to get their money to Hong Kong': Five-year plan prompts rethink of Hong Kong’s role in China’s finance sector
Local players will have to run faster than the mainland opens up, says industry veteran
The Communist Party’s commitment to raising the mainland’s per capita income in its next five-year plan will provide great business opportunities for Hong Kong finance companies, but they will need to think and prepare ahead, a local financial sector veteran says.
Hong Kong has prospered as a financial hub for decades by directing offshore investment to the mainland and serving as a springboard for mainland companies looking to go global.
However, as the mainland pushes ahead with further opening up of its capital markets, from launching free-trade zones to enhancing the convertibility of its currency, some people argue the city will lose the bonus it used to enjoy.
“No players in Hong Kong will be as naive as believing that the current business environment will just continue forever,” William Leung, chief executive of Sun Hung Kai Financial (SHKF), said. “For my company, my objective is to run faster than China opens up.”
A plenum of top party leaders in late October sketched out the guidelines for the next five-year plan, including doubling the mainland’s per capita income from the level in 2010, avoiding the middle-income trap, and also doubling gross domestic product from the 2010 level to 54.2 trillion yuan.
Leung said the targets were about creating more well-off people and more successful companies.
“The Communist Party will celebrate the 100th anniversary of its founding in 2021, the year following the completion of the 13th five-year plan, which means Beijing will be very serious about reaching the targets and putting on a good show,” he said.
Industry players in Hong Kong had always been pragmatic and adaptable, Leung said.
SHKF changed hands in June, when Sun Hung Kai & Co sold a 70 per cent stake to Shanghai-based Everbright Securities, one of the mainland’s top 10 securities companies, which is controlled by state-owned financial conglomerate China Everbright Group.
Established in 1969, SHKF held stakes in several foreign companies including Merrill Lynch in the 1970s, through which it shared connections and resources.
However, Leung said serious challenges to its status began a few years ago, as smaller rivals received injections of mainland capital.
Haitong Securities, the mainland’s second-largest brokerage, purchased local Tai Fok Securities in 2010 and restructured it into Haitong International Securities.
Leung said such companies benefited as their mainland parent companies brought in new sources of clients, while still being able to capitalise on the strengths of Hong Kong’s financial infrastructure.
He said he hoped Everbright’s connections on the mainland would result in SHKF’s percentage of mainland clients – both individual and institutional – growing from 10 per cent to 25 per cent in two or three years.
Rich mainlanders started to transfer their wealth to Hong Kong in large quantities from around 2009, Leung said. Demand was still climbing, with alarm bells ringing over further depreciation of the yuan, making the well-off even keener to diversify their investments.
“Cross-border capital flow was not free back then, or even by now, but everybody has his own way to get their money to Hong Kong, and local banks and brokerage houses are happy to serve them,” Leung said.
Cross-border money transfers by mainland individuals are officially capped at US$ 50,000 a year, but Beijing is mulling over a pilot scheme called QDII2 which could give individuals the option of investing up to half the total value of their assets in international financial assets. Many analysts expect the scheme will kick off next year, as the central government pushes ahead with the opening of the capital account.
“When the mainland people look out for investment, the first destination will be Hong Kong,” Leung said. “But we need to think about what’s next – what is the next destination, what is the preferred financial market, and make sure our products and services are available.”
SHKF had opened up offices in Sydney and Europe, Leung said, and its familiarity with Western markets could lead customers further afield if they were not satisfied with pure exposure to Hong Kong.
As for competition from larger international banks and asset management companies, Leung said Hong Kong companies were used to it and could find a space to survive.
“We are always more flexible and faster,” he said. “We can call each customer by name. However, big companies are like aircraft carriers. It takes an hour for an aircraft carrier to turn around.”
China’s 13th five-year plan, a blueprint for the nation’s development from 2016 to 2020, will be finalised at the annual session of the National People’s Congress in March.