WHITE COLLAR
Column
by

At last, but why did it take so long? Seven funds to debut, offering mutual HK-China market access

Hopes are that the next batch of funds will be approved in a more timely manner

PUBLISHED : Monday, 21 December, 2015, 1:40pm
UPDATED : Monday, 21 December, 2015, 5:44pm

Seven mutual funds have been approved as part of the cross-border scheme connecting the investment markets of Hong Kong and mainland China.

The debuts, announced Friday, are a milestone, even as it has taken more than six months for the initial batch of funds to gain the necessary approvals.

It also signals a new chapter in the opening of China’s capital account, as the scheme will allow cross border fund sales of up to 600 billion yuan (HK$717.51 billion).

The scheme is designed to allow Hong Kong-domiciled funds and mainland China funds to sell up to 300 billion yuan worth of assets on each other’s side of the border.

The questions we need to ask is why it took so long for regulators to approve a handful of financial products. Applications were submitted on July 1, or shortly after officials said in June that there would be a “speedy approval” of about four to six weeks for processing.

Keep in mind, that all seven funds had been in operation for more than a year at the time their applications were submitted.

A Securities and Futures Commission spokesman said the delays were related to “technical issues”, without elaborating further.

Other theories are that tax-related issues had yet to be worked out, and that sorting out policy on the matter was no easy task.

Another theory is that China’s regulators had to devote their attention to propping up the stock market through administrative measures during the summer, and as a result had to divert resources away for vetting fund applications. Under this scenario, its likely that the China Securities Regulatory Commission held back on the timing of its announcement of approved funds to coincide with its mainland counterparts.

If this is the case, we have a reason to worry. Is the SFC becoming less efficient? Traditionally, the Hong Kong regulator will approve new shares listings or new fund products regardless of market conditions. It lets the private sector decide the launch timing. However, the CSRC works differently, believing it is the job of the regulator to control the pace of new listing approvals. For example, China’s market regulator froze all IPOs from July to October, in an effort to foster stability in free-falling market, the eighth time it has done so over the past two decades.

If that is the case, we have to worry if the SFC is being forced to follow the CSRC approach. Should this become a habit, we might find more delays in future, depending on the market conditions.

Sadly, a “speedy approval” process might be something that we’ll have to add to our wish list for now.