After many years of talk, the long-awaited Qianhai special zone finally kicked off last week. As part of the project, 15 banks in Hong Kong will be allowed to offer a combined two billion yuan (HK$2.46 billion) in loans to companies in the zone next to Shenzhen.
This, however, is only a baby step and it will be a very long way before the mainland government's dream to turn Qianhai into the "Manhattan of the Pearl River Delta" is achieved.
Hong Kong lenders and brokers have taken the Qianhai project seriously as the reclaimed area west of Shenzhen is only one hour by car from Hong Kong. All eyes will be on any special policies in the zone that can benefit local financial firms.
Previous projects floated for Qianhai, such as developing as an insurance hub or launching a new exchange, have proven to be empty talk only as they were rejected by Beijing.
The National Development and Reform Commission in June finally confirmed the zone would be a testing ground for the introduction of freer convertibility of the yuan. The mainland government still has capital controls, which mean that all funds transferred in or out of the country need approval.
Freer convertibility of the yuan, some brokers speculate, may allow people in Qianhai to invest in the Hong Kong stock market directly, while some insurers would like to see if they can sell Hong Kong policies there. A broker association will submit a report to Qianhai next month outlining these opportunities.
Banks have taken the lead so far. Allowing 15 banks to lend to Qianhai companies last week was a breakthrough as this is the first time Hong Kong lenders have been allowed to do cross-border yuan loans.
But we should not get too enthusiastic too soon. First, the initial loan amount only stands at two billion yuan, meaning each of the 15 lenders can only lend 133 million yuan on average. Small and medium-sized enterprises in Hong Kong can obtain loans bigger than that amount.
Furthermore, the loans can only be made to companies registered in Qianhai and the money is to finance 26 projects in the special zone.
The People's Bank of China has stipulated that the cross-border loans made can only be used to finance development of Qianhai.
This is not really attractive. Qianhai is supposed to have a population of just 800,000, which is similar to the population of Sha Tin in Hong Kong.
What banks and brokers dream about is setting up offices in Qianhai, so they can serve the 1.3 billion citizens of the mainland or at least the whole of Guangdong, which has a population of 100 million. It appears that the Beijing government has much narrower plans for the special economic zone.
Also, if we look at the names of the 15 banks, they include many of the Hong Kong arms of the mainland lenders, such as Industrial and Commercial Bank of China (Asia), Bank of China (Hong Kong) and China Construction Bank.
Some Hong Kong big names like HSBC, Hang Seng Bank, Standard Chartered, Bank of East Asia and Wing Lung Bank are there, but the mainland banks have the advantage.
A Fitch report issued last week believed the mainland lenders would continue to expand while their Hong Kong peers would face pressure.
The Qianhai project is likely to benefit mainland lenders more than local ones. It is too early to crack open the champagne anytime soon.