The Hong Kong government is lobbying Beijing to make it easier for local private equity funds to transfer offshore yuan to the mainland as part of efforts to help the city's financial firms take full advantage of the Qianhai special economic zone project.
The Qianhai experimental zone was first mooted by Shenzhen in 2010 as a testing ground for economic liberalisation. The area, about an hour by car from Hong Kong and managed by the Shenzhen government, has been used since June last year by the country for experimenting with freer flow of the yuan and capital account convertibility.
The Undersecretary for Financial Services and the Treasury, Julia Leung Fung-yee, said relaxations were expected for private equity firms after 15 Hong Kong and international banks were allowed in January to offer a combined 2 billion yuan (HK$2.48 billion) of loans for Qianhai companies.
"We expect detailed guidelines on how private equity funds will be allowed to develop in Qianhai by the first half of this year. This will benefit many private equity funds in Hong Kong," she said.
Since the mainland exercises strict capital controls, all cross-border transactions are tightly monitored. Leung said the government had lobbied Beijing to allow Hong Kong private equity funds to transfer offshore yuan to their Qianhai operations easily. The units would then use the funds to invest in projects across the country.
Leung said Hong Kong was the second-largest private equity fund centre in Asia, with total assets under management amounting to US$84 billion, next only to the mainland at US$164 billion. This compares with US$49 billion in Japan and US$45 billion in India.
The government was also lobbying the mainland to allow Hong Kong financial firms to take a stake of up to 51 per cent in joint ventures they set up with mainland partners in Qianhai, she said. Currently, non-mainland financial firms can take stakes of up to 49 per cent in such ventures.
"Allowing Hong Kong firms to have a larger share of Qianhai's joint ventures would give them management control," Leung said.
Christopher Cheung Wah-fung, the lawmaker representing the financial services sector, last month submitted a set of proposals to the Shenzhen government on behalf of local brokers who appealed for permission to set up joint ventures with mainland firms in Qianhai and trade for investors on both sides of the border in the mainland's stock markets.