China approves study of Hong Kong’s mutual product recognition study

Beijing has endorsed the study of a Hong Kong government plan for the mutual recognition of fund products that would allow Hong Kong-domiciled funds to be sold on the mainland and vice versa.

The scheme is a highlight of Supplement 10 of the Closer Economic Partnership Arrangement agreement, which was signed yesterday by the Hong Kong and central governments. Other measures include allowing joint ventures involving Hong Kong securities firms to conduct a wider array of business and allowing their shareholdings in joint ventures to be increased from 49 per cent to 51 per cent.

A Financial Services and Treasury Bureau spokeswoman said that adding the mutual recognition study into Cepa was significant because it showed the plan had gained Beijing's support. The proposal, together with tax law and corporate law reforms related to the funds industry proposed by Financial Secretary John Tsang Chun-wah in February, formed part of the Hong Kong government's effort to turn the city into the "world's factory" for the asset-management industry, she said.

Securities and Futures Commission deputy chief executive Alexa Lam Cheung said last month that the Hong Kong and mainland securities regulators had completed a study and concluded that the regulatory framework of the two markets supported mutual recognition. They were now working on criteria setting out the requirements for fund managers and products, she said, with the scheme to start once that was achieved. Lam said that only Hong Kong-domiciled funds authorised by the SFC would be considered, with about 300 funds meeting that criteria now. A number of fund houses have plans to introduce more locally domiciled funds to prepare for mutual recognition.

Hang Seng Bank executive director Andrew Fung Hau-chung said he hoped the criteria would not be too harsh.

"We hope the eligibility to be qualified can be more broad-based and the threshold amount for existing fund size can be smaller," he said. "This is because funds in Hong Kong are sold to a city of seven million people and hence their assets under management are nothing comparable to funds on the mainland."

Hong Kong Investment Funds Association chief executive Sally Wong Chi-ming said mutual recognition was a "milestone for … the Hong Kong and the mainland fund industries".