Christmas came early for Hong Kong's financial sector last week when Beijing announced a basket of so-called gifts, or stimulus measures, for Hong Kong to celebrate the 15th anniversary of the city's return to Chinese rule. But just like the real Christmas, not everyone gets what they want. Some Hong Kong officials and mainland academics asked the media not to call them 'gifts', saying they are measures intended to help Hong Kong and the mainland. But White Collar has a question: if these measures are purely designed to develop the market, why were they not announced at an appropriate time in the market cycle instead of in the run-up to the handover anniversary celebrations? The announcement's timing points to a political agenda aimed at binding Hong Kong and the mainland more closely - rather than giving the markets what they need. A prime example is the long-awaited exchange-traded fund (ETF) scheme for mainlanders to buy Hong Kong stocks through index funds. The scheme was announced in 2009 but only implemented now, with two mainland fund houses approved to introduce two ETFs - one listed in Shanghai and one in Shenzhen. Last week, the Securities and Futures Commission also gave approval for the Hong Kong subsidiary of a mainland fund house to launch an ETF allowing Hong Kong investors to buy A shares. The timing seems odd. The markets are in turmoil, thanks to the euro-zone sovereign debt crisis, many big initial public offerings (IPOs) have been shelved and the last thing investors are planning is a big foray into the local equity market. But China Securities Regulatory Commission (CSRC) vice-chairman Yao Gang said the moves were intended to increase the integration of the Hong Kong and mainland markets, thus demonstrating the mainland regulator's priorities. This explains why the renminbi-qualified foreign institutional investors' (RQFII) schemes launched in December have failed to attract Hong Kong investors - the CSRC has only granted licences to 21 subsidiaries of mainland securities firms or fund houses, which are unknown to Hongkongers. This arrangement is obviously intended to promote mainland firms in Hong Kong, but the regulator has again missed the point. At least the CRSC finally announced a relaxation in the RQFII rules on Saturday, allowing Hong Kong and mainland firms to also apply for licences. But the measure might still be politically motivated. The A-share markets have performed dismally, and regulators may be hoping that an injection of foreign funds may rescue them. The biggest disappointment is that the People's Bank of China ignored market demands to lift the city's daily cap of 20,000 yuan (HK$24,549), which has been in place since China first started opening up its currency in 2004. The issue here, bankers say, is competition: Hong Kong is the only offshore yuan market hobbled by such a cap, probably because back in 2004 Beijing thought a cap might prevent excessive volatility. When Beijing moved in 2009 to allow the yuan to be used for trade settlement, investment and even as a reserve currency, it was more confident and did not insist on a cap as other financial centres started entering the yuan business. So that's the gift we want most of all - but we may have to wait for another mainland bigwig to visit the city to bring this important change.
