China opens finance industry to foreign firms, but is it too late for Hong Kong players?
Industry experts and lawmakers believe the change only benefits big global firms and leaves smaller Hong Kong companies out in the cold
China’s decision to remove foreign ownership restrictions on financial firms within five years has been welcomed by Hong Kong’s government, but many in the local financial industry believe the change has come too late to be of much benefit to the city.
Beijing said on Friday that the 49 per cent cap on foreign ownership at securities firms, futures companies and fund houses would increase to 51 per cent before being scrapped in three years, while for insurance companies the cap would rise to 51 per cent in three years from 50 per cent, and would be removed in five years.
However the change was unlikely to prove a big boon to Hong Kong, since many mainland Chinese financial firms have become very strong competitors, and smaller firms in the city in particular may not have the physical size and reach to take advantage of the new environment.
The change “comes after many, many years of trying to get a more fair landscape for those investing in financial services in China,” said Keith Pogson, a senior partner at accounting firm EY.
“During that period though the landscape inside China has changed dramatically, with a real strengthening of the local players and also an evolution of new competition in the form of fintech players like Ant Financial and Tencent,” he said.
Pogson said that it may be only big players such as HSBC, Standard Chartered Bank and UBS that could develop further in China, a view echoed by other analysts who said that the changes would mean very little to the large number of smaller Hong Kong financial firms, which simply do not have the scale to take on their mainland rivals nationwide.
“It is always good to see China opening up. However, many of the past opening-up policies have been tailor-made for international giants and are not for the small and medium-sized Hong Kong brokers or insurance companies,” said Christopher Cheung Wah-fung, a Hong Kong lawmaker who represents the financial services sector.
Instead, he said, the central government should let Hong Kong firms operate directly in southern China and take part in the “Greater Bay Area” plan to integrate the economies of Hong Kong and several southern cities.
“Smaller brokers and insurance companies do not need to go nationwide, but if these companies could be allowed to sell products and services in some cities in Guangdong province, it would bring huge business opportunities for them,” Cheung said.
Others wondered about the approval process for taking the bigger stakes, noting that in past openings, such as when China allowed foreign firms to take stakes in futures brokers of up to 49 per cent a decade ago, approvals have taken a long time and only a few companies did in fact get approval.
“While Beijing says it will gradually remove restrictions on foreign ownership, we do not know how long it would take to approve the first case, and we are not sure how many firms would get approval,” said Joseph Tong Tang, chairman of Morton Securities.
“Past experience has shown we cannot expect too much,” Tong said.
He noted also that China still has capital controls, meaning it could be difficult for foreign firms to offer services to foreign investors and they would end up trying to compete against big local players in attracting domestic clients.
Timothy Lo, a managing director at French private bank CIC Investor Services, was optimistic about the changes, but cautioned that foreign firms should take a long-term view.
“It will take time for foreign institutions to really understand the local market and policies, and find favour with local clients,” he said.
The Hong Kong government, however, believes the new rules will be a benefit to the city.
“We will continue to maintain close liaison with the relevant mainland authorities to explore possible measures on this front through existing communication channels and cooperation platforms such as the mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) and the various financial cooperation forums,” according to a spokesman for the Financial Services and Treasury Bureau.
The chief executive of stock market operator Hong Kong Exchanges and Clearing, Charles Li Xiaojia, said the changes were a good step forward.
“It is a positive sign, and we firmly believe the mainland will continue to open over time,” he said.