Stock trading link a chance for Hong Kong to benefit from mainland’s economic growth
City has capital and know-how to play an important role in the next decade or two, and should not overlook this opportunity to balance consolidation of its financial strength with the need to diversify.
The newly approved Hong Kong-Shenzhen stock connect may not generate the same excitement as the launch of the direct trading link with Shanghai but, in one respect, the new link can be expected to contribute more to the development of both the mainland and local economies. That is the lure of Shenzhen’s new-economy, innovation-oriented market for private capital.
The importance of this is illustrated by the scarcely credible slump of business confidence in a market of more than 1.3 billion people with an official growth rate of at least 6.5 per cent. In the first seven months of this year growth in private investment fell to 2.1 per cent year on year compared with 10 per cent last calendar year, while state sector investment surged more than 21 per cent. This was on the back of a new round of government stimulus, instead of the economic reform needed for sustainable growth.
The green light for the Shenzhen direct link is evidence that Beijing still sees a key role for the city in the mainland’s financial development, despite the market’s less than enthusiastic response to the Shanghai link. The new scheme is just one step towards further opening up, with officials exploring stock connects between Shanghai and London and Singapore.
The government has clearly signalled acknowledgment that state-driven growth and allocation of capital resources is no longer sustainable. Hence a willingness to accept a more aggressive role for the private sector, especially in driving innovation. Capital for areas of high potential is a critical element and, hopefully, the Shenzhen connection will deliver it.
It is only natural for China to choose Hong Kong as a bridgehead for private risk-capital investment because of its proximity and cultural compatibility when it comes to communication. Hong Kong for its part has the capital and know-how to play an important role in the next decade or two not just in the financial markets but wider areas of the mainland economy. This will also be a chance to balance consolidation of our financial strength with the need to diversify.
Hopefully the Hong Kong-Shenzhen stock connect will prompt mainland regulators to allow more development of the markets, which will benefit investors on both sides of the border. Hong Kong is fortunate to be chosen again as the first market for direct trading, but may not be the only one for long. We need to do better. It is not an opportunity for speculation, but for the city to develop a clear vision of how to adapt its strengths to the growth potential in the mainland economy.