Opinion | Hong Kong tech stock boom may be prelude for China outbound investment wave

Private investment opportunities in mainland declining as government takes over strategic sector, clamps down on property market

Mainland money already flowing into Hong Kong and New York stock markets through technically illegal third-party trading apps

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The rally of Chinese tech stock prices in Hong Kong and New York has been driven partly by mainland money. Photo: EPA-EFE

Published: 5:56pm, 15 Feb 2021Updated: 1:24pm, 16 Feb 2021

It’s time for mainland China money to make a bigger splash in the world, starting with Hong Kong, after restraints put on Chinese foreign investment in the last half-decade.

China’s situation in 2021 is similar to what it was a decade earlier in many ways. As in the aftermath of the global financial crisis of 2008, the Federal Reserve is flooding the economy and markets with liquidity. China has again become a hot destination for funds seeking higher returns thanks to its early recovery from an economic dislocation – this time from the coronavirus pandemic.

At the same time, good investment opportunities are vanishing at home for many Chinese private investors. One reason is the expansion of the state economy, with many private investments in domestic sectors now largely in the hands of state enterprises. Also, China’s property markets in major cities – the safest assets for many Chinese investors – are largely off limits for pure financial investors.

As such, affluent Chinese households share a desire to allocate part of their portfolios abroad to seek not only safety but better long-term returns. The rally of Chinese tech stock prices in Hong Kong and New York has been driven partly by mainland money, indicating a new cycle of China money going abroad has just started.

Beijing’s attitude will be an important factor influencing this outbound outflow. The Chinese government made a hasty decision a decade ago to encourage banks to lend money to private investors for overseas investments, a decision that Beijing was forced to correct in a clumsy way by punishing conglomerates Anbang, Wanda and HNA for going too far.

The Chinese government is unlikely to repeat that mistake. It looks set to continue cracking down on illegal activities such as money laundering and cross-border gambling. But it may take a more relaxed approach to general outbound payments and investments. For instance, regulators have largely turned a blind eye to the grey area of Chinese individual investors trading directly in Hong Kong and US stocks through third-party apps – an activity, strictly speaking, that violates China’s foreign exchange rules.