ExclusiveBeijing’s brokerage probe to stop ‘leakage’, Paul Chan tells Davos Dalian event

Beijing’s recent investigation into three brokerages – Futu Securities, Tiger Brokers and Long Bridge – was partly driven by concerns over foreign exchange “leakage” and the need to protect mainland China’s vast base of retail investors, Hong Kong’s finance chief has said. At a closed-door C-Suite roundtable organised by the South China Morning Post on Wednesday, Financial Secretary Paul Chan Mo-po said Beijing was overall “supportive” of Hong Kong’s role as an international financial centre. But he added that the central government still needed to be cautious about potentially destabilising capital outflows and investor losses. “[Beijing] wants Hong Kong to succeed, but at the same time, they have to do this carefully,” Chan said. The round table discussion was held on the sidelines of the World Economic Forum’s Annual Meeting of the New Champions, also known as “Summer Davos”, in Dalian, Liaoning province. “Because on the mainland, investors are mainly retail investors, while in Hong Kong, it’s mainly institutional investors,” he said. “Imagine, when you have at least 200 million and up to 400 million retail investors [on the mainland], if something goes wrong … [and] people [take] to the streets, you will be in trouble.” Beijing opened an investigation into the three brokerages last month for allowing mainland investors to trade overseas stocks without the required licences, prompting concerns that Hong Kong’s status as the world’s largest offshore yuan trading hub could be affected. But Chan dismissed such concerns in his remarks to the Asian and international C-suite leaders, emphasising that both Hong Kong and central authorities were working on expanding existing legal channels for mainland investors to tap the city’s financial services, including the Cross-Boundary Wealth Management Connect Scheme. “Both sides are working to expand eligibility, quotas and the range of products under the … scheme, although enhancements will take time to be finalised,” he said, hinting that the range of stocks available to mainland investors under the parallel Southbound Stock Connect scheme would also be expanded in the future. “What we are doing at the moment is building our connect schemes on multiple fronts,” he said. “[We want to] build a very modern infrastructure so that these investors, no matter if they are bond or equity investors, can put their investments into what we call an Asian version of an international central securities depository.” Mainland authorities have long maintained restrictions on capital outflows, with the transfer limit set at US$50,000 a year per person. On Tuesday, Enodo Economics founder and chief economist Diana Choyleva told a Summer Davos panel that further expanding the official Hong Kong investment channels for mainland parties could bolster rather than diminish the city’s role in global finance. Chan said on Wednesday that Hong Kong was set to benefit from its proximity to the Greater Bay Area’s strong manufacturing base as the city looked to deepen its technological credentials in the emerging fields of artificial intelligence and robotics. “I would argue that Hong Kong in the future will be an international financial centre, plus technology and innovation, plus talent [hub],” he said, highlighting the importance of aligning the city’s first five-year plan with the national blueprint. Hong Kong launched a public consultation earlier this month for its own five-year plan. “We want to develop fast and be … supported by the central authorities. We need to align our development strategies with them so that they can support us wholeheartedly – it’s not just for us, but also for them,” Chan said. Speaking at the SCMP’s C-Suite event, Clara Chan Ka-chai, CEO of the Hong Kong Investment Corporation (HKIC), also highlighted the importance of the bay area to the government-owned investment vehicle. After seeing a double-digit internal rate of return last year from its initial batch of more than 200 investments, the HKIC is now preparing to invest in a new batch of firms, she said, without revealing the size of the new fund. “I would say the guiding principle for us in the next chapter of the HKIC is … being international,” she said. She said the coming Asia-Pacific Economic Cooperation (Apec) Finance Ministers’ Meeting in Hong Kong in October and the Apec Economic Leaders’ Meeting in Shenzhen a month later were prime opportunities for identifying new investment targets. “The continued growth and success of the HKIC really hinges on partnerships … [the Apec meetings] are a very efficient way for us to meet new people and get to know new industries as well as companies,” Chan said. Since arriving in Dalian on Tuesday with a delegation of more than 30 people, finance chief Chan has held meetings with the World Economic Forum president and CEO Alois Zwinggi, Beijing Vice-Mayor Sun Shuo and Shanghai Vice-Mayor Lu Shan. After the SCMP event, Chan spoke on the global geopolitical environment at a panel session at the main conference on Wednesday. He said that it was a clear “trend” that different jurisdictions around the world increasingly wanted to trade in their own currencies for the sake of economic security. Hong Kong has been one of the proponents of Project mBridge, a cross-border central bank digital currency settlement platform that also involves the central banks of the mainland, Macau, Thailand, the United Arab Emirates and Saudi Arabia. The initiative is widely seen as part of a push by Beijing to establish an alternative to US-dollar-centric payment networks. “The dollar at times could be used as a weapon,” he said. “The coming changes to [global] payment systems are unavoidable.”

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Financial Secretary Paul Chan discusses probe on three brokerages, HKIC’s Clara Chan reveals importance of bay area, at SCMP closed-door event

Financial Secretary Paul Chan discusses probe on three brokerages, HKIC’s Clara Chan reveals importance of bay area, at SCMP closed-door event