Former HKMA chief Joseph Yam calls for more ‘capital mobility’ in Greater Bay Area

Former Hong Kong Monetary Authority (HKMA) CEO Joseph Yam Chi-kwong has called for an easing of restrictions on cross border capital flows so that local financial firms can help the Greater Bay Area develop into an economic powerhouse.

“I feel sympathy with the financial industry trying to further develop in the Greater Bay Area,” Yam said at an event held by Swiss lender UBS.

Yam was CEO of the HKMA, Hong Kong’s de facto central bank, from its establishment in 1993 until 2009. He has also served as a non-official member of the Executive Council of Hong Kong since 2017.

Under the Greater Bay Area project initiated in 2019, Beijing ­introduced measures to link Hong Kong, Macau and nine cities in Guangdong province into an integrated economic hub. One of the measures was the Wealth Management Connect scheme introduced in September last year.

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But Yam wants to see an easing of rules so financial firms can have more business opportunities and increased “capital mobility” between Hong Kong and the Greater Bay Area cities.

“For example, how about allowing banks licensed in Hong Kong, if they meet the license requirement in the Greater Bay Area, to do banking business in the mainland cities?” he said.

Although Hong Kong has introduced a number of Connect Schemes since 2014 that allow cross border trading of stocks, bonds or investment funds, Yam said that allowing Hong Kong lenders to operate in the Greater Bay Area could offer more diversified banking services to mainlanders, beyond investment products.

“We want to see more opening up of the capital market in the Greater Bay Area … in a way that does not affect financial stability on the mainland. That is something quite important,” Yam said.

Yam also wants to see the city speed up its progress in developing the yuan business.

“The progress of yuan internationalisation is too slow,” he said, pointing out that while the yuan is widely used in trade settlement, it is not widely used for investment.

He said Hong Kong could play a role by having a platform for both mainland and international investors to trade stocks in yuan, initially starting with the 66 Hang Seng Index stocks.

Yam, who established a peg in 1983 that fixed an exchange rate of 7.8 for the Hong Kong dollar against the US dollar, reiterated that there was no need to change the system.

“The US may make it difficult for mainland China to use the US dollar. If that’s the case, under One Country, Two Systems, China can actually make use of the Hong Kong dollar as a proxy for the US dollar.,” he said. “That is yet another reason why we should keep the link between the Hong Kong dollar and US dollar.”

Yam was positive on the general market outlook, saying there would be more mainland listings in Hong Kong and more mainlanders using Hong Kong to invest in overseas assets when Beijing decides to relax regulations.

At present, the two Stock Connect Schemes do not include international firms listed in Hong Kong, such as fashion house Prada and French skincare company L’Occitane. The newly launched ETF Connect that started this week also does not allow mainlanders to invest in Hong Kong listed ETF investing in overseas assets.

“It is very important to allow mainland investors to access foreign investments as a diversification [strategy], so they can actually achieve a higher risk adjusted rate of return. [If allowed] they will do that on the Hong Kong stock exchange, which is a very solid platform for them to trade on,” Yam said.