Stock brokers in Hong Kong are looking forward to more incentives in Qianhai, the special zone in Shenzhen that serves as a test bed for Chinese financial reforms, to expand their footprint in the mainland market.
At present, brokers are closely watching the progress of the provision under which certain Hong Kong firms based in Qianhai are treated as mainland companies, a move that is aimed at helping them escape the tighter regulations applied to non-mainland firms, investment banker Ronald Wan wrote in the Hong Kong Economic Journal.
Small and medium-sized brokerages in Hong Kong have been continuously losing market share due to lack of experience on the mainland and a conservative business mindset. Therefore, a industry shake-up is bound to happen, Wan wrote.
Meanwhile, several mainland brokerages have been very aggressive in expanding their presence in Hong Kong. They usually rely on the mainland parents to raise capital, which is mainly used to boost growth in margin financing and other credit business. Thus, they often have an advantage over Hong Kong peers.
Hong Kong brokerages also have limited registered capital and liquidity, and face constraints with regard to raising funds from the local capital market.
However, if they are treated as mainland brokerages and if the proposed Shenzhen-Hong Kong bourse link becomes a reality, the firms will benefit. Hopefully, a Stock Connect program between the two cities will be on the agenda next year.
If the bourse link does come about, market attention will shift back to Qianhai after the recent hype surrounding the Shanghai Free Trade Zone and the Shanghai-Hong Kong Stock Connect, Wan noted.
The expected new policy initiatives will help Hong Kong’s entire financial sector, including the back office operations. The cooperation with Shenzhen will generate more synergies and create long-term benefits for Hong Kong, which will then no longer stand on the sidelines in the mainland.
As the plan also envisages setting up a global merchandize exhibition and trading center in Qianhai, Hong Kong companies can not only open up the mainland market, they can also connect mainland market with foreign buyers, Wan noted.
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