China, with its massive foreign exchange reserves, is in a good position to step up investments overseas. The “One Belt One Road” strategy and the 13th Five-year Plan will help Beijing and developing nations along trade routes to capture opportunities in a mutually-beneficial way.
In supporting China’s efforts, Hong Kong can play a unique role by taking advantage of the city’s status as a major global financial center. A sound legal system, low-tax regime, well-developed capital markets and large pool of professional talent will be the selling points.
Hong Kong has always served as the gateway for the mainland to access global markets, as well as be an experimental zone for China’s external financial policy. The city is known for low-cost and high-efficiency in debt issuances, stock listings, loans and venture capital.
All these strengths can be utilized to offer comprehensive financial services for companies along the “One Belt One Road” routes.
Hong Kong has already become a major offshore capital-raising hub and listing venue for mainland Chinese companies. As of October, there were 927 mainland companies listed in Hong Kong, with a total market capitalization of HK$15.6 trillion.
The mainland firms account for 50.65 percent of 1,830 listed companies in the city, and represent 62.2 percent of the total market cap in the local bourse. More than 70 percent of market transactions are said to be related to mainland firms.
Mainland companies have raised more than US$400 billion through share issuances since 1993.
Also, the city is the top destination for Chinese companies seeking to “go out”. As of end-2013, direct investment from China into Hong Kong reached US$428 billion, making up 31.9 percent of the total such inflow into the city.
Hong Kong is also the largest source of capital into mainland. More than 44 percent of foreign investment projects were related to Hong Kong as of 2014, and foreign direct investment from Hong Kong amounted to US$745.9 billion, representing 49.3 percent of the nation’s total FDI.
The city can act as a bridge as financial organizations here have better understanding and more experience in operating in nations along the routes.
Hong Kong is Asia’s largest asset management center, with assets under management amounting to over US$2 trillion. It also has an offshore renminbi pool of over 1 trillion yuan, representing 60 percent of the world’s total offshore Chinese currency deposits.
The daily spot foreign exchange trade accounts for 90 percent of the spot trade of offshore renminbi market. Hence, the city has the best liquidity to develop risk-hedging, rate swap and other products for offshore investors.
In addition, Hong Kong is the gateway for China’s two-way capital market liberalization. The city’s role as “super-connector” has also become increasingly important following the launch of the mutual fund recognition scheme.
The China-led Asian Infrastructure Investment Bank (AIIB) would provide more room for Hong Kong’s role as the super-connector and help the city leverage its edge in investment, financing, project capital management and risk management.
The “One Belt One Road” strategy will deepen financial cooperation in the region, and help stabilize the monetary system, investment and financing system as well as the credit system. It will promote the development of debt market in Asia, allowing qualified Chinese financial institutions and companies to issue renminbi and foreign-currency bonds in the offshore market.
Hong Kong, meanwhile, should enhance cooperation with Shenzhen to facilitate capital movement and renminbi internationalization in nations along the routes. The cities can supplement each other.
This article, published in the Hong Kong Economic Journal on Dec. 30, was contributed by Wu Siwei, chairman of the Greater China Financial Professionals Association.
Translation by Julie Zhu
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