Bloomberg News

China to Strengthen Financial-Market Cooperation With Hong Kong

June 27, 2012

China will seek to strengthen ties with Hong Kong by promoting tie-ups between the two financial markets and increasing cooperation in investments overseas and infrastructure.

The Chinese government will encourage joint ventures between the Shanghai and Shenzhen stock bourses and their Hong Kong counterpart, and allow the listing of exchange-trade funds in the city and the mainland, the official Xinhua News Agency said today, citing a statement from the State Council. Foreign investors will also be encouraged to use the yuan in trade settlement and investments in Hong Kong.

China’s efforts to bolster ties come two days before President Hu Jintao visits Hong Kong for the 15th anniversary of the city’s return to Chinese rule on July 1. China has already expanded its RQFII program, which allows the Hong Kong units of financial companies to invest overseas yuan in the mainland, as well as the sale of yuan bonds in the city.

“Some people are excited about the news of so-called gifts from China for the 15th anniversary of the hand-over date but those new policies aren’t really anything exciting,” said Alex Au, managing director of Richland Capital Management Ltd. in Hong Kong, which oversees $250 million of assets. “Interests from the mainland investors to invest in Hong Kong are not as strong as before.”

Hong Kong’s benchmark Hang Seng Index (HSI) rallied 1.1 percent at the trading break today, taking its gain this year to 4.1 percent. The gauge had rallied to a record high after regulators unveiled in August 2007 a so-called “through-train” program that allowed Chinese nationals to buy Hong Kong equities directly. That plan was scrapped in January 2010.

Exchange-Traded Funds

“Some investors right now may think that the market may repeat that kind of performance and are getting excited,” said Au. “I think the market is overreacting.”

Vice Premier Li Keqiang first announced in August that China will start an ETF based on Hong Kong equities and a 50 billion yuan quota for Dim Sum sales by mainland-companies. He also said Hong Kong units of financial institutions can raise 20 billion yuan for investment in Chinese capital markets, a target that was raised in April by 50 billion yuan.

China’s Ministry of Finance is also planning to sell 23 billion yuan ($3.6 billion) of bonds this month.

The southern province of Guangdong will be among those that will increase cooperation with Hong Kong in trade, finance, education, science and technology, and tourism, according to the Xinhua report.

China’s government will also provide support to bolster cooperation among port, airport and rail transportation in the Pearl River Delta region, according to Xinhua.

-- Jing Jin in Shanghai, with assistance from Fion Li and Kana Nishizawa in Hong Kong, Weiyi Lim in Singapore and. Editors: Shiyin Chen, Tan Hwee Ann

To contact Bloomberg News staff for this story: Jing Jin in Shanghai at jjin32@bloomberg.net

To contact the editor responsible for this story: Bruce Grant at bruceg@bloomberg.net


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