China Daily HK Edition: Hands across the border

Industry experts line up for the cameras after speaking at a China Daily roundtable on the opportunities and challenges presented by cross-border cooperation in the financial services sector, which is shaping up to be a win-win proposition for both Hong Kong and Shenzhen’s Qianhai modern services zone. (Parker Zheng / China Daily)

W ith the nation seeking speedier opening up of its financial services industry, huge opportunities for innovative cross-border finance services have opened up for Hong Kong, bringing its cooperation with Shenzhen closer, experts told a China Daily roundtable at the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone.

“Qianhai has every possibility to become a hub for cross-border mergers and acquisitions (M&A) of Chinese companies, especially for small and medium-sized enterprises (SMEs),” said Lin Chen, chair professor and associate dean of the Faculty of Business and Finance at the University of Hong Kong, in addressing the roundtable audience on Saturday.

Lin observed that more and more private companies, especially SMEs, are looking abroad and the targeted industries of their M&A activity have become more diversified.

However, Lin admitted: “Current performance of these M&As is not very good. The completion rate is only about 40 percent and many of them are losing money.”

Lin said that Hong Kong, in close cooperation with Qianhai, can improve the situation because of its rich professional resources in accounting, laws and financial advice, while Qianhai can help these companies easily access the Hong Kong capital market.

Qianhai has released various innovative policies in financial services, such as leveraged and equity financing, in order to help the development of mainland SMEs.

Andrew Fung, executive director and head of global banking and markets at Hang Seng Bank, also noted the fast development of mainland SMEs. But he agreed that these enterprises are facing funding challenges and said this gives Hong Kong financial institutions a chance.

Closer ties no easy task
However, Karel De Gucht, former European trade commissioner, stated that it is a challenge for Hong Kong and Qianhai to work together in the future and make it a win-win situation. “It’s certainly not going to be an easy thing,” he said.

The central government last week released a new plan across various sectors, highlighting finance services, in an effort to promote the structural optimization of Hong Kong and to further increase its connectivity with the mainland.

The number of Hong Kong-based companies in Qianhai as of Dec 7 has exceeded 1,000, with total investment surpassing 160 billion yuan ($25.9 billion), according to the Qianhai Authority.
Hang Seng’s Fung evaluated the prospects for Qianhai-Hong Kong cooperation from another perspective. “The internationalization of the RMB has gone beyond the first stage of use as a change and settlement currency,’’ Fung said, adding that many international finance institutions “are prepared to include RMB as an investment currency.”

He believes the most efficient method for international payment is “through Hong Kong banks via their domestic corporate banks in Shenzhen.”

So international payment makes cooperation between Hong Kong and Shenzhen very important for the SAR to maintain its status of RMB internationalization center, Fung stressed.

For closer cooperation, he suggested that Qianhai should launch more innovative financial policies, including increasing the quota of free fund exchange between Hong Kong banks and their branches in Qianhai.

He also suggested issuing more licenses for Hong Kong financial institutions to set up their own establishments in the pilot zone.

According to the new plan of the central government, the admittance threshold will be further lowered to encourage more Hong Kong banking institutions to set up corporate banks or branches in Qianhai.

In addition, a pilot program involving cross-border RMB loans made by Hong Kong-based banks to non-banking financial institutions is on the way.

Call to cast net wider
Munir Majid, chairman of the ASEAN Business Advisory Council, suggested that financial institutions in Qianhai also introduce new types of institutions and services targeting markets in the Association of Southeast Asian Nations (ASEAN) market.

“In ASEAN, young people will need financial services of various types as the population structure will give rise to an explosion of consumer boom,” Majid said.

ASEAN already accounts for the world’s third-largest population after China and India, with 50 percent of its people below 30 years of age.

“Qianhai’s efforts are certainly in the right direction,” Majid said, “because the irony for China to achieve such great economic growth is the missing link of its financial flows presence. No country can control the future without also having a control of financial flows, or having a big market in financial flows.”

More than 8,500 financial companies have registered in Qianhai so far, of which 17 are banks, 48 are security companies and 2,559 are equity investment firms, along with 333 commercial factoring and 184 finance leasing companies.

Anwar Nasution, former senior deputy governor of Bank Indonesia, had this to say: “Personal use of the RMB is encouraged by allowing financial institutions in Hong Kong to open RMB-denominated accounts and its use for cross-border settlement, including sending remittances to Chinese mainland.”

Nasution also believes the Asia Infrastructure Investment Bank (AIIB) and a new BRICS development bank China initiated recently can provide fiscal stimulus for both the stagnating world economy and the Qianhai pilot zone.

Pung Kheav Se, chairman of the ASEAN Bankers Association, added: “AIIB can offer its inaugural technical assistance and special loan programs to the countries in CLMV (Cambodia, Laos, Myanmar and Vietnam), with covenants that are more aligned to the needs and abilities of these countries.”

“The multiplier effect on the economies that will benefit from such arrangements will be large and create spin-offs across ASEAN and China.”

Although China is one of the leading CLMV investors, Pung believes there is still more that the central government as well as public and private enterprises can do to further spur economic development.

Contact the writer at grace@chinadailyhk.com
http://www.chinadailyasia.com/2014-12/10/content_15201589.html