The Wealth Management scheme would allow residents of the Hong Kong and Macau and people in nine cities in the Mainland province of Guangdong to buy financial products in each other’s markets.
The proposed initial quota is RMB 150bn ($23.2bn) for transactions, and net cash flows in any direction must not exceed RMB 150bn yuan, while the individual investment quota is limited to RMB 1m, according to draft rules published by China’s central bank on Thursday.
“We welcome further clarity provided in today’s announcement, which marks another encouraging step towards the opening of mainland China’s capital markets and reinforcing Hong Kong’s status as an international financial centre,” said Daniel Chan, head of Greater Bay Area, HSBC.
Investors in Hong Kong and Macau can buy Chinese wealth management products and mutual funds under the scheme, according to the draft rules.
Southbound Connect requires mainland investors to have over two years of investment experience, and an appropriate amount of financial assets (more than RMB 1m) >RMB2m outstanding)
However, the rules did not provide details about which specific products mainland investors could purchase in the two offshore centres.
The Connect scheme will be operated in a “closed loop” and funds in the loop are not allowed to be used for other purposes. The currency used for settlement is renminbi and foreign exchange conversion will be completed in the offshore market.
China and Hong Kong have launched similar cross-border initiatives in the past, notably Stock Connect and Bond Connect, and the latest initiative is part of China’s intention to open up its financial markets, according to the People’s Bank of China (PBOC).
“Wealth Management Connect is a significant breakthrough for the financial sector as it offers a new channel for GBA residents to capture cross-boundary and new investment opportunities to diversify and enhance their portfolios,” said HSBC’s
The rules were drafted jointly by PBOC, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission.