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Cross-border products to extend to Greater Bay Area

The plan for the Guangdong-Hong Kong-Macao Greater Bay Area proposes cross-boundary distribution of bank wealth management products and mutual fund transactions.

Last week, Chinese authorities issued the outline development plan for the Guangdong-Hong Kong-Macao Greater Bay Area, which aims to promote cooperation between the nine cities in Guangdong Province and Hong Kong and Macau.

Part of the plan is to strengthen Hong Kong’s status as a global offshore RMB business hub and expand the scale and scope of cross-boundary use of renminbi in the GBA. To achieve this, cross-distribution of a number of banking products will be allowed in the GBA.

“Banking institutions in the Greater Bay Area may launch, in accordance with relevant regulations, cross-boundary RMB interbank lending, RMB foreign exchange spot and forward businesses, related RMB derivative products and cross-distribution of wealth management products,” the outline said, but did not give a detailed timeline.

In China, wealth management products (WMP) are substitutes for bank deposits. WMPs invest in products issued by trust companies, securities firms and subsidiaries of fund houses, and funnel the proceeds into loans for corporations. As of the end of 2017, the size of the WMP market was around $11.5trn, according to an Oliver Wyman report.

In addition, China also plans to widen the scope of cross-boundary investment in the GBA and steadily expand the channels for mainland and Hong Kong residents to invest in financial products in each other’s market.

“Subject to compliance with laws and regulations, to progressively promote cross-boundary transactions of financial products such as funds and insurance within the Greater Bay Area, continue expanding the types of investment products and investment channels and establish a mechanism for mutual access to capital and products.”

Currently, various cross-boundary programmes have been established between the mainland and Hong Kong, which include the Stock Connect programmes and the Hong Kong-China Mutual Fund Recognition (MRF) scheme.

The “wealth management connect” plan

The GBA provides huge business opportunities for both asset and wealth managers. In total, the GBA, which has 11 cities, have around 68 million people and an estimated 480,000 high net worth individuals, according to a KPMG report. 

The plan bodes well for wealth and asset management players in Hong Kong. In October, Hong Kong’s Private Wealth Management Association, together with KPMG, proposed a “wealth management connect” scheme.

The plan, which is divided into three stages, will take at least six years to roll out.

During the first stage, Hong Kong-based private wealth management firms will be allowed to market and sell products to existing and prospective clients in the GBA.

At the moment, restrictions exist on offshore Hong Kong private wealth firms soliciting business in the mainland. This means that onshore Chinese clients of Hong Kong-based wealth managers must come to the SAR to conduct wealth management activities.

The second stage will allow GBA residents to more freely transfer funds within the GBA, subject to quotas and qualifying criteria, while the third stage involves increasing quotas and expanding the programme in other areas in mainland China.

“We are now in various discussions with different stakeholders to ensure we have a successful implementation of the scheme. It will be a step-by-step approach in order for all parties concerned to get comfortable with the scheme,” Amy Lo, UBS Wealth Management’s head of Asia-Pacific, said previously.

Part of the Mark Allen Group.