Timing the arrival of president Xi Jinping in Hong Kong today, ahead of the 20th anniversary of Hong Kong’s handover to China on July 1, China and Hong Kong signed a new agreement, under the framework of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA).
It covers financial, accounting and innovation and technology issues.
Under financial cooperation, the two sides agree to increase the investment quota of RMB Qualified Foreign Institutional Investors (RQFII) for Hong Kong, one of the key channels for foreign institutional investors to buy onshore assets.
The RMB 270bn quota allocated for investors in Hong Kong had been fully allocated to 79 institutional investors in 2014, and since then no new quota was granted in the SAR.
Another issue addressed was monitoring. In China, all brokerage accounts are under the name of the individual investor and can be monitored in real time by the regulators. But Hong Kong does not have such a system.
The agreement “set a timetable for the establishment of an investor identification mechanism under the mutual market access scheme”.
In regards to the ETF Connect, which will allow cross-border trading of the passive products, China said it would wait until “the relevant conditions are fulfilled”.
In addition, the two parties will review and assess the progress of the MRF program, the agreement said. They will “continuously adjust and enhance the rules and regulatory policies on mutual recognition in view of new situations and new issues that arise in the course of the mutual recognition process”.
However, no details were given.
China and Hong Kong will also promote cross-border RMB capital flows and bond trading.
China has proposed that mainland enterprises issue bonds in RMB and in foreign currencies in Hong Kong. Both parties also pledged to “study the models of mutual access between bonds, over-the-counter financial derivatives and commodity derivatives markets in the two places”.
“The enhancements of CEPA will promote economic and technical cooperation between the two markets. We will work very closely with our mainland counterparts to establish the necessary regulatory framework to implement the initiatives under the agreements,” commented Ashley Alder, the Securities and Futures Commission’s CEO.
