China to Link Wealth Management Markets in Greater Bay Area

The People’s Bank of China (PBOC) announced the launch of a pilot programme to facilitate cross-border investment in wealth management products by residents in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). It will be the third cross-border investment system between the Chinese mainland and Hong Kong following the stock and bond connect programmes. It will also expand the connection scope to Macau for the first time.

Chinese mainland residents in the GBA – including Guangzhou, Shenzhen and seven other cities in Guangdong province – will be allowed to open special investment accounts with banks in Hong Kong and Macao to buy qualifying wealth management products, while residents in Hong Kong and Macao can buy wealth management products sold by mainland banks operating in the GBA.

A joint statement by the PBOC and the monetary authorities of Hong Kong and Macau set out the operating mechanism of the programme. Qualifying products are limited to proprietary bank products rather than third-party products sold through banks, and mainly cover low-risk and relatively simple investment products, the Hong Kong Monetary Authority said.

Similar to the stock and bond connect programmes, the bank cross-border investment system will set up a mainland-to-Hong Kong and Macau ‘southbound link’ and a Hong Kong and Macau-to-mainland ‘northbound link’. The flow of funds and settlement mechanism are also similar to those of the stock connect programme. Funds will be settled in renminbi in a closed loop to ensure that funds can be used only to invest in qualifying wealth management products.

Cross-border capital flows under the programme will be capped, while individual investors will be granted a quota on their wealth management product investments. The statement did not set out the size of this quota, but the northbound and southbound quotas are expected to be 150 billion yuan ($21 billion).

The roadmap for the development of the GBA was unveiled in February 2019 by the State Council, China’s cabinet, aiming to transform the Pearl River Delta into a city cluster to rival other bay areas in Tokyo, New York and San Francisco.

Last month, China’s financial regulators announced a sweeping plan to facilitate GBA cross-border transactions and investments. Besides the wealth management products programme, elements of the financial plan include supporting the offshore yuan business in Hong Kong and Macao, setting up a futures exchange in Guangzhou, testing a cross-border cash pool business and supporting cross-border bank lending and payment service providers’ business expansion in Hong Kong and Macao.

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