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China opens wealth tap to Hong Kong amid political crackdown

[BEIJING] China moved to further deepen its economic ties to Hong Kong, allowing two-way cross border purchases of wealth products at the same time as authorities in Beijing push to quell dissent in the former British colony.

Regulators on Monday announced the kick off of a long anticipated programme dubbed Wealth Management Connect, which will allow Hong Kong residents and people in Macau and southern China to invest across the border. Flows under the programme will be handled in a "closed-loop" through the bundling of designated remittance and investment accounts, the People's Bank of China said in a joint statement with the monetary authorities of Hong Kong and Macau.

Fund flows under the northbound and southbound connect will also be subject to aggregate and individual quotas, according to the statement. The date of a formal launch and other details, such as what investments will be allowed, will be announced after a consultation.

In the joint statement on Monday, the authorities said the plan "promotes the opening-up of the Mainland's financial markets as well as the mutual social and economic development of the Mainland, and Hong Kong and Macau."

Hong Kong has been gripped by political turmoil over the past year amid growing calls for democracy. The wealth connect announcement comes as lawmakers are meeting in Beijing to discuss a new security law, which would bar subversion, secession, terrorism and collusion with foreign forces in the financial hub. A vote could come Tuesday morning, the day before the anniversary of the city's handover to China in 1997, Now TV News reported.

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Authorities have sought to reassure investors that Hong Kong will remain a stable place to invest amid speculation over capital outflows. While there has been no sign of an exodus, Hong Kong's rich are increasingly hedging their bets amid the worst economic and political crises since the handover.

Beijing has also pledged commitment to the city's status as a finance hub. Mainland investors boosted share purchases over the past months through the so-called stock connect link while a number of high-profile Chinese firms listed shares in Hong Kong.

The wealth connect plan "has strategic importance, reinforcing Hong Kong's position as a wealth management hub," Sally Wong, chief executive officer of Hong Kong Investment Funds Association, said by phone. "It provides important investment channels for mainland investors to achieve diversification."

Chief Executive Carrie Lam has lobbied for more financial integration, telling Chinese officials that the city should become a global hub for private wealth and a more prominent offshore renminbi centre.

In a statement on Monday, Mrs Lam said the plan "demonstrates the strong support of the central government and the importance it attaches to financial development in the Greater Bay Area, underlining the solid backing from the country and that Hong Kong continues to play a leading role in the country's economic development and opening up of financial markets."

Firms that could stand to benefit include life insurers in Hong Kong, which have struggled with a choke off in inflows from Chinese customers due to the protests and the pandemic. Insurers like AIA are among those that could see increased business, Citigroup analysts wrote in a note.

In May, the nation's financial regulators unveiled a sweeping plan to facilitate cross-border transactions and investments between Hong Kong, Macau and cities in southern China. Policy makers are seeking to turn the so-called Greater Bay Area into a high-tech megalopolis to rival California's Silicon Valley.

Xing Zhaopeng, an economist at Australia and New Zealand Banking Group in Shanghai, said the wealth connect plan is "a step for renminbi internationalisation."

It provides another channel of capital account convertibility beyond the current US$50,000 annual limit for individuals, Mr Xing said. "But it will not cause significant flows because it's limited to individuals not institutions."

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