Hong Kong seeks more investment quotas, IPO access for Chinese mainland investors

[HONG KONG] Hong Kong is in talks with Chinese authorities to expand cross-border investment channels and grant mainland buyers access to local initial public offerings, following a regulatory crackdown on illicit offshore capital flows, according to Financial Secretary Paul Chan.

The discussions include proposals to lower entry thresholds for qualified investors, raise southbound investment quotas under the Connect programmes, and expand the suite of eligible products, Chan said in an interview with the China Daily.

Regulators are also weighing plans to allow mainland retail investors to subscribe to Hong Kong IPOs, as well as broadening cross-border investment channels for Shanghai’s tech-focused Star Market, Chan said in a separate interview with newspaper Wen Wei Po.

While Hong Kong authorities have long sought an “IPO Connect” programme to boost market liquidity, the proposal has historically faced resistance from risk-averse regulators in Beijing.

The push comes as Beijing last month launched its most aggressive campaign yet against unauthorised cross-border trading to stem capital flight.

The China Securities Regulatory Commission slapped more than US$330 million in combined penalties on three online brokerages for providing offshore trading services to mainland clients without proper regulatory approval. Regulators also ordered all non-compliant existing retail accounts to be liquidated within a two-year wind-down period.

Hong Kong watchdogs have simultaneously tightened the screws, instructing local banks to ensure all new clients sign explicit declarations confirming that the funds in their investment accounts originated outside mainland China.

Chan told the China Daily that legitimate investments will still be “encouraged”, adding that bringing cross-border flows into a compliant framework will reassure Beijing.

Under the Connect programmes, which include stocks, bonds and some derivatives and wealth products, mainland investors are allowed to access Hong Kong through a closed-loop system.

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Greater confidence will facilitate deeper cooperation between mainland and Hong Kong markets and create room for further relaxation of outbound asset allocation, Chan said.

Since its 2014 debut, the mutual market access mechanism linking Hong Kong and domestic capital markets has expanded to let investors trade shares, bonds, and exchange-traded funds across the border. Regulators initially took a cautious approach, limiting early eligible products to low-risk assets, Chan said.

Net southbound inflows via the Stock Connect exceeded HK$1.4 trillion (S$230.3 billion) last year, the highest annual figure since the programme’s launch, China Daily said. BLOOMBERG