Shenzhen forum mulls future of finance in GBA

The Greater Bay Area has a unique opportunity to create new methods of financing industrial growth, a high-powered forum in Shenzhen heard last week.

When Chinese hi-tech firms see difficulties in raising money through traditional methods, the future is there for GBA cities to create efficient financing infrastructure that can support money-burning, fast-developing startups. However, Hong Kong, the world’s No. 1 IPO market, is not doing a good enough job in this regard.

So said Ba Shusong, chief economist at China Banking Association and HKEX, at a conference discussing innovation in the GBA, held by Guangdong’s leading media group on Thursday.

Currently, there is an imbalance in the allocation of financial resources between traditional and emerging industries, Ba said, highlighting that the amount of capital invested in the region’s traditional real estate market was 12 trillion yuan for the year to November, a far greater sum than the 50 billion raised by HKEX last year. This is despite HKEX having already attracted a number of mainland tech companies to list on the board after it amended its listing rules in 2018 (these numbers did not include Alibaba’s blockbuster listing last month).

“If Hong Kong cannot provide the solution that realizes the cooperation between finance and new economy, then the opportunity will go to Shanghai,” said Ba Shusong, chief economist at China Banking Association and HKEX.

“Large amounts are being poured into the traditional industries. We should explore how to make use of financing resources [in emerging industries],” he said.

The time to do this is right now, and it is urgent, said Ba. China’s traditional economy is losing its momentum, and it remains to be seen whether the GBA can provide new growth impetus. “If Hong Kong cannot provide the solution that realizes the cooperation between finance and new economy, then the opportunity will go to Shanghai,” he said.

It’s not that the China’s primary international financial centre is standing still, however. Since HKEX overhauled its listing rules in 2018, allowing listings of companies with weighted voting rights, it has become particularly attractive to biotech firms, many of which are in pre-revenue development mode, as well as issuers seeking a secondary listing.

The amendment has attracted more than 148 startups to list on the board, including big names such as Alibaba, Xiaomi, Meituan-Dianping, as well as 22 biotech firms, said Anna Zhu, vice president of Global Issuer Services at HKEX, in a keynote speech at the same conference as Ba was speaking.

However, policymakers on the mainland side are clearly thinking more radically than that. Liu Hailin, guest researcher at Academy of Greater Bay Area Studies, a think tank focusing on the region’s development under the guidance of Guangdong government, raised the idea of setting up the first “Digital Asset Exchange” in Shenzhen, to help finance the large number of tech companies based there.

There is no effective method for many hi-tech companies to raise capital, regardless of traditional banks or the newly-launched technology innovation board in Shanghai, due to the high costs and requirements, said Liu, adding that Hong Kong’s future development is not promising as well.

The Digital Asset Exchange, as explained by Liu in his keynote speech, is based on blockchain technology and aimed at addressing the financing demands of SMEs as well as individuals. The fundraising will rely on an alternative model to IPO, called Security Token Offerings (STO), where the assets of the issuers are tokenized.

“Shenzhen is the best city for making financial breakthroughs in the digital era. It has a technology sector that can be industrialized quickly as well as comprehensive financial infrastructures,” said Liu. “I hope Shenzhen can have the same courage as it did during the Reform and Opening Up era.”

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