Is it really so utterly unthinkable that Hong Kong could ever be more than an ideological battleground between the United States and China? Long-time residents such as Bloomberg’s Matthew Brooker think so. Traders who have been driving Hong Kong Exchanges and Clearing (0388.hk) higher this week think so. The American Chamber of Commerce in Hong Kong is not quite sure, but would like to think so.
Why? Because the two countries have too much skin in the game? Is that really the best explanation that can be offered for why financial decoupling is unlikely? If so, it is weak thinking at best, complicit at worst.
The traders are easiest to forgive for not exercising their imaginations. Nevermind that HKEX is a tougher club to join than the Nasdaq for many reasons, as pointed out by the SCMP’s Enoch Yiu. These investors clearly believe a gaggle of Chinese tech IPOs are winging their way to Hong Kong, free of cyber-reviews, and that the mass migration of listed Chinese firms from New York is also imminent.
They are just following the best advice money can buy, of course. As an FT report notes, investment bankers are desperately trying to salvage lucrative IPO fees by repackaging their New York hopefuls for Hong Kong. This is despite the odds of success, as one source said: “If you want to do a deal this year, at best you’ll be delayed until 2022 and at worst you won’t be able to do it.”
Nevertheless, they deserve sympathy. None of these people could reasonably be expected to wonder whether HKEX might now be seen by American national-security hawks the same way a target moving into the open draws a bead from a Predator 30,000 feet above.
Continue reading Believe in Hong Kong, but watch the sky
Hong Kong might be the obvious choice for Chinese tech IPOs after the central government tightened rules on overseas listings, but tough accounting and disclosure requirements still stand in the way, suggesting it could be months before the stock exchange (HKSE) starts to benefit, and even then, many aspiring companies might not make it. This is according to an analysis on SCMP written by its veteran capital-markets reporter, Enoch Yiu.
Companies that want to shift their listing from the US to Hong Kong may have to rework their accounts and application documents to comply with the tougher standards imposed by the Hong Kong bourse operator than US exchanges, accounting and legal sources said.
Some of the biggest differences include accounting principles and reporting standards, offshore ownership structures and classes of shares with variable voting rights. “Listing requirements in Hong Kong are stricter,” said Wang Hang, a partner at legal firm Baker McKenzie in Beijing. “The key is to evaluate whether the issuer can fulfil the listing conditions. That is to say, not all of these companies are capable of shifting [their choice of venue] to Hong Kong.”
More on SCMP
The Cyberspace Administration of China will implement new regulations that would require nearly all Chinese companies seeking to list overseas to undergo a data security review, confirming a Bloomberg report from last week that said the CAC was considering such a move. There will be a review and consultation period in which the CAC seeks feedback to its proposed rules, which cover companies that hold data on more than 1 million users. The CAC said it was concerned that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” it said in a statement.
The new rules will cover just about every company wanting to do an IPO in the US, analysts said, and regulators are also considering requiring Variable Interest Entities (VIEs) like Alibaba Group, which have already gone public, to seek approval for additional share offerings offshore, according to Bloomberg.
So far this year, 37 Chinese companies have listed in the US, surpassing last year’s count, and raised a combined $12.9 billion, according to Bloomberg.
Read more on Bloomberg
Read our analysis of what this means for Hong Kong.
A court in Shenzhen’s Nanshan district has set a precedent for disputes involving factoring contracts, the first apparently to be heard in a local court since China’s new Civil Law came into effect this year. The court judged that parties to a factoring contract cannot assign third-party insurance to the financing party, as this would violate the country’s laws governing the insurance industry by disadvantaging potential third-party claimants.
The dispute involved the owner of a trucking business who was sued by a financing company that had provided him with financing based on accounts receivables. Under such a (factoring) agreement, financing parties usually provide needed cashflow to businesses and then collect once their accounts receivables are settled, for an additional fee.
More details on SZNews
Hong Kong financial services firms are rushing to find new partners in the Greater Bay Area after a change in regulation that allows them to do so under the Wealth Connect Scheme, according to the SCMP.
When the details of the cross-border scheme were initially unveiled in June last year, they restricted each financial institution to one partner. But now, a senior executive at Standard Chartered Bank says this has been relaxed and his bank is in discussion with several potential partners in Guangdong. HSBC and DBS Bank are also engaged in similar discussions.
The Wealth Connect Scheme will allow financial institutions to sell offshore wealth management products to investors in Guangdong and, similarly, onshore products to investors in both Hong Kong and Macau. These will be strictly limited by quotas; however, they are seen as cracking open the mainland’s tightly controlled forex market by allowing cross-border investing in products other than stocks and bonds.
No reason was given for the change. However, analysts have been commenting recently on China’s apparent desire to keep its recently rising currency in check, while also gradually increasing its role in international trade. International banks and other wealth-management service providers have been on hiring sprees in recent months in the region, partly because of opportunities being presented under this and other cross-border financial trading schemes.
Read more on SCMP
Macau is looking to establish a basis for totally free cross-border capital flows between the Special Administrative Region and the mainland, according to its finance chief. Secretary for Economy and Finance, Lei Wai Nong, speaking at a Greater Bay Area Finance Forum hosted by Wynn Palace last Friday (June 11) said the Macau government is striving to achieve this goal – without providing a timeframe – in order to “foster financial cooperation with the partnering regions” on the mainland.
Lei was likely referring to plans being discussed with neighboring Guangdong related to the Hengqin New Area, a special zone situated opposite Macau’s casino resorts in the Cotai district. Free capital flows between Macau and the mainland would provide “a solid financial foundation to assist various industries from both sides to gain ground,” Lei said.
“The Guangdong-Macao Intensive Cooperation Zone in Hengqin is a crucial gateway for Macau to integrate into the development of the GBA. President Xi Jinping asked Guangdong Province and Macau to robustly facilitate the construction of cooperation zones, carving out conditions for the development of emerging industries and furthering the city’s economic diversification,” Lei said.
More on Macau Daily Times
The Greater Bay Area will be included in an official plan to further open China’s foreign-exchange controls, according to the the PBOC. Speaking at the 13th Lujiazui Forum in Shanghai, which started yesterday, Pan Gongsheng, the central bank’s deputy head, said both the QFLP and QDLP programs will be expanded in Shanghai, Hainan, and the GBA.
The QFLP scheme allows foreign institutional investors to convert overseas capital into Chinese yuan-denominated funds that can be used to invest in the domestic private equity and venture capital markets.
The QDLP program allows domestic fund managers to raise funds from qualified domestic institutional investors and set up trial funds for investment in overseas primary and secondary capital markets.
More on Yicai
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.
Continue reading Shenzhen forum mulls future of finance in GBA
Over the past year, it has seemed like not a month could pass without a local government pointing out how much it had “given back” to companies via tax cuts and other subsidies, to help them cushion the current economic slowdown. Unsurprisingly, therefore, a survey by the province’s leading business media group has found that a high percentage of companies based in Guangdong’s nine GBA cities are satisfied with the region’s business environment.
When pressed further, however, most say that they would like more. Further tax cuts and lower labor costs would be nice, they say. Moreover, at least a third of them would like to see “integrated market rules” in the Greater Bay Area.
Continue reading GBA firms happy, but want more
The new Lending Prime Rate is now being used by banks to set mortgage rates, and its launch has been underwhelming, with most banks sticking to the plan or slightly raising their rates.
This is not to say the gap between the LPR and individual banks’ rates can’t widen over time. But right now, only a foolish bank manager would ask for a target to be placed on their back by thinking they can undercut their competitors aggressively on the first day.
Continue reading LPR makes GBA heads spin