systems, one market?
kind of role will Hong Kong play when the Chinese mainland reforms
its financial system? How to define such a role?
all depends on which part of the "one country, two systems"
model is emphasized, says Vincent Cheng, Vice-Chairman and Chief
Executive of Hang Seng Bank. If the emphasis is on "one country,"
then there is a lot that Hong Kong can do to help; otherwise its
role will be quite limited.
are three areas that the chief executive envisions where Hong
Kong expertise can contribute to the improvement to China's financial
and foremost is the sharing of the best business practices, Cheng
Kong's banking industry and capital markets are well established,
integrated with the global financial market and keeping up with
world standards in terms of regulatory regimes, products and services.
On the mainland, authorities in the financial sector are fully
aware of the problems that plague their system, Cheng says, but
when it comes to concrete measures HongKongers can help "shorten
the mainland's learning curves" so that it will avoid making
mistakes in the process.
says that sharing the "best practices" can take the
form of active participation of Hong Kong financial institutions
operating on the mainland, or through personnel exchanges. This
is already taking place as the Chinese mainland speeds up the
opening of its financial markets after its acceptance into the
WTO. Strategic alliances are commonplace, and the sharing of best
practices will not be limited to commercial organizations but
applied to regulatory institutions as well.
Zhang, CEO of CITIC Capital Markets Holdings Ltd, says he feels
that the central government has been pushing companies onto the
international financial market. "When mainland companies
come to Hong Kong for listing, they have to abide by the rules
here and this has significantly improved their corporate governance.
Over the past 10 years, red-chip companies in Hong Kong are an
unqualified success," he says.
Executive Director of Corporate Finance Division, Securities and
Futures Commission Hong Kong, Ashley Alder, says he feels that
it is visionary for mainland authorities to have companies stand
the test of international financial standards. "The history
of the H shares tells us that Hong Kong can transfer its expertise."
But he says that once corporate misconduct is suspected of these
companies, it would be very hard, if not impossible, to "take
your investigation to the mainland."
Ho, council member of The Law Society of Hong Kong, pinpointed
"mutual enforcement judgment" as the legal hot spot
where improvement can be made. When business disputes arise involving
HK-listed mainland companies, court judgment from Hong Kong cannot
be applied to companies operating on the mainland. Ho compared
the rip-roaring Chinese economy to a massive pile and said "you
need the rule of law to make it stand up." Ho says Hong Kong
can be "a close working partner" and help improve the
mainland business laws and their enforcement.
second role that Vincent Cheng sees for Hong Kong is as a source
of capital for the restructuring and recapitalization of the Chinese
mainland's financial institutions.
historical reasons, China's financial institutions, especially
banks, has high levels of bad and doubtful assets or loans and
low levels of equity capital. Their return on equity and profitability
was low as a result. Huge investment is required for them to upgrade
their systems and technology to compete effectively in both domestic
and international markets.
Kong has efficient and highly liquid capital markets that will
continue to help the mainland's financial sector tap into foreign
funds, says Cheng. In addition, direct investment by Hong Kong
firms, to the extent permitted by the mainland's regulations,
will also serve as a catalyst for development, apart from bringing
Krause, Senior Regional Manager of the International Finance Corporation
(IFC), says that the IFC has made a point to invest in China's
financial sector to develop competitive institutions that will
meet international corporate governance and operating standards.
It has invested in five banks. Krause argues for the securitization
of distressed assets such as NPLs. "Better deal with it early
than late, and better to sell them," he said.
Shi Lau, Deputy Chairman of the Hong Kong Trustees' Association,
argued for mortgage securitization and trust establishment, two
areas where Hong Kong can advise the mainland.
Wang, Senior Managing Director of the Search Investment Group,
talked about venture capital. "The allocation of capital
should be dynamic and efficient. But one big constraint is lack
of transparency," he says.
third role that Vincent Cheng sees for Hong Kong is as an international
financial centre within the framework of China's financial development.
China gradually relaxes its capital controls and prepares its
currency for full convertibility, Hong Kong can serve as a testing
ground where China experiments with its proposed changes. Cheng
praised the first step that started early this year for Hong Kong
to take renminbi deposits. "This may have been a small step
for Hong Kong, as it represented just one more currency choice
for banks and customers in Hong Kong. However, it was a big step
for China, because in doing so, the renminbi has in a sense become
a convertible currency, although with limitations."
says that the Qualified Domestic Institutional Investors (QDII)
scheme that allows selected mainland institutions to invest outside
the mainland market could be another change where Hong Kong serves
as a testing ground.
most participants in China Daily's Third CEO Roundtable predict
a significant role for Hong Kong in the transformation of the
mainland's financial sector, David Ting, Head of the Office of
The European Commission, questions the base of such integration.
"Given China's commitment to the one-country, two-system
model, it would be hard for the Chinese mainland to include Hong
Kong in all its economic policy considerations," he says.
Zhu, CEO of ICBC (Asia) Ltd, says that regulations will change
gradually. "It'll be one market, two systems."
Vincent Cheng says that Hong Kong financial gurus should not overlook
the difficulties ahead.
terms of mainland regulations, I feel that sometimes they open
one door, but then close the window," he said.
Xiao, Associate Professor at the School of Economics and Finance
of the University of Hong Kong, says that Hong Kong as a success
story is "not well broadcast in the mainland."
first step," he says, "is to let people know that we
can help." And it will be a "dynamic role to play"
as China transforms itself into one of the world's leading economies,
says Vincent Cheng.