Five things to know about the new Cross-Border Wealth Connect program
China has launched a much-anticipated cross-border wealth management (WMC) trial program in the Great Bay Area (GBA), marking Beijing’s latest effort to further open up the mainland’s financial market.
The mainland, Hong Kong and Macao authorities jointly unveiled the final version of the detailed regulations on Friday for the cross-border WMC after a draft was released in May.
The regulations will come into effect on October 10, when mainland banks will be allowed to submit applications for the sale of cross-border wealth management products to branches of the People’s Bank of China (PBOC) in Guangzhou and Shenzhen, Xing said. Yujing, chairman of the central bank. Shenzhen branch. The products will then be reviewed by the PBOC, China Securities Regulatory Commission and China Banking and Insurance Regulatory Commission, Xing said.
The Hong Kong Monetary Authority, the city’s de facto central bank, said local banks can start business after completing the relevant preparatory work.
The connection concept was announced in early 2019. The WMC allows mainland residents of the nine Guangdong cities of the GBA to invest in certain products sold by banks in Hong Kong and Macao through the “south link”. Residents of the two special administrative regions will also be able to invest in eligible products distributed by the continental banks in the area through the “North Link”.
The program is another cross-border investment scheme between the mainland and Hong Kong as a result of equity and bond connection programs.
The WMC “will further promote the interconnection of financial markets between the mainland and Hong Kong and Macao and improve the level of two-way openness of the Chinese financial market,” said Pan Gongsheng, vice governor of the PBOC. “It will further breathe new life into the development of the financial sector in Hong Kong and Macao and promote the construction and development of Hong Kong as an international financial center.” “
Here are five key things to know about how the program will affect the Chinese financial system and what it brings to GBA investors.
How will the WMC work?
According to regulations, China set an initial quota of 150 billion yuan ($ 23.1 billion) for the north and south routes, while the individual investment cap would be set at 1 million yuan.
Mainland banks will need to establish a cross-border partnership with banks in Hong Kong and Macao, and vice versa. Investors will open a transfer account in their home market. As part of bank partnerships, they will be able to open an offshore bank account remotely without traveling abroad. Investors will deposit the principal in the transfer account and then the money will be transferred to the offshore investment account to buy wealth management products across the border.
Who are the target customers?
The program has certain requirements regarding investors’ assets and their investment experience. Qualified mainland investors must have at least two years of investment experience, in accordance with regulations. At the end of each of the preceding three months, they must have either outstanding household net financial assets worth at least 1 million yuan or outstanding household financial assets totaling at least 2 million yuan. .
Experts said the target clients are middle class people who are ready to diversify their investment portfolios. A survey more than 2,000 investors in mainland China and Hong Kong have discovered that a key attraction will be diversification of risk, ahead of improving returns, according to a report released Friday by the World Economic Forum. For example, some middle-aged investors may invest in foreign currency funds for their children’s study abroad to hedge currency risk, said Li Hualun, director of HSBC Bank (China) Co. Ltd. .
For Hong Kong investors, the connect program extends access to assets in the continent’s emerging sectors such as the internet, new infrastructure and healthcare, in addition to high performing yuan assets in the post-pandemic period , a spokesperson for Standard Chartered PLC told Caixin.
What products are included?
The eligible products for the southbound link are low and medium risk investments, such as funds and bonds approved by the Hong Kong Securities Regulator, as well as yuan, Hong Kong dollar and foreign currency deposits. foreigners, in accordance with regulations. For the northbound link, the eligible investments would also be low and medium risk asset management products, specifies the regulations.
Banking operations in Hong Kong including HSBC Holdings PLC, Standard Chartered PLC, Citibank (China) Co. Ltd., Bank of China Ltd. and China Construction Bank Corp., previously told Caixin that they plan to sell cross-border wealth management products. HSBC said it would provide low and medium risk products first, including bonds, equity funds and money market funds. A spokesperson for Standard Chartered said it will initially offer savings, currency and fund products, including funds that track multiple assets globally to cover global equity markets or obligations.
Will it promote the cross-border use of the yuan?
Transactions on the north and south routes will be settled by the yuan via the Cross-border interbank payment system (CIPS), China’s cross-border clearing and settlement system for yuan-denominated transactions.
To reduce the risk of capital outflows, funds will be settled in a “closed loop” through the individual pooling of the transfer account and the investment account, meaning that most of the funds that investors will receive by selling investments will come from of the money they paid. earlier.
How does the WMC fit in with other cross-border investment programs?
The WMC is the first program that allows retail investors to directly open and operate cross-border investment accounts, said Caixin Au King-lun, executive director of the Financial Services Development Council, in August. For example, China’s equity and bond connection programs earlier launched targeted institutional clients.
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