Wealth Management Connect Finally Kicks Off: What is its Significance?
The Greater Bay Area’s Wealth Management Connect has launched after over a year of anticipation. Under the scheme, wealthy investors in the nine mainland cities of the Greater Bay Area can invest in RMB-denominated financial products issued by banks in Hong Kong and Macao, and vice versa. The scheme marks a significant milestone in the opening of Mainland China’s financial markets and will be a boon for both investors and financial institutions in the economically vibrant region.
Banks across the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) are set to roll out the first batch of products under the cross-boundary Wealth Management Connect program as early as October 2021, according to public reports.
The Wealth Management Connect program enables mainland residents of nine Guangdong cities in the GBA to invest in investment products sold by banks in Hong Kong and Macao, and vice versa.
On September 10, 2021, the People’s Bank of China released the Implementation Rules for the Cross-boundary Wealth Management Connect Scheme in the Guangdong-Hong Kong-Macau Greater Bay Area (the “Implementation Rules”), marking the official kickoff of the Wealth Management Connect program. The Implementation Rules came into effect on October 3, 2021.
First announced on June 29, 2020, the launch of the program is a long-waited move that will further promote financial integration in the GBA, enhance Hong Kong’s role as China’s offshore financial center, and help to diversify Macao’s economy.
The Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, said 20 banks in Hong Kong had applied for permission to sell over 100 investment funds to mainland investors. Major players like HSBC, Citi, Standard Chartered, and Bank of China (Hong Kong) have confirmed their participation, according to the SCMP.
In Macao, 10 banks intend to sell investment products to mainlanders. According to Autoridade Monetaria de Macau (AMCM), the Monetary Authority of Macao, some have applied to start as soon as this month.
On the other side of the border, mainland players, such as Ping An Fund and Rongtong Fund Management are gearing up to launch their products, including mutual funds, for Hong Kong and Macao investors, according to The Asset. Bond funds and “fixed income plus” funds are expected to attract Hong Kong investors who seek asset preservation and profits under a low-interest-rate environment.
What is the GBA’s Wealth Management Connect program?
Wealth Management Connect is the first two-way investment mechanism for individual investors in the GBA.
Under the scheme, mainland residents of the nine Guangdong cities in the GBA are allowed to invest in certain products sold by banks in Hong Kong and Macao via the “southbound link”. Meanwhile, Hong Kong and Macao residents are also able to invest in eligible products distributed by mainland banks in the GBA via the “northbound link”. Foreigners who are residents of Hong Kong or Macao are thus able to access financial products sold in China via the two cities.
How does Wealth Management Connect operate?
China set an initial quota of RMB 300 billion (US$46.5 billion) for the Wealth Management Connect Program with half going in each direction. Each individual investor can only trade up to RMB 1 million (US$155,000) on a net remittance basis.
Mainland investors can either go to Hong Kong or Macao to open an offshore bank account in person, or they can open the account remotely. To open an offshore bank account without being physically present, an investor must find a mainland bank that has a partnership with a Hong Kong or Macao lender. They will need to open a remittance account with the mainland bank first and then remotely open an offshore bank account under the banks’ partnership.
|Account Opening and Investment Process of Southbound Scheme|
|1||Open a new Class I bank account or use existing Class I bank account in mainland bank as “dedicated remittance account”||Pairing of account|
|2||Open a “dedicated investment account” with an eligible partnering Hong Kong/Macao bank|
|3||Remit RMB funds to the dedicated investment account in Hong Kong/Macao|
|4||If investing in products denominated in other currencies, investors may convert RMB funds into the relevant currency in Hong Kong/Macao’s offshore market|
|5||Purchase eligible investments products distributed by the Hong Kong/Macao bank via the dedicated investment account|
However, Hong Kong investors may need to go across the border in person to open an offshore account in a mainland bank, according to Edmond Lau, deputy chief executive of HKMA.
Macao residents will be able to open a remittance account in a Macao bank and open an RMB investment bank account in the Macao bank’s mainland partner bank. The procedures of opening a mainland bank account should follow similar procedures as those for Hong Kong investors, which requires the physical presence of the investors.
|Account Opening and Investment Process of Northbound Scheme|
|1||Open a “dedicated remittance account” with eligible Hong Kong/Macao bank||Pairing of account|
|2||Open a “dedicated investment account” with the mainland partner bank|
|3||Exchange for RMB funds in Hongkong/Macao’s offshore market for investment|
|4||Remit RMB funds to the dedicated investment account on the mainland via the dedicated remittance account in Hong Kong/Macao|
|5||Purchase eligible investments products distributed by the mainland partner bank via the dedicated investment account|
Who can participate in Wealth Management Connect?
The Wealth Management Connect program has some requirements regarding investors’ assets and investment experience.
Mainland investors must have household registration in one of the nine Guangdong cities, or alternatively have paid individual tax or social security for five years in the city. Besides, they must have at least two years of investing experience as well as either a household net worth of RMB 1 million or total financial assets of RMB 2 million.
For Hong Kong residents, either permanent or non-permanent residents, there is no restriction on their investing experience or asset, as long as they are not recognized by Hong Kong banks as vulnerable customers.
Macao investors must hold a Macao permanent or non-permanent identity card and they must be recognized by Macao banks as having investment capacity.
Which types of products are included?
The mainland investors can buy mutual funds, bonds, as well as RMB, Hong Kong dollar, other foreign currency deposits from Hong Kong or Macao banks, which are approved by the securities regulators of the two cities.
According to Yuen Kwok-hang, deputy chief executive of HKMA, over “200 types of bonds” were included in the application from Hong Kong banks, including both government and corporate bonds.
Hong Kong and Macao investors can invest in mainland fund products with low and medium risk. Northbound Investment products include:
- Public fixed income wealth management products (which primarily invest in bonds and deposits) and equity wealth management products (which primarily invest in equities) issued by Mainland China wealth management firms and being assessed by the issuers as products with a risk rating of “R1” to “R3” (excluding wealth management products for the purpose of cash management);
- Public securities investment funds (excluding listed funds) being assessed by Mainland public fund managers and Mainland distributing banks as products with a risk rating of “R1” to “R3”
Significance of Wealth Management Connect
The launch of the Wealth Management Connect program has been greatly anticipated since its announcement in June 2020. It forms part of a broader drive to further develop the GBA as a major economic and financial powerhouse, better integrate the GBA region, and strengthen the internationalization of the RMB.
Access to a new customer base
The Wealth Management Connect program has been widely hailed and anticipated by financial institutions in Hong Kong and Macao, who stand to benefit as they gain immediate access to a large and wealthy customer base. About 78 million people live in the nine mainland cities of the GBA, and the region has a combined GDP larger than that of South Korea and Australia.
Hong Kong, already one of the world’s most advanced financial markets, will therefore receive a significant inflow of capital from wealthy mainland investors. It will also make the city an important hub for offshore RMB as the scheme provides another channel for overseas investors to trade in RMB-denominated financial products.
For Macao, which is still highly reliant on its gaming industry, the scheme provides a means of boosting its growing financial industry and diversifying its economy.
Increasing connectivity of the GBA
The Wealth Management Connect is part of a wider initiative to further integrate the 11 cities of the GBA, and encourage more cross-boundary business activity between Hong Kong, Macao, and the nine mainland cities and boost cross-border capital flows in the GBA. In recent years, local governments have been driving integration through policies and incentives that facilitate the movement of talent, goods and services, and capital across the region. The Wealth Management Connect will further accelerate this trend.
In fact, a circular released by the HKMA describes the Wealth Management Connect scheme as one of many measures to “strengthen the convenient flow of people, goods and funds within the GBA”. It allows for a larger flow of capital across the bay, but also provides opportunities for the development of new financial services. Combined with incentives to increase the movement of people across the region, the scheme may also open up new opportunities for training and careers in the financial industry.
Internationalization of the RMB
Another key aspect of the Wealth Management Connect is its role in the internationalization of the RMB. China has been seeking to expand the use of the RMB for international transactions for over a decade and has gained significant traction in recent years through other cross-border programs, such as the Shanghai, Shenzhen, and Hong Kong stock connects and the Shenzhen Bond Connect, which also enable overseas investors to invest in RMB-denominated financial products in mainland China.
Under the Wealth Management Connect, cross-boundary remittances will be in RMB, which means mainland investors will be able to directly use RMB to invest in financial products in Hong Kong and Macao, while investors in the two special administrative regions will be able to invest in RMB-denominated products issued by banks in the mainland.
As such, the Wealth Management Connect will also function as a test case for cross-border investment in the finance industry. If successful, similar programs could be launched in other regions, or the existing programs in the GBA could expand to cover more offshore areas and investors, making the GBA, and Hong Kong in particular, a key link between Chinese and overseas financial markets.
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