China edges closer to wealth link with Hong Kong

China has moved a step closer towards a scheme that could result in tens of billions of dollars in household savings flowing into Hong Kong, marking the latest effort to integrate the country’s financial system into global markets.

The Wealth Connect programme will allow up to Rmb150bn ($23bn) to be invested in either direction between Hong Kong and mainland China, with a limit on individuals of Rmb1m ($155,000).

The scheme is set to be a milestone in the liberalisation of China’s strictly-controlled financial system, as it would make it much easier for part of the country’s vast pool of savings to be invested outside its borders.

It will allow households in the Greater Bay Area, part of southern China home to more than 70m people that includes the cities of Guangzhou and Shenzhen, to buy investment products in Hong Kong. It was first unveiled in June last year.

The People’s Bank of China, along with other regulators in the country, said the scheme would be opened to public comments ahead of a May 21 deadline.

The scheme will add to existing programmes that connect stock and bond markets in the mainland to Hong Kong. It will also allow overseas investors to buy mainland products, cementing Hong Kong’s status as a gateway for capital flows in and out of China.

People in mainland China with two years of investment experience and more than Rmb1m in net assets will be eligible to use Wealth Connect, according to the draft rules released on Thursday that confirmed figures released by the Hong Kong Monetary Authority last year.

Daniel Chan, head of HSBC’s Greater Bay Area business, said the announcement marked “another encouraging step towards the opening of mainland China’s capital markets and reinforcing Hong Kong’s status as an international financial centre”.

“It is also another milestone for renminbi internationalisation,” he added.

International banks have been increasing investments in the marketing of wealth management products in China in a race to lure high net worth customers. HSBC said in February that it would hire 5,000 wealth planners in mainland China as part of a $3.5bn investment in its wealth management division. 

Hong Kong and Chinese authorities are aiming to roll out the scheme in the second half of 2021. HKMA chief executive Eddie Yue said last year that the programme was an “important milestone in the mainland’s capital account liberalisation” and that it “underpins Hong Kong’s strategic importance in the mainland’s financial open-up process”.

A so-called closed-loop system means Wealth Connect will not allow savers to move cash out of the mainland, with all assets ultimately being repatriated into China.

A senior executive close to the project launch said the scheme “won’t secure freedom of funds outside of China”.

“People will be able to take the upside economically, but the money ultimately stays in the country,” he said.

The scheme is one in a series of recent reforms from the Chinese government, which include relaxing foreign investor access to futures markets and ownership limits on mutual fund and securities businesses.