(Bloomberg) — A long-awaited program to allow investments for private wealth between Hong Kong and mega-cities in China’s southern region will open for cross-border flows as soon as next month.
Wealth Management Connect, which has been estimated to generate almost $500 million in annual fees for banks, will come into operation in October and November, said Edmond Lau, Hong Kong Monetary Authority’s deputy chief executive, at a launch ceremony on Friday.
HSBC Holdings Plc, Standard Chartered Plc and Citigroup Inc. have been beefing up their presence in anticipation of the plan, one of the building blocks in integrating the Greater Bay Area, a region of 70 million people encompassing cities such as Guangzhou and Shenzhen. Hong Kong’s government has embraced closer ties with China since unrest hit the city in 2019.
“Hong Kong’s asset management industry is excited at the opening of what is effectively a brand-new market,” said Alexa Lam, chief executive officer, Asia-Pacific, at ICI Global, an association representing regulated funds with $40.5 trillion in assets.
The area has total gross domestic product of about $1.7 trillion, an economy similar in size to Canada, according to consulting firm Bain & Co. A survey conducted by HSBC and the Nielson Co. (Hong Kong) found more than 80% of mainland investors in the area plan to invest through wealth management connect.
The link will open a northbound channel for Hong Kong and Macau residents to invest in onshore financial products and a southbound channel for eligible mainland residents to invest offshore. The program will free up some capital controls and allow mainland investors to move money out of China in a closed loop system with an individual quota of 1 million yuan ($155,000) and a cap of 150 billion yuan, both ways.
At the initial stage, mainland Chinese investors will be limited to “low” and “medium” risk and “non-complex” Hong Kong products such as deposits and bonds, as well as Hong Kong-domiciled funds authorized by the regulator.
There will be no central list, but it will be up to banks to assess which products are eligible according to risks, said Lau.
At least 20 banks are interested in setting up wealth connect programs and there are about 100 to 200 eligible funds in Hong Kong, he said. Banks need to submit self-assessment reports 30 days prior to starting, which can be offered as of today, Lau said.
HSBC, the largest bank in Hong Kong, is ready to go. It plans to submit its application “probably early next week,” said Daniel Chan, head of the Greater Bay Area at the bank. It plans to offer more than 100 products, including mutual funds, deposits and bonds for the Southbound route, subject to regulatory approval, he said.
HSBC Hong Kong will be partnering HSBC China initially, given the complexity and the “know your customer” process, but the bank is “definitely open” to also partnering with mainland banks, Chan said.
“If we are to reach to the wider market, partnership is clearly one of the options and key enablers,” said Chan. “There’s lots of conversations with various parties going on.”
Read more: ICBC, HSBC Can Profit as Cross-Border Program Powers Fund Flows
New York-based Citigroup Inc. is also ramping up, planning to hire 1,000 professionals across its wealth franchise in the city, said Lawrence Lam, head of consumer banking for Hong Kong at Citigroup.
“We are in place to deliver the best value for our clients in the region, including to offer GBA clients a broader range of investment opportunities,” he said.