HONG KONG -- Tens of billions of dollars in household savings from mainland China could flow into Hong Kong starting next month as the latest cross-border financial services link opens.
The Hong Kong Monetary Authority on Friday announced details for implementing Wealth Management Connect, expanding an effort to promote cross-border investment that already includes channels for stock and bond trading.
Edmond Law, deputy chief executive of the authority, told reporters that more than 20 Hong Kong banks and financial institutions had expressed interest in joining the program. They can offer products through the link 30 days after filing with the authority.
"We believe Wealth Management Connect is a significant breakthrough on the mechanism of mutual access between" the mainland and Hong Kong economies, Law said. "Not only can it benefit Hong Kong banks, it can also drive the development of the whole financial industry chain including fund companies, securities and bond businesses."
Investors from Hong Kong also can use the link to buy Chinese wealth management products, which tend to carry higher yields than those elsewhere.
Unlike the existing Stock Connect and Bond Connect programs, Wealth Management Connect will be restricted to investors in the Greater Bay Area, which covers Hong Kong, Macao, Shenzhen, Guangzhou and seven other Guangdong Province cities.
Four in five mainland investors in the Greater Bay Area plan to invest in Hong Kong via the connect link, a survey by HSBC and Nielsen found in May.
The new link, for which plans were unveiled in June 2020, will strengthen Hong Kong's role as the financial gateway for the world's second-largest economy. It also could deliver hundreds of millions of dollars in fees for the likes of HSBC Holdings and Standard Chartered.
HSBC said this year that it would add 5,000 wealth planners in Asia, primarily in mainland China, Hong Kong and Singapore, as part of a $3.5 billion expansion of its regional wealth management division.
The company has over 5,000 retail banking staffers in the Greater Bay Area to support Wealth Management Connect investment services, said David Liao, Asia Pacific co-chief executive at HSBC.
"In the initial phase, HSBC plans to provide over 100 selected wealth management products at low to medium risk, covering all asset classes allowed by the rules," Liao said.
Edmond Law of the Hong Kong Monetary Authority, center, called Wealth Management Connect "a significant breakthrough." Photo by Takeshi Kihara) Standard Chartered, which is investing $40 million to set up a Greater Bay Area center in Guangzhou, aims to have 1,600 staffers by 2023 at the unit.
"The launch of the cross-boundary Wealth Management Connect pilot scheme marks a significant milestone in the opening up of China's financial markets and integration of economies in the region," said Benjamin Hung, the company's Asia chief executive.
Earlier this year, an executive at Bank of China's Hong Kong unit projected that the new program will generate fees of $700 million, making it the "next driving force" for lenders. Citigroup also announced plans to add 1,000 employees to support expanded wealth management in Hong Kong.
Investment flows will be capped at 150 billion yuan ($23.2 billion) in each direction, with an individual quota of 1 million yuan. To qualify, mainland investors must have at least two years of investment experience and more than 1 million yuan in net assets.
The new program gives more individual mainland investors access to Hong Kong stocks and opens the city's bonds to mainland buyers for the first time, as the existing Bond Connect is a one-way link for buying mainland securities.
Wealth Management Connect is expected to center on mutual funds and other managed funds, with Hong Kong providers anticipated to offer as many as 200 funds initially.
J.P. Morgan Asset Management currently offers 30 regulator-authorized Hong Kong-based retail funds.
"Some of the funds are expected to qualify" for the new link, said Elisa Ng, head of Hong Kong for the fund manager.
But money invested under the program remains in a "closed loop," meaning that investors who later sell can use the proceeds only for another Connect investment or withdraw the money in its original currency.
Hong Kong investors need a qualifying bank account on the mainland to participate. Chinese rules call for opening such accounts in person, a requirement that Hong Kong investors will struggle to meet amid pandemic-related travel restrictions.
The Hong Kong Monetary Authority said it is working with mainland officials to allow account opening through attestation at qualified locations in Hong Kong, a feature mainland investors will be able to use to create accounts from there.
The approval of the cross-border program comes the same week BlackRock raised $1 billion for the first mutual fund marketed in mainland China by a foreign fund manager, rather than a joint venture with a local partner.
Additional reporting by Stella Wong in Hong Kong.