The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) opened the door to Chinese fund management firms wanting to operate directly in Hong Kong.
Following the most recent annual CEPA supplement signed on June 29 2007, the China Securities Regulatory Commission (CSRC) issued new rules allowing mainland Chinese fund houses a six-month window for setting up operations in Hong Kong following the approval of their application.
The Hong Kong Securities and Futures Commission (SFC) believes that the new measures will bring more mainland Chinese fund management firms to Hong Kong and provide them with a platform to familiarize themselves with international investment and regulatory practices. “Both fund industries in Hong Kong and in China will benefit from increased opportunities to strengthen their co-operation,” according to SFC chairman Eddy Fong.
In a circular posted on its website on May 4, CSRC announced that it will endorse or reject an application within 60 days of submission. The regulator says that mainland Chinese fund houses are allowed to set up in Hong Kong through subsidiaries, branches, representative offices or other CSRC-approved channels, but their expansion must not hurt existing mainland Chinese operations and the interests of fund beneficiaries.
The companies must submit a business plan presenting clear commercial objectives and provide details about personnel and risk management arrangements. “(Applicants) should carefully research Hong Kong’s regulatory and legal environment and requirements, and give ample reflection on their own financial strength and management capabilities,” the circular adds.
The access that Chinese fund houses gain to local stocks will stimulate the investment in H shares by Chinese fund houses, according to market observers. In addition, the existing price gap between A shares and H shares will be narrowed through arbitrage.
Since last year, approved Chinese fund houses have been able to invest in global markets through the QDII scheme. The State Administration of Foreign Exchange (SAFE) approved a US$20.9 billion QDII quota for a total of 16 fund houses, according to a HSBC report in early April.
