Chinese New Year officially ends this week, but for Hong
Kongbased Charles Wang, chief executive officer of
Chinese asset manager E Fund Management (HK), the weeklong
holiday was not restful at all.
That is because he and his team have been busy preparing for
the coming launch of a 1.1 billon yuan fund, which will be
among the first batch of renminbi-denominated mutual funds
approved by the Chinese government to be raised in Hong
With the new fund raisings, E Funds assets under
management double to nearly $400 million, which is not bad
considering that the Guangzhou-based asset manager set up shop
in Hong Kong in 2008. We see explosive growth in the
coming few years, Wang says, adding that the experiment,
also known as RMB Qualified Foreign Institutional Investor
scheme (RQFII), likely will be expanded with more quotas given
later this year.
E Fund is among a group of 21 mainland fund managers and
brokers that are kick-starting a Chinese-government experiment
allowing Chinese financial services companies to raise yuan
funds in Hong Kong for investing in mainland markets.
The scheme is the latest addition to Chinas renminbi
internationalization efforts. Chinese authorities have approved
the 21 firms to raise a combined 20 billion yuan in Hong
The launch of the new RQFII mutual funds comes only a few
months after Chinese Vice Premier Li Keqiang announced the
program during a speech at the University of Hong Kong in
Hong Kongs offshore RMB market is likely to heat up
this year. Officials from China Securities Regulatory
Commission announced at the Asian Financial Forum held in Hong
Kong in mid-January that they would be encouraging Chinese
companies to begin seeking yuan-denominated initial public
offerings in Hong Kong as well.
Hong Kong is an axis of capital, E Funds
Wang says, adding his RQFII mutual fund will have a
fixed-income theme, investing primarily in Chinese corporate
and government bonds. Many global players want access to
capital to Chinese
capital. Chinese financial players want access to global
capital. Hong Kong offers a competitive platform for Chinese
asset managers as well as global players.
Demand in Hong Kong for exposure to Chinese bonds and
equities comes despite the fact that Chinas CSI 300 index
fell 16 percent in 2011, the result of the governments
efforts to cool the economy and to prevent speculative
investments, particularly in real estate.
Despite fears of a hard landing, Chinese
authorities announced on January 17 that the countrys GDP
grew 9.2 percent in 2011, down from 10.4 percent a year
earlier, which is not bad considering that most developed
markets did not grow at all and are on cusp of falling into
recession again. China, most economists believe, will slow down
in 2012 but still will maintain a minimum of 8 percent GDP
At the center of Hong Kongs optimism is
Chinas will to make the city its primary offshore RMB
trading center. This gives local banks the
opportunity to offer all kinds of RMB-linked products,
including RMB-denominated bonds and funds, which is proving to
be an attractive investment option for global asset managers.
Chinas experiment is leading to the introduction of all
kinds of new investment instruments in Hong Kong aimed at both
China-based and global asset managers.
For example, Renminbi bond issues also known as dimsum bond
issues topped 100
billion yuan in 2011, almost three times the 36 billion yuan in
2010; and bank deposits topped 600 billion yuan, up from 259
billion yuan at the beginning of 2011, according to the Hong
Kong Monetary Authority.
Even though China is now the second-largest economy in
world, it remains difficult to invest in Chinas capital
markets as the government has restricted access by limiting
global asset managers to quotas known as Qualified Foreign
Institutional Investor schemes, or QFII.
So far, only 135 QFII licenses have been handed out with
funds totaling $21.6 billion, less than 1 percent of the market
cap of Chinas stock markets, according to Shanghai-based
research house Z-Ben Advisors. In a move to show that they are
loosening up, however, Chinese authorities handed out 14 QFII
licenses in December alone, equivalent to the total number
handed out in the previous 11 months.
China is also allowing more of its own financial services
companies to expand operations in Hong Kong. So far, there are
ten Chinese asset managers with operations in Hong Kong, and
three more are on the way as they only recently received
regulatory approval from mainland authorities, says Tony
Skriba, an analyst with Z-Ben Advisors. A total of 15 Chinese
brokerages also have set up subsidiaries in Hong Kong.
A total of 29 mainland brokers and asset managers have been
granted licenses by authorities to set up Qualified
Domestic Institutional Investor funds (QDII) in Hong
Kong, which allow them to raise capital from mainland Chinese
investors to buy Hong Kong equities.
Despite rapid development and improvement of onshore
financial markets, many Chinese firms feel they are unable to
gain global experience unless they head to Hong Kong,
Skriba says. Hong Kong is also close enough to their
comfort zone at least in
investment expertise that it makes a
natural first step, says Skriba, adding that most Chinese
brokers and asset managers still specialize in offering
China-themed products to global investors through H-shares.