Beijing Unveils Bold Plans for Financial Integration of Guangdong, Hong Kong and Macau “Greater Bay Area”

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The Chinese central government has just unveiled an ambitious new plan for the accelerated financial and trade integration of the “Greater Bay Area” comprised of Guangdong, Hong Kong and Macau.

On 14 May the People’s Bank of China (PBOC) released the “Opinions Concerning Financial Support for the Establishment of the Guangdong-Hong Kong-Macau Greater Bay Area” (关于金融支持粤港澳大湾区建设的意见).

The Opinions are comprised of a total of 26 measures across five areas including:

  • Expediting cross-border trade and investment and financial convenience in the Greater Bay Area;
  • Expanding the openness of the financial sector;
  • Expediting the connection and integration of financial markets and financial infrastructure,
  • Raising the innovation level of Greater Bay Area financial services.
  • Pragmatically preventing cross-border financial risk.

PBOC produced the Opinions in collaboration with the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE).

PBOC said that the Opinions would be of benefit to “further driving financial openness and innovation, deepening financial cooperation between the mainland and Hong Kong and Macau, and raising the supporting and guidance role of the Greater Bay Area with regard to national economic development and external opening.”

“[They] will provide financial support to the creation of an internationally competitive and highly vigorous first-grade bay region and world-class city cluster.”

The Guangzhou Daily highlighted a number of “bright points” contained in the new opinions including:

  1. Undertaking forex trials for carbon emissions trading. The Opinions call for “establishing and improving green finance cooperative mechanisms by relying on the Guangzhou Green Finance Reform Innovation Pilot Zone…fully employing the role of the Guangzhou carbon emissions trading platform, and undertaking carbon emissions trading forex trials.” This will permit the use of forex and the renminbi for carbon emissions transactions in the Greater Bay Area.
  2. Exploring further mutual recognition of credit products. The Opinions call for “gradually allowing Hong Kong and Macau renminbi settlement banks to participate in the mainland interbank lending market” and “optimisation and improvement of financial market connection arrangements, including ‘Shanghai-Hong Kong Connect,’ ‘Shenzhen-Hong Kong Connect,’ and ‘Bond Connect.'” Qualified Hong Kong and Macau financial institutions and non-financial enterprises will be allowed to issue financial bonds, corporate bonds and debt financing instruments on the mainland. The Opinions also call for greater cross-border credit cooperation, and cross-border cooperation of credit agencies in Guangdong, Hong Kong and Macau, as well as mutual recognition of credit products.
  3. Supporting the undertaking of cross-border lending operations by banks. The Opinions call for increasing the convenience of currency exchange and cross-border flows, with a focus on integration of wealth management in all three parts of the Greater Bay Area. This involves the “establishment of cross-border wealth management connection mechanisms, supporting residents of the Greater Bay Area in purchasing wealth management products sold by Hong Kong and Macau banks, as well as Hong Kong and Macau residents purchasing wealth management product sold by mainland banks.” The Opinions also call for “supporting cross-border lending operations,” and mainland banks providing cross-border loans to institutions or projects in Hong Kong and Macau, as well as Hong Kong and Macau banks providing financial services via branches in the Greater Bay Area.
  4. Hong Kong and Macau insurers can establish after-sales service centres in the mainland. The Opinions call for supporting the establishment of financial asset investment companies and wealth management companies in the mainland part of the Greater Bay Area, with no restrictions on foreign share-holding levels. They encourage foreign investors to invest in the equity of trust companies and other financial institutions in the mainland part of the Greater Bay Area. With regard to insurance, the Opinions support the establishment of foreign-invested share-controlled personal insurance companies in the mainland part of the Greater Bay Area, and the establishment of insurance after-sales service centres by Hong Kong and Macau insurers under the CEPA agreement. This means that when people purchase insurance in Hong Kong, they will be able to enjoy insurance claim services in mainland China.
  5. Trial schemes for overseas investment by domestic privately offered equity investment funds. The Opinions call for allowing Hong Kong and Macau institutional investors to invest in privately offered equity investment funds and venture investment funds in the mainland part of the Greater Bay Area via the Qualified Foreign Limited Partnership (QFLP) program. China will also drive Qualified Domestic Limited Partnership (QDLP) and Qualified Domestic Investment Enterprise (QDIE) trials to support oversees investment by domestic privately offered equity investment funds. These trials will involve macro-prudential regulation, with domestic regulatory authorities looking to establish joint-assessment systems.

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