China’s liberalization process has sped up somewhat, although it has been stuttering ever so slightly. We have had new channels introduced and have had access extended. Do you see that pace continuing or perhaps slowing?
I definitely see it continuing. What we are looking at now is a balance of inbound and outbound flows, and that’s deliberate control; so it might feel like stop / start. At the beginning of the China summit, we compared that with an accelerator and brake. The important takeaway there is that there is a controlled liberalization of access points to the market. The pace will continue, and there’s a firm belief in the long-term growth and potential of China; but we will see some short-term interventions – things like the circuit breaker that we saw last year, to control those inbound/outbound flows.
How do you see Hong Kong developing as an asset management center? How important is China to Hong Kong’s ambitions?
I think it’s very important. If you look at some statistics, at mutual fund growth in this market over the past five or six years, there are a number of incentives that have drawn asset managers to this market to establish locally domiciled funds. We’re up from about 100 funds to over 650 now, in a short space of time – five or six years.
Those two incentives are largely the opportunities for managers to establish RQFII funds in Hong Kong, from 2011, and now of course what’s on everyone’s minds is Mutual Recognition, which was announced in last July but only started in January of this year. We’re only really three months into that, but we’re seeing global managers establishing a presence here; we’re seeing Chinese managers establishing a broader platform here in Hong Kong. The prize in the business case of course is China, access to China, particularly for the global firms coming in, or what we call the ‘West goes East’ flow. I think it’s important that there are other avenues that are emerging, for example access to Taiwan, which is a longer term initiative.
But almost the other way round, what are the challenges and opportunities that Chinese managers face when they are seeking to branch out abroad?
And we call this ‘East goes West’, which is the opposite flow. We’ve seen some very encouraging uptake and expansion of the top 20 Chinese asset managers, expanding overseas in key markets, like Europe’s, Luxembourg, and Ireland to an extent, and also into the US. Some of the challenges that I think are obvious, is that there is a different set of regulations, operating in those markets. The Chinese asset managers are really learning the ropes when it comes to the regulators in Europe, and the US, and then probably the bigger one is asset-raising capabilities. Brand recognition at this early stage is difficult, and then a response to that is some form of partnership, so we’ve seen Chinese managers teaming up with well-known brands in those markets I mentioned, and then some going alone. So I think its asset raising that is the main one.