Sitting on the Dock of the Bay: Hong Kong’s Next Great Opportunity

December 14, 2020
In June 2020, authorities in China, Hong Kong, and Macau announced the launch of the Greater Bay Area Wealth Management Connect with the intent to facilitate cross-border investments for residents within the Greater Bay Area.

Otis Redding famously wrote his laid-back classic, “Sitting on the Dock of the Bay” describing a lazy summer afternoon overlooking San Francisco Bay, but when it comes to the Greater Bay Area (GBA) which links Hong Kong, Macau, and Guangdong Province, things are far more dynamic.  The latest fund evolution in the Greater China region, known as Greater Bay Area Wealth Management Connect, is generating a lot of excitement as it creates a new and significant opportunity for regional and global asset managers.

Wealth Management Connect (WMC) is designed to encourage cross-border flows of capital to further integrate these dynamic financial centers. It is also a mechanism designed to accommodate the rising investment appetite of the growing affluent population present in mainland China. The scheme builds on previous mainland to Hong Kong capital market integration programs such as Stock Connect and Bond Connect. 


In June 2020, authorities in China, Hong Kong, and Macau announced the launch of the Greater Bay Area Wealth Management Connect with the intent to facilitate cross-border investments for residents within the Greater Bay Area. Under the pilot scheme, Hong Kong and Macau residents can buy onshore wealth management products sold by Chinese banks in the GBA (Northbound flow), while Guangdong residents can invest in products sold by banks in Hong Kong and Macau (Southbound flow). Additionally, it allows for Hong Kong domiciled mutual funds with investment management carried out in Hong Kong to participate and maintains the ability for funds to be sub-advised by global managers wherever they are located.

While some suggest, the latest scheme appears quite familiar to the Mainland-Hong Kong Mutual Recognition of Funds (MRF) program, it is framed to be less restrictive and much quicker speed to market through its authorization process. While growth of the Mainland-Hong Kong MRF program through its first five years has been challenged, hopes are much higher for the Wealth Management Connect program, which has several factors in its favor that the MRF market access program did not.

The WMC program stipulates that only Hong Kong domiciled funds are currently eligible for the program. This is in part to encourage establishment of more Hong Kong domiciled fund structures.   There is also a proposal under consideration to allow participating funds to leverage existing Hong Kong registered UCITS funds as part of master-feeder, or fund of fund options under Wealth Management Connect. This elegant solution is mutually beneficial to both UCITS and Hong Kong funds.  It allows investors to continue to benefit from the trust, scale, and expertise of the UCITS framework that has long been a factor of fund investing in the region, while at the same time bolstering Hong Kong domiciled funds.

As with UCITS registrations in the region, the rules require funds are “low to medium risk, non-complex, Hong Kong domiciled, and SFC authorized”, so this rules out the use of derivatives, leverage, or any other artificial devices that may increase investment risk.

Regulatory approvals and authorizations will not take as long as usual, and the types of funds to be made available will already be quite familiar to the major bank distributors. The major drawback with the MRF program has been the length of time asset managers have to wait for product approvals from mainland Chinese authorities.

Under the launch of the new plan, residents in the Greater Bay Area will be able to go to their local bank and make investments via Hong Kong mutual funds that can then be invested into securities markets worldwide. Given the primacy of banks in the distribution of these products, initial product selection will be heavily influenced by what the distributing banks ask asset managers to provide for their underlying clients. There are more than 200 such banks in Guangdong Province, almost the same number of fully licensed banks in Hong Kong and Macau. Among these GBA banks, 21 of them are present throughout the entirety of GBA, and just 16 run retail wealth management businesses across the region. The concentration makes targeting distribution channels easy, but also fiercely competitive. Feedback from the industry expects that the first tranche of funds in the Wealth Management Connect scheme will be relatively low volatility products, such as bond funds and multi-asset funds, with equity to come whenever market volatility reduces.

Large Scale Opportunity

The true excitement in this latest development is that at a time of feverish competition and cost pressure across the mature mutual fund markets of the United States, United Kingdom, and Europe, the GBA opportunity provides a large, affluent, captive investor base with an appetite to invest. Furthermore, that demand may be met by managers who prepare themselves to participate in one of the largest scale opportunities available globally.

To put the scale of this opportunity into context, here are some interesting facts and figures about the Greater Bay Area:

  • The GBA has a population of 75 million people, 5% of China’s total population; that is more people than any single European Union country except for Germany. The population is expected to reach 100 million people by 2030.
  • GBA accounts for 37% of the China’s exports. The GBA hosts 3 of the world’s top 10 container ports, with higher air freight traffic than that of San Francisco, New York, and Tokyo combined.  
  • The gross domestic product (GDP) of the GBA region exceeds that of California making it equivalent to one of the top twelve economies in the world. It equates to almost that of South Korea’s and more than of Australia!
  • According to the 2019 Hurun Report, Guangdong province hosts 285,000 high net worth households with at least RMB 10 million and another 679,000 “affluent households” with RMB 6 million, making the Greater Bay Area one of the world’s wealthiest regions per capita.

Challenges and Open Questions Remain

While excitement for the launch of the program is notably rising, so too is the desire to iron out some of the details and operational wrinkles that remain as industry assesses how the program will operate in practice.

Some notable industry dialogue currently includes:

  1. In Person Account Opening Process

The GBA proposal requires that investors present themselves at banks to open accounts in person in the designated market. This means, for example, a mainland investor from any of China’s southern provinces must travel to Hong Kong to set up an investment account. Even without existing pandemic travel restrictions, this is far from ideal on a practical level. Industry has asked for revisions to allow for digital account set ups. The “in person” requirements seem slightly counterintuitive when one considers GBA, and cities like Shenzhen, act as Chinese innovation hubs and are home to high tech firms like such as Tencent and Huawei.

  • Investment Limits

The total scheme quota currently for both southbound and northbound products is RMB 150 billion each way. All activity needs to be settled in renminbi in line with usual currency control norms for activity between mainland and Hong Kong. While industry might advocate for a bigger quota, there are avenues for quota increases as the GBA scheme progresses and matures, but the currency element also creates a challenge, we explore further below.

The rules also impose maximum investment quotas on investors participating in the scheme.  Industry advocates have suggested that the current RMB 1 million (c.US$150,000) quota for the scheme might be too low, considering the mass affluent market in the GBA region and their appetite to invest twinned with the fact that the products available will be “plain vanilla” and not very risky. An investor may only set up one cash transaction account and one investment account, each may be with different banks but all investor activity is strictly bound by these two accounts only.

  • Currency Conversion

Under Wealth Management Connect, cross border remittance will be carried out in RMB with the currency conversion conducted “offshore.”  This activity will also be limited to being executed in a closed loop through the designated investor cash and investment accounts held at the bank for the program activity. Without a central market platform for this currency conversion process, all banks, mainland and Hong Kong, will be required to perform yuan clearing and conversion in-house or by using a third-party bank.


There are many other practical, operational, and compliance considerations evolving as details of the program continue to emerge, such as Know Your Customer/Anti Money Laundering considerations for cross border activity. These considerations include the intersection with UCITS funds, investor risk tolerances, product suitability, and minimum net worth requirements for mainland investors. We will keep you posted as these details continue to progress.

This is a very exciting emerging growth opportunity and one that should be of great interest to global asset managers as well as regional banks and wealth managers in the Greater China region. As the GBA program is still under review and evolving fast, please get in touch to discuss this opportunity in further detail.

Let’s Discuss

Arrange a more detailed discussion on what this exciting update means for your business and Hong Kong as a fund domicile by contacting one of our experts in your region.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2020. All rights reserved. IS-06867-2020-12-10

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