China is sitting on an estimated $20 trillion worth of funds waiting to be deployed overseas and invested in stocks, bonds, and other financial assets, according to Charles Li, CEO of Hong Kong Exchanges and Clearing Ltd, operator of the city’s bourse.
Hong Kong is hoping to get a share of these multi-trillion funds through various initiatives such as the scheme linking the city’s stock exchange with that of Shanghai, and through offering innovative financial products.
“This era will be marked by China shifting from a large net importer of capital to one of the world’s largest exporters of capital,” Li wrote in a blog post published on the HKEx website.
“For years, foreign direct investment has poured into China’s manufacturing sectors, making China into the “factory of the world”. International capital has also flown into mainland companies…The next era, however, will be marked by fund outflows of historic proportions, driven by China’s needs to deploy and diversify its national wealth to the global markets, and this is Hong Kong’s next big opportunity.”
The estimated $20 trillion funds are currently earning minimal returns in banks, while there are probably more that are invested in properties and other increasingly risky physical assets, said Li.
To catch some of these funds, Hong Kong must offer investment opportunities for Chinese investors , as well as for international investors with an eye on the mainland. These opportunities may include offering hedging and other financial products.
For instance, Hong Kong could become an offshore renminbi center that provides a variety of investment products for both the mainland and global investors.
Li wrote:
“As the currency’s internationalisation continues its march forward, the Hong Kong RMB ecosystem will continue to grow in a virtuous cycle. If we are able to have Chinese and (international) investors to “meet” in this offshore ecosystem and if we are able to have each other’s products to be available to each other in this offshore ecosystem, we will hopefully transform Hong Kong’s traditional role as a pure gateway to a truly global leader of wealth management anchored on China’s liquidity, the last closed capital base that is still yet to be globally available and deployed.”
Hong Kong and China launched the Shanghai Hong Kong Stock Connect last November that allows investors from the British colony to trade mainland shares and vice-versa. Officials from both sides are now working on a similar scheme that will link Hong Kong’s bourse with Shenzhen.
Photo credit: Wilfredo Rodriguez via Flickr