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Access to China
Access to China
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Access to China

30/07/2019

The mutual market access (MMA) schemes launched in recent years via Hong Kong SAR, China - such as Stock Connect, Bond Connect and the Mutual Recognition of Funds schemes - give outside investors licence- and quota-free access to Chinese assets, while also providing outbound investment channels for Chinese institutions and residents.

These are not static programmes. Each has been refined and expanded since launch and this is likely to continue as more participants join and as regulators streamline procedures and broaden the scope of the schemes.

This article highlights, as of June 2019, the key features and planned developments of the three main schemes to access China: Stock Connect, Bond Connect and Mutual Recognition of Funds.

Hong Kong-China mutual access schemes

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Stock connect

Infrastructure

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Source:

Investment into China eligible shares listed: http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/Eligiblestock.htm  (SSE 576 + SZSE 943)

Investment from China eligible shares listed: http://www.sse.com.cn/services/hkexsc/disclo/eligible/ and http://www.szse.cn/main/szhk/ggtywxx/bdzqmd/ (in Chinese only)

HKEX monthly statistics: http://www.hkex.com.hk/eng/csm/chinaconndstat_monthly.htm

Key considerations

  • Trade Chinese stocks from HK
  • Funding possible through CNH (offshore) rather than CNY (onshore)
  • Investors must open account with a broker (Exchange Participant) to trade A-shares listed on Shanghai Stock Exchange and Shenzhen Stock Exchange
  • Investors can have several brokers

 Planned and potential developments

  • Project Synapse: DLT platform to reduce risk of buy in during settlement process
  • Onshore RMB FX solution (to be confirmed if this will be for funding, hedging or both)
  • Securities lending model to be developed

 

Bond connect

Infrastructure

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  • Launched in July 2016
  • Initially investments into China only
  • Gives offshore investors access to China’s USD 9.3 trillion bond markets (world’s third-largest)
  • Complements China Interbank Bond Market Direct (CIBM Direct) scheme launched in February 2016

 Key considerations

  • No quota limitation, no investment plan requirement
  • Trade, clear and settle China bonds with offshore infrastructure only
  • Dedicated e-trading interface
  • No DVP settlement available for China Central Depository and Clearing
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Planned and potential developments

  • Repo model to be developed
  • Third party onshore RMB FX solution
  • Further automation of end to end settlement information flow

To read more:

Mutual recognition of funds

Infrastructure

  • Launched in December 2015
  • Streamlines procedures for HK and Chinese domiciled funds to be distributed in each other’s markets
  • Gives more diverse fund investment products to China and HK investors
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Key considerations

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  • For managers wanting to set up a HK fund for investments into China, the Securities and Futures Commission (SFC) two-stream fast-track approval process takes an estimated one month for standard funds approval
  • The China Securities Regulatory Commission (CRSC) application process may take longer. Since the launch of the scheme in 2015, ten funds have been approved for distribution into China (as of January 2018)
  • Innovative distribution strategies would be one of the key success factors

 Planned and potential developments

  • Fund managers keen for regulators to re-examine the “50/50” rule
  • HK regulators have been seeking mutual recognition deals with other jurisdictions (Switzerland in December 2016, France in July 2017, and a UK scheme is in discussion) to broaden investor pools open to HK domiciled funds

Download the publication “Access to China”

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