Hong Kong Aff
Download 1.87 Mb.
|
- Navigate this page:
- Impact---chinese liberalization
- Economy k2 credit rating
hub statusinflationHong kong’s inflation is set to fallChina Bank December [“Hong Kong’s Economic Outlook for 2015” Economics & Strategic Planning Department, Dec 2014] AT Hong Kong’s underlying inflation declined from a peak of 5.3% in 2011 to 4% last year and slowed further to 3.5% in the first 10 months of the year. Due to looming pressure on property prices and the plunge in oil price, Hong Kong’s inflation may drop below 3% in the second half of next year. The current cycle of inflation being driven by ever higher property prices is nearing an end. If prices and rents of small residential units began to weaken, the inflation being experienced by the grassroots would also ease. Impact---chinese liberalizationHong kong is key to chinese trade liberalizationRichardson 14 [(David Richardson, Partner in Dorsey’s Hong Kong office, leading Mergers and Acquisitions lawyers in Hong Kong in 2001; John Chrisman, 25 years’ experience as a U.S. M&A and capital markets lawyer and focuses on transactions and financings in the Asia-Pacific region) Hong Kong’s Role In China’s Financial Reform – Punching Above Its Weight – Part 1, Dorsey and Whitney Llp 9-2-2014] AT Historically, Hong Kong has always played a pivotal role in Mainland China’s economic and financial reforms. The most important entrepôt for Chinese trade for decades, Hong Kong is the largest capital source of Mainland China’s overseas direct investment, the center for cross-border RMB trade settlement and offshore5 RMB business, as well as a major overseas capital market for Mainland Chinese enterprises pursuing listings on the Hong Kong Stock Exchange. As an international financial center and offshore RMB hub, Hong Kong is lending its support to Mainland China’s new reforms to: develop its domestic financial market; improve international competitiveness of its enterprises; and liberalize its capital account. This eUpdate is Part 1 in a series of eUpdates to examine Hong Kong’s role in Mainland China’s economic and financial reforms. Part 1 explores the concrete steps taken so far and the proposed through train schemes (dealing initially with stocks, and subsequently possibly with commodities and bonds). Development of Domestic Financial Market Considering the development of the domestic financial markets as the centerpiece of financial reforms, the Central Government has put into place a system commensurate with the development of the country’s socialist market economy, the unique and prevalent economic model employed by Mainland China. The system mainly consists of a money market dominated by interbank bond transactions and lending, the commercial paper markets, a nationwide foreign exchange trading market and a capital market. However, observers are aware that these markets – the capital market in particular – are still in their early stages of development. They suffer from the apparent lack of investment instruments, poor corporate governance and the irrationality of Mainland China’s investment culture6. These recurrent problems not only substantially impair the efficiency of resource allocation in the financial markets, but also hinder the implementation of reforms in other fields. By opening its capital market, Mainland China opens also a window to acquire relevant, useful and readily usable experience from other countries or regions regarding how to enhance the quality of corporate governance amongst listed companies, as well as how to build a regulatory framework that is up to international standards – one which can effectively promote and supervise the healthy development of the country’s capital market. Mainland China need not venture far to find such experience and reference. Hong Kong has established over the years a financial system on par with international best practice. Having withstood the test of numerous financial crises such as the 1994 Mexican and Latin America “Tequila” Crisis, the 1997 Asian Financial Crisis, the 1998 Russian Default, the 2000 Dotcom Crash and more recently the 2008 Global Financial Meltdown8, Hong Kong’s regulatory regime has proved robust. Improvement of International Competitiveness of Enterprises The Third Plenary Session of the Eighteenth Communist Party of China Congress talked of state-owned enterprises (“SOEs”) playing a decisive role in reforms, on the basis that SOEs are to remain the backbone of Mainland China’s economy9 through the continuation of preferential policies, as the Central Government seeks to retain control over the economy. The example of CITIC Group Corporation10 (“CITIC Group”) is a particularly telling one. The first to be run on quasi-market principles, CITIC Group was at the forefront of the nation's economic reforms under Deng Xiaoping. One of CITIC Group’s subsidiaries (“Operational Co”) managed most of the operating assets of CITIC Group. Another of CITIC Group’s subsidiaries (“Hong Kong Listco”) is listed on the Hong Kong Stock Exchange. In August 2014, the Hong Kong Listco totally acquired the Operational Co from CITIC Group in a deal valued at approximately RMB219.66 billion11 (equivalent to12 US$35.74 billion). One of Mainland China’s largest SOEs would now have to meet the more stringent disclosure and corporate governance requirements under the Hong Kong regime. As it faces market scrutiny and includes private shareholders, CITIC Group would also have to rely on professional management commensurate with international best practice, instead of the largesse of the state, by enhancing accountability and transparency13. Allowing market forces to improve corporate practices in Mainland China appears to be the new order of the day. Liberalization of Capital Account Despite Mainland China’s status as the world’s largest exporter, the US Dollar remains the dominant currency for settlement at the global stage. As the Mainland Chinese financial system further integrates with the world and as the “go abroad” strategy calls for freer capital outflows, the need to internationalize the RMB and accelerate its convertibility becomes greater than ever. As the Central Government set out in the Twenty-third Five-Year Plan policy directions for freer cross-border capital flow and higher degree of convertibility of the RMB, Hong Kong has been given a vital role to play. Being the first offshore market to use RMB as the settlement, investment and funding currency, Hong Kong has steadily expanded the range of RMB products and services, including investment funds, commodity-linked products, exchange-traded funds, REITs, equities, insurance policies and notably the “dim sum” bond. As the international hub for RMB trade settlement, Hong Kong is estimated to handle approximately 80% of RMB payments globally. In the first four months of 2014, total RMB trade settlement conducted through banks in Hong Kong reached RMB1.95 trillion17 (equivalent to US$317.27 billion), an increase of 76% over the previous year. Whereas bond issuance has reached RMB338.8 billion (equivalent to US$55.12 billion) in the first three months of 2014, 890 bonds have been issued by 107 issuers from January to May 201418. In addition to growing demand in Hong Kong, the RMB trade and its expansion have led to changes in capital flow such as the relaxation of regulations regarding foreign direct investment and equity investment. As an offshore RMB hub, Hong Kong functions as the testing ground for Mainland China’s liberalization of its capital account in complying with international regulatory frameworks. Proposed Stock Through Train Scheme By opening the securities market to foreign investors, the Central Government is pursuing a strategy of “fragmenting the market with separate investors”19. What this means in practice is that foreign investors would be permitted to buy foreign currency-denominated shares and debt instruments in either domestic or overseas markets. This includes B Shares20, H Shares21 and Red Chips22, as well as overseas foreign currency-denominated bonds. However, RMB-denominated A Shares23, bonds and other money market instruments were not included until the Qualified Foreign Institutional Investor program24 was launched in 2002. Foreign retail investors are still prohibited from buying and selling RMB-denominated A Shares, bonds and other money market instruments. Mainland Chinese residents have so far been largely prohibited from buying, selling and issuing capital or money market instruments in the overseas market, but change is on the horizon, as Premier Li Keqiang announced the proposed stock through train scheme (“Stock Train”) at the Boao Forum for Asia in April this year. In his keynote speech, he announced that the Central Government is to launch a range of measures and policies to actively support Hong Kong to develop into an offshore RMB business hub as well as an international asset management center. He added that Mainland China will actively create favorable conditions to establish a Shanghai-Hong Kong Stock Exchanges connectivity mechanism which, by opening up a two-way flow, will promote healthy development of the capital markets of both Mainland China and Hong Kong. Under the Stock Train, retail investors from Mainland China and Hong Kong will, for the very first time, be permitted to cross-trade stocks listed in Hong Kong and Shanghai, up to a total one-off quota of RMB550 billion (equivalent to US$89.49 billion). Specifically, Mainland Chinese investors may trade up to RMB250 billion (US$40.68 billion) worth of Hong Kong-listed H Shares, subject to a daily maximum of RMB10.5 billion (US$1.71 billion), whereas Hong Kong investors may trade up to RMB300 billion (US$48.81 billion) worth of Shanghai-listed A Shares, subject to a daily maximum of RMB13 billion (US$2.12 billion)26. Hong Kong and overseas investors participating in the Stock Train through the Hong Kong Stock Exchange will remain protected by Hong Kong legislation27 through its common law system and robust regulatory regime. As Hong Kong Financial Services and the Treasury Secretary Chan Ka-keung pointed out: “[T]he through train scheme will give a new role for Hong Kong to play in the economic reform and opening up of China. It allows international investors access to the mainland markets through Hong Kong. We are filling a niche that is something very new. Instead of selling Chinese shares, instead of just selling Chinese investment projects overseas, we are filling a demand in China which is about achieving market reform in a risk-controlled manner29. From a regulatory standpoint that is quite smooth and the cost for China is relatively low. You don’t have to open up your own market, change your regulations, deal with offshore [participants]. You just let Hong Kong do the work.” The Stock Train: demonstrates that Mainland China is committed to accelerating the pace of its capital account liberalization; marks yet another policy milestone in the move to internationalize the RMB, as it offers additional investment channels in the offshore circulation mechanism, which is conducive to the development of a multi-tier capital market in Mainland China; reinforces Hong Kong's role in the two-way opening-up of Mainland China's capital market; and functions as a testing ground for the opening up of Mainland China’s markets and stock capital accounts in an orderly way30; in other words, a reform with risk management. Economy k2 credit ratingCredit downgrade kills hong kong competitivenessChan 14 [(Oswald Chan, reporter, cites multiple economics professors) Can Hong Kong afford a credit rating cut, China Daily 9-4-2014] AT Chong Tai-leung, an economics professor at the Chinese University of Hong Kong's Institute of Global Economies and Finance, said: "If Hong Kong's credit rating is downgraded, it will send a negative signal indicating the investment environment in the city may turn bad in the future. "Downgrading Hong Kong's sovereign rating may compel the government to pay more interest when issuing government bonds, but the city's corporate bond market fundamentals should not be affected," Chong said. Billy Mark, associate professor at Hong Kong Baptist University's Finance and Decision Sciences Department, disagreed. "We have to watch out for the political risk factor as this may have spillover effects on the real economy. When this happens, the sovereign rating will be lowered. If the sovereign rating is downgraded, Hong Kong's corporate rating will also inevitably be downgraded, leading to interest rate hikes on corporate loans that would be detrimental to corporate profitability in the city." Beyond the political risk, Hong Kong's slowing economy will also take a toll on the city's credit rating. The SAR government has cut its gross domestic product growth forecast for this year from the initial range of 3 to 4 percent to 2 to 3 percent, due to a fall in mainland tourist spending and weaker domestic demand. Australia and New Zealand Banking Group Ltd said that the political deadlock and "inappropriate government policies" will pose risks to the city's long-term economic competitiveness. "In our view, inappropriate government policies (reducing the scale of the Individual Visit Scheme and tight stamp duty policy) pose bigger risks to the economy as Hong Kong will lose its unique advantage that allows it to benefit from growing cross-border flows," ANZ Bank said in a note. Ryan Lam, a senior economist at Hang Seng Bank Ltd, said that the bank had revised its estimate for Hong Kong's 2014 full-year economic growth from 3.3 percent to 2.8 percent. Tiffany Qiu, an economist at Royal Bank of Scotland Group Plc, said that Hong Kong's economic growth will to be modest, as the global trade outlook has been tepid the past two months. Qiu noted subdued mainland tourist spending and pointed out that the city's commercial property sector is facing major headwinds. The investment bank cut Hong Kong's economic growth forecast for 2014 from 3.2 percent to 2.4 percent. Directory: file -> view view -> Western Europe after wwii view -> Author study: paul fleischman view -> Qpa1 7ela study Guide view -> Arctic Oil/Gas Neg view -> November 1970 Approximately 150,000-500,000 deaths Bhola Cyclone Bangladesh view -> Grade Level: 6 Unit of Study: Caribbean glce view -> Citation: Duffield, Katy view -> Table of Contents Lesson # view -> Chinese Wind Energy Disad Download 1.87 Mb. Share with your friends:
|