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Published: 18:43, April 20, 2022 | Updated: 13:24, April 21, 2022
UBS: Cross-border financial connect to empower GBA growth
By Zhang Tianyuan
Published:18:43, April 20, 2022 Updated:13:24, April 21, 2022 By Zhang Tianyuan

Eric Lin Pui-kwan, head of China research for global financial services firm UBS (PROVIDED TO CHINA DAILY)

Dynamic cross-border financial connectivity, especially in wealth investment, digital currency and carbon emission futures trading, will empower the economic growth of the Guangdong-Hong Kong-Macao Greater Bay Area, said Eric Lin Pui-kwan, head of China research for global financial services firm UBS.

UBS forecasts that the GDP of the Greater Bay Area will exceed $2.45 trillion by 2025, representing an 8 percent compound annual growth rate from 2020, the year after the nation released its regional mega blueprint.

The expansion potential of the Cross-boundary Wealth Management Connect Scheme, digital renminbi usage and environmental, social and governance investment for foreign firms will consolidate the Greater Bay Area’s status as an international financial powerhouse, Lin added. 

The central government launched the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area in February 2019, demonstrating a road map for the region to develop financial products and promote mutual financial market access. Hong Kong should leverage its advantages in financial services to establish a platform for global investment, according to the plan.

The expansion potential of the Cross-boundary Wealth Management Connect Scheme, digital renminbi usage and environmental, social and governance investment for foreign firms will consolidate the Greater Bay Area’s status as an international financial powerhouse, said Eric Lin Pui-kwan, head of China research for global financial services firm UBS

Authorities on the Chinese mainland and Hong Kong launched the wealth management connect program in October last year, allowing banks to sell cross-border investment products to 86 million residents in the Greater Bay Area. The northbound and southbound programs were each be granted a quota of 150 billion yuan ($23.4 billion), and the investment cap for individual investors set at 1 million yuan at the initial stage, regulators said. 

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As of the end of December, the program had seen roughly 22,000 individuals investing more than 401 million yuan, the People’s Bank of China said.

Lin estimated that the southbound assets under management will range between 0.7 trillion yuan and 1.5 trillion yuan by 2030, with 2 to 5 percent of Greater Bay Area households’ financial assets allocated to the link. 

The Greater Bay Area is home to over 452,000 millionaire families with overall estimated investable assets of 2.7 trillion yuan, making it the wealthiest region in the world, according to a Deloitte and CPA Australia report in late 2020.

Twenty-three Hong Kong banks, including HSBC and Citigroup, have been approved to provide cross-border wealth management services. Citigroup earlier said the Greater Bay Area is “definitely a growth engine” for private banking businesses as it announced plans to increase headcount by more than 1,000 across its wealth management business in Hong Kong. 

UBS Asset Management unveiled three Hong Kong-domiciled funds last year for sale to Hong Kong retail investors. The funds will be offered to investors in the Greater Bay Area through the wealth management connect when the opportunity arises.

Lin said that currently only low to medium risk-rated investment products are eligible under the link, and predicted a further opening up for product qualification and the investment quota relaxations at some point to meet rising demand. “The link is also expected to have a geographic expansion. It will not be confined to the cities of the Greater Bay Area.” 

Lin said he expects e-CNY to reach 15 to 20 percent penetration of the base money with 2 trillion to 3 trillion of digital renminbi in circulation by 2030. “The cross-border aspects of e-CNY will further enhance financial connectivity in the Greater Bay Area, facilitating the capital flow and electronic payment,” he said. 

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The PBOC started pilot tests for domestic use of the digital fiat currency in 2019, and these have since expanded to more than 20 cities. The e-CNY transactions involved 87.57 billion yuan, and 261 million people had set up e-CNY wallets as of Dec 31, according to data from the central bank.

The PBOC has also developed cross-border digital renminbi payment programs. The Hong Kong Monetary Authority, the city’s de facto central bank, confirmed in February that Hong Kong will soon roll out a program for the use of the digital yuan, without specifying a date. 

“If the cross-border trials of e-CNY take place in the Greater Bay Area, financial inclusion could be conducive for more interaction in the region, thus enhancing economic and trade links,” UBS said.

In addition, Lin forecasts that more international investors will engage in carbon emission futures trading in the Greater Bay Area, as the Hong Kong Stock Exchange estimated that only 1 percent of the $30 trillion invested in the sustainable finance market worldwide is invested in Asia at present.

Hong Kong Exchanges and Clearing signed a memorandum of understanding with China Emissions Exchange Guangzhou in March to explore the carbon emission reduction program that supports China’s efforts to achieve its carbon neutrality goal.

tianyuanzhang@chinadailyhk.com


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