Exclusive | Hong Kong can be a hub, not just for capital going into China, but also funds coming out of mainland for M&A, ex-SFC chairman says
- City an ideal platform for Chinese companies conducting M&A deals overseas, former SFC chairman Anthony Neoh says
- Hong Kong is a ‘very important international buffer’ for China’s currency and financial system
“Hong Kong could become a financing hub, not just for capital going into China, but also capital coming out of China for mergers and acquisitions,” he said.
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Hong Kong has been the world’s largest initial public offering market seven times in the past 13 years. This is thanks mainly to new listings by Chinese companies, which represented 98 per cent of all funds raised last year, up from 50 per cent a decade ago.
International companies with interests in China, however, would also like to list in the city, especially given Hong Kong Exchanges and Clearing CEO Nicolas Aguzin’s plans to attract more such firms to the city, Neoh said.
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Hong Kong can become M&A hub for mainland companies expanding overseas, says former regulatory head
“There are lots of businesses around the world, which could actually have lots of synergies with Chinese businesses. There are some geopolitical problems around the world, but they would not stand in the way of good business decisions,” he said.
The city could develop into a fundraising hub for special purposes, such as infrastructure projects under Beijing’s Belt and Road Initiative, green finance or even for companies into space exploration, Neoh added.
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The veteran regulator said Hong Kong’s regulations had improved substantially over the past two decades, and that it was highly unlikely to experience another convulsion like the Asian financial crisis.
That crisis took its toll but it “also created an opportunity for Hong Kong to revamp its financial system”, he said, adding that other Asian countries had also tightened and improved their financial regulations since then.
The city, for instance, tightened regulations on margin lending and other financial requirements after the collapse of securities firm CA Pacific Group as well as the home-grown investment bank Peregrine Holdings in 1998. The government also introduced the new Securities and Futures Ordinance in April 2003, which made insider dealing a criminal offence and gave wider investigative and prosecutorial powers over public listed companies to the SFC.
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These regulatory reforms added to investors’ confidence in Hong Kong, Neoh said. “When I first became the chairman of the SFC in 1995, the world’s financial markets and people who were outside Hong Kong were very uncertain as to whether Hong Kong would continue to be an international financial centre after the handover,” he said. “Back then, a lot of my time was spent preaching the message that Hong Kong would maintain its [status] under ‘One Country, Two Systems’.”
The city’s stock market turnover has risen 10 times during the past 25 years to about HK$150 billion (US$19.1 billion) per day, while the total market cap has grown 12 times to HK$38.9 trillion.
Yuan deposits in the city had increased by 6.4 per cent monthly to 841.9 billion yuan (US$125.9 billion) as of April, while the total yuan remittance for cross-border trade settlement amounted to 742.5 billion yuan.
“China, I think, will find it difficult to have a completely open current account in the foreseeable future. Hong Kong is a very important international buffer for the currency and the financial system for the mainland,” Neoh said, adding that the city’s role as a connector between China and the world could continue in the next 25 years and even beyond.
“China finds Hong Kong really useful,” he said. “One Country, Two Systems works well right now. There’s no reason why it shouldn’t work well beyond 2047.”
