HK in­vestors eye op­por­tu­ni­ties in Shang­hai FTZ

China Daily (Hong Kong) - - BUSINESS - By EMMA DAI in Hong Kong em­madai@chi­nadai­lyhk.com

In­stead of see­ing the China (Shang­hai) Pi­lot Free Trade Zone as a threat, some lead­ing Hong Kong busi­ness­men are be­gin­ning to ex­plore the op­por­tu­ni­ties the ex­per­i­ment of­fers.

At a con­fer­ence or­ga­nized by DBS Bank Ltd on Fri­day in Hong Kong, a group of bankers, in­vest­ment ex­perts and law and ac­count­ing pro­fes­sion­als ex­pressed their views on how the zone will evolve and tried to iden­tify what it will bring to Hong Kong.

Their fo­cus, nat­u­rally, was on the fi­nan­cial sec­tor. The blue­print for fi­nan­cial de­vel­op­ment in the FTZ, an­nounced ear­lier this week, was widely con­sid­ered to be bolder than ex­pected. But the de­tails are still too sketchy to pro­vide a firm ba­sis for as­sess­ment, the ex­perts said.

Nev­er­the­less, they agreed that the ini­tial stages of de­vel­op­ment would likely be cen­tered on out­bound in­vest­ment, which they said would have less im­pact on the do­mes­tic econ­omy. As such, Hong Kong and some other fi­nan­cial cen­ters would be well-po­si­tioned to of­fer their ser­vices.

“The suc­cess of the Shang­hai free trade zone is in the best in­ter­est of Hong Kong,” said Pa­trick Che­ung, a part­ner at Deloitte China. “Since 1997, Hong Kong has al­ways been in a po­si­tion to as­sist the de­vel­op­ment of the main­land and the city’s pros­per­ity de­pends on that.”

“At an early stage, there might be more op­por­tu­ni­ties for do­mes­tic cap­i­tal to in­vest over­seas in­stead of for­eign funds en­ter­ing the main­land mar­ket,” Che­ung said.

He added that even though in­ter­est rate lib­er­al­iza­tion is the zone’s ma­jor task, there are too many stake­hold­ers and reg­u­la­tors in­volved. Thus, head­winds against re­form will likely be strong, he noted.

“But out­bound in­vest­ment is an eas­ier sec­tor for most of the par­ties to reach con­sen­sus,” Che­ung said. “If a busi­ness is fo­cused on as­sist­ing China’s out­bound in­vest­ment, it might see less bar­ri­ers to de­velop in the zone. Af­ter all, the zone was set up to ben­e­fit the coun­try’s real econ­omy.”

And the num­ber of reg­is­tered com­pa­nies in the zone re­flects that trend, said Joseph Chan, part­ner of Si­d­ley Austin, a law firm based in Shang­hai, adding that so far about 1,400 do­mes­tic firms have set up shop in the zone, com­pared with only 38 for­eign com­pa­nies.

“It’s ob­vi­ous that cur­rently the ma­jor busi­ness in the zone is out­bound in­vest­ment,” Chan said.

“It’s very en­cour­ag­ing to see the lat­est PBOC’s pol­icy to en­dorse out­bound in­vest­ment in the zone,” Chan said. “In the near fu­ture, the win­dow for the ren­minbi to go abroad will open wider. It’s widely be­lieved that within three months to a year, there will be fur­ther de­tailed in­struc­tions to in­ter­pret the pol­icy.”

On Mon­day and Wed­nes­day, the Peo­ple’s Bank of China — the coun­try’s cen­tral bank — pub­lished doc­u­ments on fi­nan­cial re­form re­lated to the Shang­hai FTZ. The reg­u­la­tor en­cour­aged out­bound in­vest­ment and said it will al­low com­pa­nies to is­sue bonds in over­seas mar­kets. It will also al­low res­i­dents and non-res­i­dents in the zone to open ac­counts and in­vest in for­eign se­cu­ri­ties mar­kets.

“As main­land cap­i­tal is be­ing in­vested out­side, Hong Kong com­pa­nies have a greater chance of sup­port­ing those over­seas ac­tiv­i­ties. Hong Kong has all kinds of mid­dle­men such as fi­nan­cial con­sul­tants, lawyers and in­vest­ment banks, which can help to find the right tar­gets for merg­ers and ac­qui­si­tions and see through the process smoothly,” said Chan.

“From 2002 to 2010, Chi­nese en­ter­prises’ over­seas ac­qui­si­tions fo­cused on strate­gic re­sources such as oil com­pa­nies and mines. But in the past three years, the wind has changed,” said Chan. “M&A deals in the high-tech sec­tor are de­vel­op­ing very fast. The fur­ther loos­en­ing of con­trols for do­mes­tic out­bound in­vestors in the free trade zone will in­crease the foot­print of Chi­nese com­pa­nies around the world.”

How­ever, Chi­nese in­vestors face sig­nif­i­cant re­sis­tance glob­ally since the coun­try has yet to sign the lat­est bi­lat­eral in­vest­ment treaty with the US, said Sung Yun-wing, co-di­rec­tor of the Shang­hai-HK De­vel­op­ment In­sti­tute and pro­fes­sor of eco­nom­ics at the Chi­nese Univer­sity of Hong Kong.

Sung added that at the cur­rent stage, for­eign in­vest­ments on the main­land have to be ap­proved case by case, which means the au­thor­i­ties have the right to re­ject in­vestors.

Sung ex­pressed hopes that the so- called “neg­a­tive list” used in the Shang­hai FTZ, a list re­leased by au­thor­i­ties that blocks or re­stricts for­eign in­vest­ment in some sec­tors, will be short­ened in com­ing years.

“Though now the ‘neg­a­tive list’ nearly echoes the reg­u­la­tions on the main­land, we are look­ing for­ward to a shorter list in 2014 and the years be­yond.”

PEI XIN / XIN­HUA

Busi­ness­men consult the pro­ce­dures of com­pany reg­is­tra­tion in China (Shang­hai) Pi­lot Free Trade Zone at the ser­vice hall of the trade zone on Oct 25.

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