On September 10th, 2021, Hong Kong Monetary Authority (HKMA) finalized the policy governing the Wealth Management Connect scheme, which interfaces financial services, banking systems and investment products between Hong Kong, Macao, Shenzhen, Zhuhai, Guangzhou, and the other six metropolitan areas which comprise the Greater Bay Area. The official launch ceremony was attended by Hong Kong Chief Executive Carrie Lam and Financial Secretary Paul Chan, and cross border market access policies will take effect from October 2021.
Formally entitled the “mplementation Arrangements for the Cross-boundary Wealth Management Connect Pilot Scheme in the Guangdong-Macao-Greater Bay Area” (Hong Kong Implementation Rules), the policy regime, along with the PRC implementation rules issued in Guangzhou and Shenzhen, enables individuals in Hong Kong, Macao and other Greater Bay Area cities to invest up to 1 million RMB across jurisdictions.
During the initial phase of the Wealth Management Connect scheme, investors from China will be able to invest in eligible foreign currency-denominated bonds and equity funds available in Hong Kong, while investors based in Hong Kong will have better access to markets in China. The Wealth Management Connect scheme also creates a window for financial institutions in Hong Kong to develop their business in China, which further enhances the region’s competitiveness as an international finance hub and offshore currency market.
The wealth management products, which have to meet low-to-medium risk ratings, will be set up by licensed asset managers and distributed by authorized banks to eligible investors. Mainstream investors in China are now able to invest in foreign currency denominated products for the first time, by opening an investment account at a designated branch of an authorized bank. Hong Kong and Macau investors are required to set up a dedicated investment account in China, which should be paired with a remittance account in their jurisdiction.
Chinese individual investors must meet specified criteria in order to open a cross-border (Southbound) investment account. Applicants should have a registered household (or at least 5 continuous years of social security or income tax payments) in Guangzhou, Shenzhen, Zhuhai, Foshan, Dongguan, Huizhou, Zhongshan, Zhaoqing or Jiangmen.
China investors should also have over 2 years of investment experience and meet the minimum household net worth threshold of RMB 1 million during the 3 months prior to opening their account. Investors without 2 years of investment experience should provide documentation showing a household net worth of RMB 2 million over the 3-month period. Investors from China are also required to make investments with their own financial resources.
In Hong Kong, any resident holding a Hong Kong identity card that meets the assessment criteria set by banks in the jurisdiction is eligible to participate in the Northbound Wealth Management Connect Scheme.
Products eligible available to Southbound (China to Hong Kong) investors include funds registered in Hong Kong, rated between low and medium risk, and deemed non-complex by the Securities and Futures Commission (i.e non-derivative products). Investors from China may also invest in Renminbi, Hong Kong Dollar and foreign currency deposits.
Hong Kong based investors can subscribe to securities investment funds authorized by banks and public fund managers with an R1 to R3 risk rating, and equity and fixed income investment products offered by asset managers in China which are rated between level 1 and level 3 under the PRC risk rating system.
The Wealth Management Connect Scheme has specified quotas in place, which include an aggregate quota and individual investor quotas.
The aggregate quota is currently set at 150 billion RMB for the Northbound and Southbound schemes, while the quota for individual investors is 1 million RMB. The quotas include the total amount remitted between jurisdictions.
In its initial phase, the Wealth Manage Connect Scheme includes designated bonds, equity funds and deposits subject to restrictions and quotas. Even at this level, however, the Wealth Management Connect scheme expands the horizons of Hong Kong’s investment landscape, while setting an unprecedented level of opportunity for China investors.
Once investment flows are up and running, there is scope to include a broader range of products and services, increase the quotas and allow for a greater diversity of participants.
Cross border financial structuring requires experience and expertise in both jurisdictions, as well as a solid background in tax services. The government has not yet issued explicit taxation guidance, which makes it unclear how income sourced from investments under the Wealth Management Connect Scheme will be taxed in Hong Kong and China.
Exercising proactive caution with regard to potential tax liability is strongly advised for early participation in the Wealth Management Connect scheme. In the long run.
We are always available for a free initial consultation should you have any enquiries regarding the new investment channels.
About the Author:
Mr. Philip Yu
Mr. Yu holds a Bachelor of Commerce (Hon.) from the University of Toronto and L.L.B. (Hon.) from the University of London, and is a member of the American Institute of Certified Public Accountants, Certified Public Accountants of Australia and the Hong Kong Institute of Certified Public Accountants. Philip is experienced in handling cross border taxation issues, corporate restructuring and other cross border business solutions. He undertakes additional posts as Company Secretary, Authorized Representative and Independent Non-Executive Director for several listed companies on the Hong Kong Stock Exchange. He joined our firm in 2001 and currently the Managing Partner of the firm.
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