Hong Kong: banking and insurance sector, the real winner for the Greater Bay Area

Hong Kong and the other cities in the “Greater Bay Area” are likely to see an increase in cross-border insurance and banking activity, mutual fund investments and commodities trading under the blue print unveiled by the Chinese government on Monday evening.

The insurance sector will be one of the biggest winners under the plan for the new economic hub because it will enable more cross-border insurance policy sales, claims and investigations, said analysts. The plan also includes measures to encourage insurance companies in Guangdong, Hong Kong and Macau to jointly develop innovative cross-boundary car and medical insurance products to allow policyholders in both markets to easily buy products and make claims.

It will also support Shenzhen in developing a pilot zone for development in insurance innovation, further enhance the level of connectivity between the Hong Kong and Shenzhen markets, and promote cooperation between Macau and Shenzhen with respect to special financial products and launching pilot fintech projects.

Moses Cheng, chairman of the Insurance Authority of Hong Kong, said the initiative “will deepen cooperation among the insurance sectors in Guangdong, Hong Kong and Macau, better coordinate the movement of people, goods and capital in the region, and promote closer regional economic collaboration.

“Hong Kong’s insurance products will be highly competitive in the markets of the Greater Bay Area. Leveraging the advantages of Hong Kong’s insurance industry will not only help further the development of the Guangdong-Hong Kong-Macau Greater Bay Area, but also open new horizons and bring new momentum to the sustainable development of the industry, bolstering Hong Kong’s role as a risk management centre.”
China’s State Council reveals details of ‘Greater Bay Area’ plan to turn Hong Kong and 10 neighbouring cities into economic hub

Beijing will explore the establishment of an international commercial bank in the China (Guangdong) Pilot Free Trade Zone to serve the development of the Greater Bay Area. It will also explore setting up an account management system to facilitate cross-border usage of the yuan and capital account convertibility so as to make it easier for cross-border settlements of trade and investment.

Fund managers will benefit from the plan because it will promote cross-border fund sales between Hong Kong and other Greater Bay Area cities.

The Hong Kong Investment Fund Association has welcomed the move. “These initiatives will further foster the development of the financial services sectors in the Greater Bay Area. They will also enable investors in the Greater Bay Area to have access to more investment options, which is of increasing importance as there are burgeoning demands for asset allocation and for diversification,” said Sally Wong, chief executive of the Hong Kong Investment Funds Association.

Hong Kong Exchanges and Clearing (HKEX), the local bourse operator, will is likely to benefit from the blueprint as it will help the its metal exchange platform in Qianhai special economic zone to conduct commodities trading – a business the HKEX has always wanted to expand into.
It will also help Hong Kong to act as a green finance centre in the Greater Bay Area and to set up an internationally recognised green-bond certification institution, a move which Christopher Cheung Wah-fung, lawmaker for financial services sector, said would boost the local bond market.

The development framework should enhance Hong Kong as a yuan trading centre too, and help it play a more active role as a fundraising and dispute resolution solution centre for “Belt and Road Initiative” schemes.
It also contains measures that would see Hong Kong act as a springboard for Greater Bay Area companies to “go global”.

Hong Kong, the number one IPO market worldwide last year, is likely to become an international fundraising hub for the companies as they finance their expansion plans in the coming years, according to stockbrokers.
While the Greater Bay Area is home to two of the three stock markets in mainland China – the Hong Kong and Shenzhen stock exchanges – brokers said the former would be in a better position to act as a fundraising centre for the companies in the region.

Although Shanghai is set to launch a new board for technology shares this year, many Greater Bay Area tech firms would still choose to list in Hong Kong, said Clement Chan Kam-wing, managing director of accounting firm BDO.
“We have a lot of listed companies among our clients which have businesses in the Greater Bay Area. If a company is based in one of the Greater Bay Area cities, it makes more sense for them to list in Hong Kong than Shanghai as they are closer to Hong Kong,” he said.

Chan said that as well as stock flotations his firm has a lot of Greater Bay Area companies that want to use Hong Kong to conduct mergers and acquisitions, or to raise funds via bonds or bank loans.
“They like to make deals in Hong Kong because of its sound legal system and [abundance of] professionals to support the services. With the country’s newly announced blueprint for the expansion of the Greater Bay Area, we can expect there will be more expansion plans and M&A activity from the region and they will like use Hong Kong to raise their funds,” Chan said.

Morgan Stanley chief China economist Robin Xing estimated the Greater Bay Area’s economic output would more than double by 2030 to between US$3.2 trillion and US$4.1 trillion, surpassing the UK’s gross domestic product. The GDP of the Greater Bay Area was an estimated US$1.5 trillion in 2017.