Hong Kong Studies Opening Mainland Markets to MPF and Insurance Money

This article is a rewrite of a report from January 2012.

With the first batch of RQFII quotas approved, Hongkongers could already tap mainland stocks and bonds indirectly through RQFII fund products. In January 2012, the then secretary for financial services and the treasury told the Asian Financial Forum the government was studying whether Hong Kong insurers could invest insurance funds, long-term funds and MPF money in mainland asset markets — while stressing the review would take time and nothing would happen soon.

Could MPF money flow into mainland assets?

MPF investment in mainland assets was only a study in 2012. Officials were exploring letting Hong Kong insurance and MPF capital into onshore renminbi assets such as the domestic bond market, but admitted the rules and details were far from settled. The backdrop was Hong Kong’s huge renminbi deposit pool and a mainland capital market still not fully open; officials wanted more outlets for those deposits.

What else was on the table?

Cross-listing ETFs dominated the rest of the discussion. The secretary expected Hong Kong ETFs to list on the mainland soon, and a vice-chairman of the China Securities Regulatory Commission had already pledged to push mainland A-share ETFs toward a Hong Kong listing. If Hong Kong ETFs succeeded on the mainland, the secretary argued, A-share ETFs coming to Hong Kong should face few obstacles — though the equity-bond mix of such ETFs still needed bilateral agreement.

Asked whether offshore liquidity might destabilise mainland markets, he insisted the risk was manageable: both Hong Kong and A-share ETFs would expand gradually within “safe quotas”, unlikely to endanger the mainland financial system.