China says to launch mutual fund recognition with Hong Kong on July 1

BEIJING (Reuters) – A long-awaited scheme to allow funds domiciled in Hong Kong and China to be sold in each others’ market will be launched on July 1, regulators said on Friday, in a move to facilitate cross-border investment.

The project is another key step after the landmark Shanghai-Hong Kong stock connect that was rolled out last November, as China accelerates the pace to open up its capital market and internationalize its currency.

Deng Ge, a spokesman for the China Securities Regulatory Commission, said the initial quota for mutual fund recognition would be 300 billion yuan in each direction.

“This will help attract overseas capital into the domestic capital markets,” Ge told a weekly news conference in Beijing.

He added that funds would need to have been established for at least one year and based on that criteria, around 100 Hong Kong-based and 850 mainland funds will qualify.

Chief Executive of the Hong Kong Monetary Authority Norman Chan said in a statement: “This is another milestone in the liberalization of the mainland’s capital account after the establishment of mutual stock market access between Shanghai and Hong Kong.”

Regulators in China and Hong Kong started discussing mutual recognition for fund products in 2012 and reached a preliminary agreement in 2013.

However, the plan had been on the backburner since as Beijing focused on other schemes to liberalize its capital market, notably the stock connect between Shanghai and Hong Kong, industry players said.

Under the mutual fund recognition scheme, Hong Kong is aiming to encourage money managers to base their funds in the city as it looks to correct a historic skew that has reduced it to largely a sales and marketing hub for funds.

It will give fund managers greater incentive to set up more Hong Kong-domiciled funds, lead to more jobs in the city and consolidate Hong Kong’s position as the leading asset management hub in Asia.

To Chinese asset managers, the scheme also offers a good opportunity for them to expand overseas and tap foreign investors as they aim to play a more important role in the international stage.

China had an estimated 145 trillion yuan ($23.4 trillion) in total investable assets as of end-2013, which is expected to grow to 260 trillion yuan by 2020, according to data from international consultancy Oliver Wyman.

(Reporting by Zhang Xiaochong in BEIJING, Samuel Shen and Pete Sweeney in SHANGHAI, Michelle Chen in HONG KONG; Writing by Kazunori Takada; Editing by Jacqueline Wong)

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