HKEX’s Outgoing CEO Predicts ‘Irreversible’ Move Toward China

(Bloomberg) -- Hong Kong Exchanges & Clearing Ltd.’s outgoing Chief Executive Officer Charles Li, dubbed “Mr. China” for linking the bourse to the mainland, predicted his successor will need to double down on his strategy.

Li is stepping down at the end of the year after a decade at the top of Hong Kong’s flagship financial institution and said in an interview with Bloomberg Television that integrating the city’s marketplace with China is far from done. A link allowing mainland investors to buy bonds in Hong Kong will likely be unveiled next year, he said.

There’s “pretty much consensus” to go ahead with a southbound bond connect and there could be an announcement in the first half of next year, Li said on Tuesday. “Hong Kong is now put permanently on an irreversible track of connecting its markets with China and we just have to find new ways to move up.”

A former banker and the first Chinese national to run the exchange, Li has focused on diversifying the business in his decade in charge, which has seen HKEX’s revenue double and its stock outperform the city’s benchmark by more than 7 percentage points annually.

He engineered in 2012 the takeover of London’s metal bourse and was instrumental in opening a link for limited stock trading between Hong Kong and the Shanghai and Shenzhen exchanges. In the past year he’s successfully drawn Chinese stalwarts such as Netease Inc. and JD.com. to do secondary listings in the city, adding to ones in New York

That push toward the mainland will continue, even though it has met some resistance in China, where rivals are keen on guarding their own turf as the nation opens its financial market. The next steps could be to allow Chinese investors to buy bonds on the bourse, as well as opening up to derivatives and the primary stock market.

Even so, expanding the link to include several benchmark stocks has proved difficult. One sticking point is whether to include shares like Alibaba Group Holding Ltd., which are dual listed and with weighted voting rights. It recently got the greenlight to allow biotechnology companies listed in Hong Kong and stocks traded on Shanghai’s technology-heavy Star market to be added to the link.

“Our domestics partners sometimes harbor their own ambitions,” he said. “If everything that is secondary listed here gets included in southbound stock connect that could potentially diminish incentives” for Chinese firms to come back home, he said. “You can’t necessarily say that’s a wrong argument.”

The exchange now faces challenges ahead with China tightening its control over Hong Kong, casting doubt on the rule of law in the financial hub. Beijing is also pushing ahead with an opening of its financial markets, which could be a boon to rival bourses in Shanghai and Shenzhen at the expense of Hong Kong’s gateway role.

Li dismissed such concerns and said that regaining stability has been key for Hong Kong, which was rocked by anti-government protests last year. The city is as “resilient as ever, as strong as ever,” he said.

In his last earnings announcement as CEO, the company delivered a 52% rise in profit in the third quarter, stoked by a boom in trading and an inflow of Chinese companies seeking to list closer home as U.S. lawmakers push back on mainland companies trading there.

He’s confident that political tension between Beijing and Washington won’t halt the flood of money into China, which this year reached records. “Money is like water, you can’t block water.”

Mega Mergers

But he’s also had his misses, including an ambitious yet failed attempt to take over the London Stock Exchange last year.

He said that he was “probably a little late” in making his bid for the London bourse, but decided to “shake the tree, maybe the apple falls.”

While casting doubt on the potential for more “mega mergers” among the traditional exchanges, Li pointed to Hong Kong as a stand out.

“Hong Kong exchange is still somebody that people need to watch,” he said. The bourse has the “capacity” and the “demand and depth” to do something more “interesting, dynamic and innovative,” he said, responding to questions on industry consolidation.

Born in Beijing, Li grew up in northwestern China during the Cultural Revolution. He worked on an oil rig and then studied English Literature in China before earning a journalism degree in the U.S. and a law degree at Columbia University. After a few years at law firms he spent 16 years at Merrill Lynch & Co. and at JPMorgan Chase & Co., where he was China chairman before joining the bourse in 2009.

He said it’s necessary to take risks as the head of the exchange, which is a job of “steering conflict” both at home and with competing interests in China.

One needs to be “strategically absolutely confident, but technically be humble,” he said. “They do operate in a kind of different operating logic. In terms of people relations it’s very emphasizing on the relations. Certain things can be done easier if the relationship is stronger.”

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