China Signals Wealth Connect With Hong Kong Nears Kickoff

China issued rules on Wealth Management Connect, marking a big step forward for the program that will allow investments across the border between Hong Kong and the nation’s increasingly affluent southern region.

The People’s Bank of China released a detailed set of instructions for public comment late Thursday, setting a May 21 deadline for feedback.

As revealed earlier by Hong Kong authorities, the program for individual investors will have a 150 billion yuan ($23 billion) cap in each direction, according to the draft rules. Mainland investors with at least 2 years investment experience and with at least 1 million yuan in net household financial assets in the most recent three months will be qualified.

The announcement “marks another encouraging step toward the opening of mainland China’s capital markets and reinforcing Hong Kong’s status as an international financial center,” Daniel Chan, head of Greater Bay Area at HSBC Holdings Plc, said in a statement.

HSBC and rivals have been beefing up their presence in anticipation of the plan, one of the building blocks in strengthening the Greater Bay Area, a region including Hong Kong, Macau, Shenzhen and eight other cities that is home to more than 70 million people. The long-awaited program was announced without details in June last year, just before China also unveiled a sweeping security law in the city to crack down on anti-government dissent.

Shares in several Chinese banks, seen as the most immediate beneficiaries, rose on Friday. China Merchants Bank Co. rose as much as 4%, Ping An Bank Co. climbed 3.4% and BOC Hong Kong gained 1.6%.

“We will continue to liaise with the mainland authorities to step up preparations for the launch as soon as possible,” the Hong Kong Monetary Authority said in a statement.

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The proposal will open a northbound channel for Hong Kong and Macau residents to invest in onshore financial products and a southbound channel for eligible Greater Bay Area residents to invest offshore, both with a closed-loop currency conversion regime.

“It’s a positive step forward for Hong Kong banks to broaden their product distribution to a broader customer base,” Citigroup analysts including Judy Zhang wrote in a note Friday. “Banks with broad product offerings and strong distribution partners in the mainland are best positioned to benefit.”

The plan will also increase the internationalization of the Chinese currency, a long-held goal of authorities in Beijing.

While the immediate impact on the currencies will be limited given the restrictions, it has “a symbolic meaning in the capital account opening up and for on- and offshore financial market integration,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd. “The RMB appreciation trend offers a window of opportunity to unleash onshore capital outflow pressures on global assets allocation.”

The authorities aim to roll out the program in the early part of the second half this year, Hong Kong Monetary Authority Chief Executive Eddie Yue said earlier this week.

Hong Kong has sought to reassure investors it will remain a stable place, with Chief Executive Carrie Lam lobbying for more financial integration to build the city’s presence as a hub for private wealth and as a prominent offshore renminbi center.

The Hong Kong dollar, which is pegged to its U.S. counterpart, strengthened 0.02% to 7.667 per dollar as of 11:13 a.m. local time.

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