Hong Kong’s Financial Secretary Paul Chan said in recent interviews with China Daily and Wen Wei Po that the city is in talks with mainland regulators to expand cross-border investment channels — including lowering the eligibility threshold for qualified investors, increasing the southbound investment quota under the stock connect schemes, widening the scope of eligible products, and studying the possibility of allowing mainland retail investors to directly subscribe to Hong Kong initial public offerings (IPO Connect). Chan also mentioned that discussions cover extending the cross-border investment mechanism to the Shanghai Stock Exchange’s STAR Market.
The remarks come amid Beijing’s intensified crackdown on illegal cross-border trading: last month, China’s Securities Regulatory Commission fined three online brokerages a combined total of more than US$330 million for providing offshore trading services to mainland clients without authorization, and ordered all non-compliant retail accounts to be closed within two years.
IPO Connect is not a new idea — Hong Kong has pushed the agenda for years, but mainland regulators have historically been cautious. Chan said in the interview that strengthening compliant channels would help Beijing feel at ease and create room for further liberalisation of overseas asset allocation in the future. Data shows that net southbound flows through the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connects totalled more than HK$1.4 trillion last year, an annual record since the mechanism was launched in 2014. Meanwhile, Hong Kong has tightened rules, requiring new clients to explicitly state that their account funds come from outside the mainland.