2015-06-03 admin

Rich Insights, Strong Espresso

China’s political and economic leaders understand that there is much the country still needs to learn as it pursues modernisation, especially as it opens its financial system to the outside world, according to Sophie Leung, a former member of Hong Kong’s Legislative Council and current deputy in China’s National People’s Congress.

A room full of guests and panelists traded views on China and what to expect for its future.Speaking at a breakfast panel organized by VitalBriefing to discuss China’s financial awakening, and its potential opportunities and pitfalls, Mrs. Leung argued that the country’s leaders welcome frank input from friends and partners as part of the process of internationalisation of the renminbi and the country’s integration into global markets.

Other key points in the discussion, co-sponsored by the Luxembourg Association of Family Offices and featuring experts from Luxembourg and abroad, include:

• China is at an inflection point, with annual growth slowing to 7% or less, while the leadership’s planned transition to a consumption-based economy hasn’t really taken hold so far, says former Reuters China Chairman and global editor-in-chief David Schlesinger, who also serves as Chairman of VitalBriefing’s International Advisory Board. While the internationalisation process is well underway, none of its elements have yet been completed.

• The crackdown on corruption by leader Xi Jinping is in response public displeasure, as well as a means of consolidating his power in Beijing. Schlesinger notes that the Tiananmen Square protests of 1989 were less a demand for democracy than a popular reaction against inflation and public corruption.

• The entry in force by Chinese investors into housing markets abroad is seen most strongly in London, where they account for 11% of purchases of £1 million-plus properties, and reflects a desire for asset protection through diversification into real assets outside China, says Serge Krancenblum, Group CEO of SGG, a leading international fund and corporate administration provider.

• Service providers doing business with Chinese clients face headaches in conducting due diligence because of linguistic and cultural differences, Krancenblum points out. Identifying politically exposed persons is particularly difficult because local officials are an important risk area.

• Linklaters managing associate and investment fund expert Christian Hertz says that the fact Luxembourg was the 11th country to receive an RQFII quota for institutions to invest in Chinese domestic securities simply means the country can exploit the experience of other jurisdictions. RQFII is not a game-changer, he says, but a new means for Luxembourg’s fund industry to access the Chinese market.

• The Hong Kong-Shanghai Stock Connect initiative has raised concerns about ownership of securities, especially for European funds, but Hertz argues that the scheme offers particular promise to small institutions without an RQFII quota. After its expected extension to Shenzhen, the next stage could be similar mutual stock trading arrangements with Western exchanges.

• With China’s economy slowing, Stock Connect and the various foreign institutional investment schemes offer a means of attracting external funds to kick-start growth. Meanwhile, the country’s process of global financial integration also includes a flow of funds not just into property abroad but banking and insurance businesses – most recently Portugal’s third-largest bank.

– Simon Gray