Compliance

China Loosens Limits On Wealth Connect Scheme

Tom Burroughes Group Editor 26 January 2024

China Loosens Limits On Wealth Connect Scheme

Policymakers have widened the scope and investment freedoms under a scheme that is designed to foster closer wealth management links and business in the Greater Bay Area. The scheme was originally launched in 2021.

Beijing has reportedly tripled the investment limit for people investing in the cross-border “Wealth Connect” scheme in the Greater Bay Area. This has come about when China appears to be under more pressure to encourage capital inflows amid a slowing economy.

Residents in the Greater Bay Area can now invest up to RMB3 million ($421,790) in the products included in the scheme, according to the newly-released rules of the pilot scheme issued by the Guangdong branch of the People’s Bank of China and the local bureau of the National Financial Regulatory Administration this week (source: Yicai, The Business Times (of Singapore) others). The scheme was originally launched in September 2021.

“The new circular on Wealth Management Connect is a positive and much welcome development. There are relaxations on distribution channels, aggregate and individual quota, eligible products, and promotion and sales activities,” according to KPMG in an emailed statement to WealthBriefingAsia.

Reports said that the rules also cut the minimum qualification threshold for investors, which are allowed for financial institutions other than banks, such as brokers, to participate, and include more qualified investment products to attract more individual investors and institutions.

Wealth Connect is designed to bind various jurisdictions, such as Hong Kong and Macao, more closely to mainland China, fostering more investment and wealth management business. It also highlights how Hong Kong SAR is reinventing its status as being very much a conduit of capital and ideas for China as it adapts post-1997 as a former UK colony. The move also comes as policymakers in Beijing wrestle with how to revive China’s slowing economic growth. China’s benchmark CSI 300 Index has sunk 40 per cent in the past three years, sparking concerns about the wider health of the Chinese financial system (source: Bloomberg, 25 January). 

KPMG noted that the aggregate quota for the Southbound Scheme (flows from China to other jurisdictions under the scheme) is initially set at RMB150 billion, and residents in the GBA area will be able to invest up to RMB3 million each in Hong Kong’s wealth management products, which is 3 times the previous limit.

“The eligible products will also be widened to include all funds domiciled in Hong Kong and authorised by the SFC [Securities and Futures Commission] which are not just `low’ risk but also `medium-to-high’ risk and `non complex’ but excluding high-yield bond funds and single emerging market equity funds. The expanded Wealth Management Connect will also allow securities firms to sell the products, instead of banks only,” KPMG said. 

“This will widen the choices for retail investors in the GBA area, allowing them to have easier and broader access to global/offshore markets. This will also support Hong Kong to thrive as an asset management hub and be one of the drivers in supporting Hong Kong as a super connector between China and the world, strengthening its position as a global IFC,” the firm added. 

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