Recently, the first batch of mutual recognition of funds between Hong Kong and the Mainland was approved, with a total of 7 funds registered as mutually recognized funds. The mutual recognition of funds is a major breakthrough in opening the Mainland fund market to offshore funds, and it opens up new areas for the asset management industries in both Hong Kong and the Mainland, providing investors who immigrate to Hong Kong with more diversified choices. The mutual recognition of funds between the Mainland and Hong Kong is another major measure in the opening up of the Mainland Chinese capital market, following the Shanghai-Hong Kong Stock Connect and the China Securities Regulatory Commission's guidance for Mainland public funds to participate in Hong Kong stock investments. It is expected that the Mainland capital market will be more closely linked with the Hong Kong market in the future.
The mutual recognition of funds between the Mainland and Hong Kong means that investors in both places can subscribe to eligible funds from the other side, which can broaden investment channels and enrich investment varieties. For example, Mainland investors can purchase Hong Kong funds through local sales agencies. This is another milestone event in the interconnection and open integration of the two capital markets, broadening the depth and breadth of the opening up of China's capital market to the outside world.
Professor Xiao Feifei, Chief Researcher at the Guangdong Institute for International Strategies of Guangdong University of Foreign Studies, explained the mutual recognition of funds in an interview. Mutual recognition of funds allows Mainland investors to purchase Hong Kong bonds and stocks, thereby investing in Hong Kong's financial assets. Hong Kong investors can also purchase financial assets such as Mainland stocks. This allows investors from both sides to invest in each other through this channel. For the Mainland, it is a form of QDII (Qualified Domestic Institutional Investor scheme), while for Hong Kong, it falls under the GFII (General Foreign Institutional Investor scheme). This is a step in the opening of the capital account, pushing forward the opening of capital. There have been models of mutual recognition of funds before, and the successful registration of these 7 funds this time is a process of continuously expanding the scale of mutual recognition of funds.
Professor Xiao Feifei pointed out that the mutual recognition of funds between the two places has brought many positive impacts on the development of the two capital markets. This move makes the flow of capital between Hong Kong and the Mainland larger and smoother. The mutual recognition of funds is a major means for our country to liberalize capital flows, and adopting this method will gradually open up the market. The current review method is still an approval system, but in the future, it may gradually adopt more relaxed methods, such as an access system or a filing system, to gradually open up the capital account. The mutual recognition of funds has some similarities with the Shanghai-Hong Kong Stock Connect, in that it will promote the free flow of capital between the two sides. This will cause the investment returns of the two stock markets to gradually move towards equilibrium, which is the integration of capital markets and an important step in the integration of the Hong Kong and Mainland capital markets. Conversely, it can also promote the marketization of interest rates and play a role in promoting the internationalization of the Renminbi.
Some industry insiders believe that the mutual recognition of funds between the two places is a process. Any new system requires strict control and high standards at the beginning. However, it will undoubtedly become normalized in the future, and the registration of funds in both places will be at a reciprocal pace.
"The scale of mutually recognized funds will become larger and larger in the future. There are 7 now, and there will be more in the future, or even fully opened up, as long as they are legal funds, they can be mutually recognized by both places. We are currently adopting a progressive opening model, and it will definitely reach a state of full openness in the future. This day will surely come; it is only a matter of time," said Professor Xiao Feifei.
The mutual recognition of funds is another milestone in the open integration of the two capital markets following the Shanghai-Hong Kong Stock Connect, bringing breakthrough development to the fund markets of both places and allowing the industry and investors in both places to take a big step forward.