ASIA: China opening revives wealth pipeline to Hong Kong finance hub.

As published on businesstimes.com.sg, Tuesday 9 May, 2023.

A welcome sign is emerging in Hong Kong after three years of travel restrictions: lines of mainland Chinese tourists outside the city’s bank branches.

Hundreds of thousands flocked to the city during the “Golden Week” holiday in early May, triggering hours of waiting at lenders such as Bank of China (Hong Kong) and HSBC Holdings. Han, a technology executive from Beijing, arrived at 6.00 am on May 2 at a branch in the city’s Tsim Sha Tsui district to get ahead of the rush. He’s opening an account to move some cash out of China to diversify his nest egg.

“The outlook for domestic stocks isn’t good,” said Han, who asked only his last name be used. “There’s not much to invest in now except Hong Kong or US equities.”

Han and his compatriots are providing a much-needed jolt to the Asian financial hub that’s been battered by pandemic lockdowns and political upheaval. Banks, as well as insurers such as AIA Group, are now basking in the return of mainland customers after three years of doldrums.

“Strong cross-border bank accounts opening and insurance purchases by mainland visitors should give Hong Kong’s financial industry a boost,” said Steven Lam, an analyst at Bloomberg Intelligence. “Not only in terms of capital flow and revenue but also for employment and talent retention in wealth management and insurance sectors.”

Hong Kong’s role as an investment hub for banks, money managers and family offices will be a focus of the Bloomberg Wealth Asia Summit in the city on Tuesday (May 9), with speakers from HSBC, JPMorgan Chase & Co and Royal Bank of Canada among others.

According to an HSBC survey of more than 8,000 people conducted between October last year and February, 60 per cent of mainland Chinese who planned to visit Hong Kong after the resumption of travel were coming to handle financial matters, second only to leisure pursuits.

Those visits are helping Hong Kong’s economy wage a comeback after emerging from a recession in the first quarter. More than 625,000 mainland Chinese arrived during the five-day “Golden Week”, though that was only two-thirds of the number of visitors during the same period before the pandemic closed down travel.

While China limits annual foreign exchange conversion to the equivalent of US$50,000, residents like Han are taking full advantage of the cap. He plans to use all of his quota, and went to the Bank of China (Hong Kong) branch for advice on the best way to handle the transfer.

The number of new accounts for cross-border customers at the Bank of China (Hong Kong) was 1.7 times higher in the first quarter than the previous quarter, said Sally Liu, deputy general manager of personal banking and wealth management. The bank increased sales and service staff by 10 per cent in frontline branches, and set up four private wealth centres to meet demand, she said.

The fresh investments and deposits by largely middle-class Chinese in Hong Kong adds to an exodus of capital from the mainland that could top US$150 billion this year, as more people park their money abroad for fear of additional measures at home.

Over the past two years, President Xi Jinping’s crackdown on industries like technology, real estate and education, along with his push for “common prosperity”, have spooked the rich. Now the middle class, free to travel for the first time since the pandemic began in 2019, are moving some of their money too.

“The re-allocation of Chinese household wealth to more overseas assets is an unstopped trend,” said Qi Wang, chief executive officer of MegaTrust Investment (HK) and author of Daily Reflection on China, an investment newsletter. “And we barely scratched the surface. From the central government’s view, Hong Kong may be the best place for that to happen.”

At an HSBC outlet in Causeway Bay, Hong Kong’s ritziest shopping district, Shenzhen resident Jiang waited in line with three friends, hoping to benefit from higher interest rates on deposits in Hong Kong where the local currency is pegged to the US dollar.

“I’m keen on Hong Kong stocks and the higher interest rates, but if I’m not successful in opening an account that can’t be helped,” said Jiang, who asked that only her last name be used.

Andy Halford, chief financial officer at Standard Chartered, said on a recent earnings call that the bank saw a fourfold increase in account openings in Hong Kong during the first quarter. It’s “very encouraging”, he said. The London-based bank gets more than two-thirds of its revenue from Asia, mostly from China and Hong Kong.

At Hang Seng Bank, the number of new account openings for non-Hong Kong customers in the first quarter more than doubled from the previous year, according to Rannie Lee, head of wealth and personal banking. The volume in March even exceeded the pre-Covid monthly average, she said.

Private banks are also seeing an influx of mainland clients in Hong Kong. One senior banker at a European firm said that visits have exceeded pre-Covid levels due to pent-up demand, with wealthy Chinese clients inquiring about family offices, insurance and real estate. The banker asked not to be identified because he’s not authorized to speak to the press on such matters.

“Anecdotally, we’re hearing there’s definitely been a pick up in account openings since the border reopened,” said Peter Stein, chief executive officer at the Hong Kong-based Private Wealth Management Association. Banks are trying to help customers open accounts as quickly as possible though it takes on average over 40 days, he said.

There has also been a surge in insurance sales. Chinese customers have long flocked to Hong Kong for insurance, in part because the products have an investment component and offer payouts in foreign currencies that are hard to find on the mainland.

“We actually have seen the highest level of account openings for some time now in the insurance in Hong Kong,” said Georges Elhedery, chief financial officer at HSBC during a media call after it posted earnings last week. “And that’s thanks to the borders of mainland China opening up and the influx of mainland Chinese visitors.”

HSBC has been extending opening hours at branches across the city and plans to expand international banking services and insurance teams by 40 per cent in Hong Kong through temporary staff deployments and new hiring, it said in March.

Prudential’s Hong Kong business saw first-quarter premium sales jump fourfold from a year earlier. The return of mainland Chinese visitors was a key driver of the increase, it said in an Apr 28 statement.

Ray Cheung, an agent working for one of the main global insurance companies in Hong Kong, said he’s seen clients from the mainland spike about 30 per cent since the end of March.

The buyers, many of whom pay with cash, are most interested in critical illness insurance policies that also double as investments. Savings policies are another popular option.

“It’s mad how many people are coming over to Hong Kong to buy policies,” said Cheung. “They’re saying they want to get some money out of China for safety hedging.”

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