Charles Li says the best is still to come, as Hong Kong bourse reclaims world’s IPO crown while more firms eye secondary listings

Enoch Yiu

Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia, who runs Asia’s third-largest capital market, has rejected claims that Hong Kong’s glory days are numbered, insisting the city has a bright future as a bridge between China and the international markets in the next decade.

“Going forward, China’s further rise and the continued dominance of the US could set the two nations on a collision course. Meanwhile, the disruptive power of technology could reshape the world’s economy and global society, spurring a fierce battle between these major powers for technological dominance,” Li wrote in his personal blog published on Monday.

“This increasing polarisation means that our world needs more and better connections and not fewer. As such, Hong Kong’s role as the connector between East and West will only become more vital.”

Hong Kong has been hit hard by the trade war between Beijing and Washington, and seven months of often violent anti-government protests that have pitched the economy into recession.

London Stock Exchange’s board of directors rejected a takeover bid by the HKEX in September as the social unrest raised doubts about the future role of the city as a gateway to China. Beijing’s recent plan to set up a stock exchange in Macau may also create competition that further erodes HKEX’s role, brokers said.

Many commentators have speculated in recent months that Hong Kong’s international reputation is damaged beyond repair.

“Amidst China’s rapid development, some may look at the nation’s growing wealth relative to Hong Kong’s, and the falling proportion of Hong Kong’s contribution to China’s GDP, as indicators that the city’s glory days are numbered,” Li said in his “Charles Li Direct” blog on the website of the exchange.

Charles Li Xiaojia, chief executive officer of Hong Kong Exchanges and Clearing, rejected the idea that Hong Kong’s best days are in the past. Photo: Nora Tam

“However, such a conclusion is at odds when you consider Hong Kong’s unique and significant contributions to the development of China’s financial markets, and the strong likelihood that these will be further enhanced in the years ahead.”

Hong Kong’s GDP represented 27 per cent of China’s economy in 1993, but this had dropped to 2.7 per cent by 2018.

Li pointed out that foreign investment that uses Hong Kong as a route in to the mainland Chinese market represents more than 60 per cent of the total during the past decade. The percentage is the same for mainland firms investing overseas via Hong Kong.

Hong Kong has ranked top of the world’s IPO market seven times over the past 11 years. Among the HK$2.3 trillion (US$296 billion) in IPO funds raised in the last decade, a majority were by mainland Chinese companies, Li added.

Listing reforms carried out by the HKEX in April 2018 allow companies with a dual-class shares structure, and pre-revenue biotech firms, to list here. This enabled New York-listed tech giant Alibaba Group Holding to have a secondary listing here to raise US$12.9 billion in November . Alibaba owns South China Morning Post.

The stock connect has linked HKEX with Shanghai’s stock market since 2014, and Shenzhen’s bourse since 2016, allowing cross-border trading. International investors now hold 1.44 trillion yuan (US$206.53 billion) worth of mainland listed A-shares, 1 trillion yuan of which was bought through the connect scheme, he added.

The northbound bond connect – global investors buying Chinese bonds – introduced in 2017, has seen 3.8 trillion yuan of turnover since launch, Li added.

He warned, however, that Hong Kong could not take its role for granted, and needed to solve the social unrest currently gripping it.

“The city has yet to fully resolve some of the deep-seated political, social and economic tensions that have been building for many years. Some old, some new, some exacerbated since 1997. These are posing challenges to One Country, Two Systems, but it is only through the continued successful implementation of this framework that Hong Kong’s future success can be ensured,” he said.

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