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Hong Kong-China Mutual Fund Recognition Announced

by Mary Swire, Lowtax.net, Hong Kong
27 May, 2015

New rules allowing investment funds domiciled in Hong Kong and China to be sold in one another's market are to become operational on July 1, 2015, in what is being seen as a key step towards the liberalization of the Chinese economy.

The framework for the mutual recognition of funds between Hong Kong and China was announced in a joint statement by the China Securities Regulatory Commission (CSRC) and the Hong Kong Monetary Authority (HKMA). Initially there will be a quota of RMB300m (USD50bn) in each direction and funds would have to have been established for at least one year to take part in the scheme.

Norman Chan, Chief Executive of the HKMA, hailed the development as another milestone in the liberalization of mainland China's capital account after the establishment of mutual stock market access between Shanghai and Hong Kong.

"It also facilitates Hong Kong's development into a full service asset management centre in Asia," Chan observed. "The client base of locally domiciled funds will expand to include Mainland investors, while Mainland funds will become accessible to global investors through the mutual recognition arrangement. More fund administration, asset management, distribution and marketing activities and other related functions will take place in Hong Kong."

"Mutual recognition of funds will also deepen financial links between Hong Kong and the Mainland in terms of market infrastructure and regulatory cooperation," Chan added. "For the implementation of mutual recognition of funds, the HKMA is working closely with relevant institutions on the Mainland to establish an efficient fund processing platform to provide an automatic channel for cross border transactions and cash settlement. I look forward to seeing the successful implementation of the arrangement."

Hong Kong's Secretary for Financial Services and the Treasury, K C Chan, has previously stressed that the Government is proactively "developing Hong Kong into a full-fledged fund and asset management service center" with the help of various tax incentives to encourage the fund management industry to Hong Kong.

As part of his testimony before the Legislative Council (LegCo) Finance Committee special meeting on the 2015-16 Budget, Chan reminded the Committee that detailed legislative proposals are being formulated to introduce a new open-ended fund company structure to attract more funds to domicile in Hong Kong.

In addition, a Bill introduced on March 25 this year will extend the profits tax exemption for offshore funds to private equity funds, with a similar expectation that more private equity funds will then expand into Hong Kong.

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