MAY 2015 COVER STORY: FULL SPEED AHEAD WITH HONG KONG AND SHENZHEN

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With the upcoming launch of the Shenzhen-Hong Kong Stock Connect highly anticipated, an AmCham delegation coming from diverse backgrounds visited the Shenzhen Stock Exchange to discuss with officials on the current outlook of the newest stock connect, with an additional visit to see the progress of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone

By Blessing Waung


In his opening comments to the visiting AmCham delegation in April, Shenzhen Stock Exchange (SZSE) Vice Director of Hong Kong, Macao and Taiwan Affairs Liu Fuzhong made his intentions clear: “We want to make Shenzhen famous, globally.” With the dizzy anticipation ahead of the launch of the Shenzhen-Hong Kong Stock Connect this year, a 30-member delegation from AmCham HK paid a visit to the SZSE, to build relations with exchange officials and dialogue regarding key initiatives the latter foresees for its future. The announcement, expected to take place within the first half of this year and to be implemented during the second half, will operate under a similar operational and regulatory framework as the Shanghai-Hong Kong Stock Connect, but with a possibly expanded scope, such as equity products. “The meeting with the Shenzhen Stock Exchange was very useful for AmCham members to develop relations and gain a deeper understanding of the Exchange’s priorities, including the much anticipated Shenzhen-Hong Kong Stock Connect program, which is expected to launch later this year,” said Steven Chan, vice president and head of regulatory, industry and government affairs, Asia Pacific, at State Street Asia Limited. 

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Chan, who also serves as the co-chair of the AmCham financial services committee, was one of the many seniorlevel executives at multinational financial institutions who was eager to attend the trip and hear the progress, and to have the chance to speak with directors of the Shenzhen Stock Exchange. “I appreciated the opportunity to ask some important questions about the Shenzhen Stock Connect development, including operating models, implementation timeline, investment of asset classes, quotas and other legal and regulatory issues,” he said. “As the Hong Kong and Shenzhen Exchanges move forward with development and implementation, we will pay close attention to the level of transparency in terms of industry engagement, information disclosure and dissemination, and public consultation.” Shenzhen, with its explosive growth, is often called the Silicon Valley of Mainland China. Working together with massive science parks as incubators for technology, the SZSE is home to an index that is high performing, which may eventually lead to a higher valuation. Present at the meeting were Liu, Huiqing Li of strategy and international relations, Jin Liyang, chief researcher, and Wan Fan, membership supervisor for the SZSE. AmCham members raised a number of important challenges for the SZSE to consider, including: sufficient implementation timeline – with a suggested minimum of 3 months to avoid unregulated entities being given an advantage – as well as tax and legal issues, such as beneficial ownership. “I think it was really important for the SZSE to be able to hear from the industry about the need for an appropriate time period prior to the launch, as well as, the importance of that time period so that the industry can get everything operational for a smooth go live,” said Rebecca Terner Lentchner, executive director and head of policy and regulatory affairs at the Asia Securities Industry and Financial Markets Association (ASIFMA). “The idea that the industry can simply go live in one or even three months would be to miss the important lessons learnt from the launch of the Shanghai Connect. We don’t want to see that happen with Shenzhen because it’s such a great opportunity.” 

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“The fact that AmCham was able to assemble such a diverse group of stakeholders to attend was very helpful to the Exchange in my opinion. AmCham members were able to offer wide variety of industry concerns,” Lentchner said. “There were participants from financial services, private equity, manufacturing, hotels, all of these interests together represent the potential investor base for the Shenzhen Connect. And that was a good opportunity both from industry’s perspective and also for the exchange, as AmCham was the one stop to go to collect all of those important stakeholder voices.” “[We’re] all very impressed with how pragmatic they’re being,” Lentchner said. “I was particularly interested in their training of Chinese arbitration lawyers and judges in Hong Kong for contract disputes that are written in ong Kong law, which then might be adjudicated in the free trade zone. This would represent an enormous step forward. The more integrated the PRD can be with all of the free trade zone hubs, will help to connect Hong Kong to the greater China market in ways that a wide variety of different participants will be able to benefit from.” “Generally, we did send a message how eager we are as to the launch of the Shenzhen-Hong Kong Stock Connect,” said Tina Tsui, managing director and managing counsel at BNY Mellon. “It’s a very good sign that they actually are willing to listen to us. For example, from the experience of the launch of Shanghai Stock Connect … it was helpful that participants raised a few points regarding certain issues that market participants have. Hopefully Shenzhen will be more successful.”