Mainland private enterprises (MPEs) have contributed tremendously to China’s economic growth over the past four decades, but these enterprises are facing difficulties in getting sufficient financing in the onshore market and are in need of more funding support. In view of this, HKEX’s Chief China Economist’s Office has just published a research report that takes a closer look at Hong Kong’s complementary role alongside the onshore market in supporting the fundraising needs of MPEs. 

Equities

Hong Kong is the largest offshore funding centre in equity financing and bond financing for Mainland enterprises.  MPEs raised a majority of the total funds raised through initial public offerings and secondary offerings in Hong Kong in 2018. After HKEX revised its Listing Rules in April last year to open the door to pre-revenue biotech companies and new economy companies for the first time, seven new economy companies listed in 2018, six of which were MPEs. Apart from a new listing regime, the market-based listing process and valuation model in Hong Kong, the reach of global investors as well as the listing timeliness are also particularly attractive to new economy companies and MPEs from the Mainland.

Bonds

Mainland enterprises also regularly issue dim sum bonds and foreign currency-denominated bonds in Hong Kong, often with lower funding costs than in other offshore centres.  The Hong Kong bond market could become an important funding source for MPEs, particularly during times of funding difficulties.  As a leading centre of offshore financing for Mainland enterprises, the Hong Kong market provides a wide spectrum of offshore RMB risk management tools for their exchange rate risk management in light of the currency mismatch.  

Global liquidity channeled through the Stock Connect and Bond Connect schemes also help boost the domestic liquidity of the onshore stock and bond markets, which supports the domestic financing activities of Mainland enterprises, including MPEs. Enhanced foreign access to the Mainland stock and bond markets has increased global recognition of the markets and facilitated the inclusion of Mainland securities into global benchmarks, which further drives up foreign participation and domestic liquidity.  The global connectivity offered by the Hong Kong market provides strong funding support for all Mainland enterprises, and is particularly significant to MPEs which can face challenges when obtaining financing through the domestic market.  

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