HONG KONG -- Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing (HKEx), gives high marks to the bourse's link with its counterpart in Shanghai. In an interview with the Nikkei Asian Review, Li discusses his views on the yuan's growing international profile and the advantages he believes Hong Kong offers companies and investors at a time when Shanghai is becoming a competitor.
Edited excerpts from the interview follow.
Q: How would you evaluate the first year of the Shanghai-Hong Kong Stock Connect scheme?
A: I am very pleased. Getting something done in China is not easy. Second, I am very happy that it has been operating smoothly. Most people look at the volume, which to me is really the third priority. Some anticipated massive trading, and it turned out to be more moderate.
After all, China is probably the last market where there are trillions of dollars sitting in banks, earning low interest, and relatively few investment opportunities. From that perspective, the southbound [investment traffic] is going to be one of the most important avenues for China to begin to [direct] its domestic wealth into the global scene. The first place to start is usually with Hong Kong.
Q: Do you think China's stock market rout this past summer has changed the mainland's attitude toward market liberalization?
A: I am sure the unexpected market turbulence has had a huge impact on both the agenda of domestic market reforms and the opening of the international market. But at this point, it's too early to say whether the impact is more structural or is more about timing and pace. My own assessment is that it will affect the pace. But I do not believe fundamentally the direction will be changed and reversed.
Q: This month the International Monetary Fund will decide whether to include the yuan in its benchmark Special Drawing Rights currency basket. How will the yuan's internationalization impact HKEx's business?
A: The internationalization of the yuan will have a huge long-term impact on HKEx's business and, in fact, globally. The liquidity of the yuan [will] potentially become so much more than we dreamed a few years ago.
But the challenge is to provide enough products to absorb that liquidity. Otherwise, people will just take the yuan to buy China's treasury bonds, and the money will go back to China. Every day, you have anywhere between 5 billion yuan to 8 billion yuan ($791 million to $1.26 billion) being traded through the Shanghai-Hong Kong Stock Connect. If we are able to combine that with commodities, either by accessing China or accessing London, or through London to China and to Hong Kong, you create another huge opportunity to absorb that liquidity.
Q: HKEx decided not to proceed with its draft proposal on weighted voting rights. Will that make Hong Kong less attractive for mainland companies looking to list there?
A: There are many factors [that affect a company's decision to list] and we are very competitive on [those factors]. It's free and open. There is international law. Companies invested in by venture capitalists and private equity funds want to have a much more transparent regulatory system that they can count on and is not arbitrary. Therefore, Hong Kong still has a lot to offer for many companies. We haven't seen any slowdown in demand.
Interviewed by Nikkei staff writers Jennifer Lo and Yasuo Awai