Hong Kong central to UBS plans for Greater Bay Area

Experienced financiers in Hong Kong’s dynamic private banking sector see Chinese growth and innovation playing a major role in their own city’s renewed prospects.

Both China and Hong Kong have been busy building physical infrastructure. A recently-opened, spectacular $19bn, 55km road bridge connects Hong Kong with Macau and Zhuhai. Bullet trains dart between West Kowloon station and Shenzen, one of China’s fastest growing cities, in just 15 minutes, allowing access to telecoms giant Huawei, e-commerce player Tencent and IT provider BYD, among others.

Hong Kong, Shenzen, Macau and Guangzhou were named by the Chinese government in February as key pillars of the Greater Bay Area blueprint to create a regional powerhouse to rival Japan’s Tokyo Bay Area and Silicon Valley in the US.

“Shenzen was nothing 20 years ago,” says Marina Lui, head of China business at UBS Wealth Management, a native of China’s second city of Shanghai, looking out from her window on the 52nd floor of Hong Kong’s prestigious Two IFC building. “Now it is totally transformed.”

This transformation can play a major role in boosting the city of close to 8 million inhabitants, which she now calls home. “Hong Kong can learn from Shenzen. There are still shortcomings here, but we are not competing against each other.”

Hong Kong’s connectivity with Western clients and financial systems will be key to the fortunes of the ecosystem, which the Chinese authorities hope will combine the resources and talents of 66 million residents of 11 cities in the Pearl River Delta.

UBS is basing much of its regional strategy in backing this initiative, offering potentially lucrative access to 200,000 plus high net worth families and 150 billionaires.

Missing out

There is a feeling among many in the Special Administrative Region, separated from mainland China by a still significant internal frontier, that the Hong Kong authorities have been slow to buy into the changing economic story. After all, they have been preoccupied with local, political issues such as coping with unrest among the student population. 

They have trod, sometimes clumsily, along an ever-changing line between preserving Hong Kong’s increasingly fragile cultural identity and freedom of expression, and following no-nonsense, diktats from central government in Beijing.

These are sensitive topics here. Many of the younger generation, who were reluctant to join a ‘Greater China’ at the time of the territory’s ‘handover’ by the UK in 1997, have since bought into the growth story and tempered their dissenting views. Their offspring, however, remain sceptical.

Business leaders prefer to divide society into those more sceptical about Hong Kong’s future growth prospects and the “can-do” characters keen to work closely with Chinese enterprises.

“Hong Kong has vast experience and connectivity with the rest of the world. We can now grow together with our neighbouring cities. This is what the Hong Kong government are doing,” says Ms Lui. 

“They are realising the importance of change, but we are trying to catch up as well, as we have been behind for so long, for the past 20 years. Did we invest enough in talent development? In infrastructure yes, but not in the start-up area.”

This is a segment in which UBS claims a key advantage. Ms Lui nods at the panoramic view from her office. Opposite Hong Kong island lies Kowloon, once the poor cousin of the Central business district, harbouring a reputation for organised crime and run-down housing, featuring in memorable, atmospheric local cinema productions.

But Kowloon, like gentrified districts in London and New York, has changed almost beyond recognition. In addition to the high-speed rail terminal, a shopper’s paradise has emerged for both high end and craft goods. Amid this activity, a new waterside building, four floors of which are occupied by UBS, serving Chinese entrepreneurial families, sprung up in 2016.

The challenge, she acknowledges, is encouraging more owners of Chinese mainland businesses to engage the services of private banks.

“We need to support and advise to boost start-ups and encourage people to build new companies,” enthuses Ms Lui. 

Among her clients, a “group of very smart people” are leveraging the increasing business and transport links between Hong Kong and Shenzen. It is time, she believes, to build on traditional, cost-effective manufacturing, by injecting technology tools including artificial intelligence and blockchain into the business mix.

“We are talking about nine different vibrant cities, in addition to Hong Kong and Macau,” says Ms Lui, warming to her theme. 

She would like to see the region’s start-up incubators given direct access to advice from Hong’s private banks and for the Hong Kong government to lobby for even tighter links. 

She sees this as a part of a broader educational initiative, explaining the role of private banks to Chinese businesses and facilitating the provision of their services to clients.

“Let’s build connectivity,” she suggests. “We need to let them know about UBS and other private banks, about diversification and asset protection and bring them to us in Hong Kong.”

International exposure

One key aim of Hong Kong bankers is to give Chinese mainland clients access to a much wider range of investments outside the region, currently restricted by Chinese legislation.

Ms Lui is responsible for more than 100 staff in China and also oversees all interactions which bankers in Hong Kong and Singapore have with mainland Chinese.

Chinese clients love to hold equities, she says. Although they still yearn for the 20 to 30 per cent pre-global financial crisis returns from concentrated portfolios, most are starting to appreciate the benefits of diversification.

“I have been here long enough to remember the craziness, when everybody just went for the new IPOs in equities and bonds,” she recalls with some amusement. “Nowadays, we are a lot more rational when making investment decisions.” 

This diversification message has been pertinent during 2018, when those Chinese investors over-committed to local stocks lost up to 30 per cent of the value of holdings. She stresses the importance of communicating asset allocation recommendations to all customers.

“We need to continue to bring our chief investment officer’s message to our clients, through advisory or discretionary mandates,” she argues. The recent merger of the US and international wealth management operations at UBS further supports this, she says, as US investment techniques can now be deployed in Asia. Previously there was minimal contact between the two groups. 

More than 20 per cent of wealth management profits at UBS in 2018 came from Apac.

Passing on wealth

As well as advising on diversification, Chinese investors expect their banks to help steward the handover of assets from older to younger generations.

“This is what is most important to them: wealth planning, how to protect their assets, how to conduct a transfer of wealth, in order to avoid disputes,” she says, conscious of the high-profile court cases related to succession disputes, which have plagued Hong Kong’s leading families. 

“Chinese clients are becoming very mindful about all the jurisdictions they are involved in and changes to tax policies. They want to be compliant with all tax requirements, with a structure that is professional. At the end of the day, Chinese clients want to avoid major headaches.”