Totalling RMB 22 trillion in the first half of 2019 alone, wealth management is the largest type of asset management product in China. It’s no wonder, then, that Biyi Cheng describes the Wealth Management Connect pilot programme as “a milestone in opening up China’s financial markets”.

The head of Greater China at CMC Markets, Cheng sees the programme providing offshore high-net-worth individuals with relatively low-risk investment products.

The scheme differs from existing capital account liberation programmes such as Stock Connect and Bond Connect. “Products are wealth management- instead of securities-focused,” he says. “The financial institutions involved are banks as opposed to brokerages or exchanges, and eligible investors are limited to residents of the Greater Bay Area only.”

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While there are risk control mechanisms in place—quotas set by regulators and a closed loop system to ensure funds are allocated to eligible investments—it is not without limitations.

“Different standards across Greater Bay Area banks make it difficult for non-local residents to open cross-border accounts, and a lack of online application channels creates additional cost and complexity,” explains Cheng.

Further challenges centre around cross-border capital flow and barriers to financial integration, while there are also differing interest rates to consider. Borrowing costs for SMEs in Guangdong can top 12.5 per cent, compared with just 5 per cent in Hong Kong.

According to Cheng, solutions abound. There is potential in developing cross-border information sharing systems, allowing financial service providers to expedite client risk assessments. “If we want high net-worth individuals to step further into the programme, we’ll need to see a streamlined approval process of outward direct investments for Guangdong businesses; reduced restrictions on foreign companies in the financial services industries; and promotion of wider use of RMB in the Greater Bay Area.”