Better domestic financial products required

An illustration of Hong Kong Dollars [Photo: bzcm.net]

Some mainland residents are buying insurance in the Hong Kong Special Administrative Region as a kind of investment to evade the central government's foreign exchange controls.

While some Hong Kong insurance companies do limit the amount that can be paid with a UnionPay bank card, which is the main channel of payment of mainland residents, that's still far from a ban.

The financial authorities should be praised for following market rules instead of issuing any ban. Actually, a ban would hardly be effective because as long as people need to invest outward they will find ways to do so despite a ban.

The Hong Kong insurance rush reflects the fact that domestic financial products do not meet the needs and demands of mainland residents. The economy has entered the new normal of medium growth, but monetary policy remains loose, thus many fear the domestic financial market might be full of bubbles and people will turn to investments in the SAR and elsewhere instead.

Even State-owned enterprises are rushing to purchase overseas assets. It is natural for people to choose Hong Kong insurance companies, which have better services, higher rates of return, as well as lower risks.

However, it should be noted the amount of renminbi that is flowing out of the mainland in this way is rather limited. A report issued by the International Monetary Fund on July 27 said that there is no major risk to China's foreign reserves and China's foreign reserve had risen in June.

The financial authorities have made a good move by respecting market rules and we hope they continue to do so.