25th anniversary of the return. Finance｜Reformers build financial dreams, Li Xiaojia’s message to Hong Kong to take the initiative to create the future

"At that time, I felt that anything was possible." Li Xiaojia, the former CEO of the Hong Kong Stock Exchange and the founder of Diguantong, recalled that when Hong Kong's sovereignty was handed over in 1997, he and a group of returnee friends from the mainland gathered in Lan Kwai Fong, watching TV. The five-star red flag in the hall rose slowly in the rain, and they sometimes sang and sometimes wept.

At that time, Li Xiaojia was the head of Merrill Lynch's China business, and felt like a "lucky man of the times" - he returned home after his studies and was stationed in Hong Kong; he could not only enjoy the advantages of international rules, but also participate in national development opportunities; Start to learn and move forward by trial and error.

The times brought Li Xiaojia not only the luck of success, but also the courage to reform.

"The most important (experience) for those of us who came out of that era is not to have answers, but to ask questions." Li Xiaojia said, "Only by asking questions can we have the urge to seek answers. Ask the right questions to accomplish the right tasks.” In the

blink of an eye, twenty-five years later, China has grown into the world’s second largest economy, while Hong Kong has grown into one of the three largest international financial centers.

In the past, Li Xiaojia "asked questions" to push Hong Kong Finance forward; in the future, he also expects Hong Kong Finance to actively ask questions and continue to find infinite possibilities that are unique to him.

Li Xiaojia hopes that Hong Kong Finance will continue to find its own "possibilities" by "asking questions".

(Photo by Liang Pengwei)

"Nine Roles" Start the Listing Reform and

Create a New Economic Financing Center

This matter is very important to the market and concerns the future development of Hong Kong. It must be discussed in a grand, open, and participatory manner.

It can't be just a few core people of us settling down in the house.

However, public discussions also need clear guidance, otherwise it will become mutual abuse, misunderstanding, and venting.

Li Xiaojia on the reform of the listing system

Li Xiaojia's "official appearance" in Hong Kong was the moment when he became the chief executive of the Hong Kong Stock Exchange.

He was born in the mainland and does not understand Cantonese, so it is inevitable that he will be questioned, but he has shattered these voices with practical actions: from reforming the trading hours of Hong Kong stocks, to the acquisition of the London Metal Exchange (LME), the establishment of an over-the-counter settlement company, the launch of the interconnection mechanism and the listing system Reform and various market reform measures are like oil, driving the huge ship of the Hong Kong Stock Exchange to sail from the south of China to the world.

During Li Xiaojia's tenure, the market value of the Hong Kong Stock Exchange has tripled, and Hong Kong has become an international financial center that lives up to its reputation of "connecting China and the world".

Among the many deeds, the most commendable is the reform of the listing system of the Hong Kong Stock Exchange in 2018, which directly started the IPO boom in the Hong Kong stock market.

However, this is also the most difficult reform.

Li Xiaojia's tenure lasted for 11 years, but this incident took more than five years to "grind". It was inevitable that he had some regrets, so that he left this sentence when he left office - "Missing Alibaba is the most unforgettable challenge".

In 2012, Alibaba, which was delisted and restructured in the Hong Kong stock market, came to the Hong Kong Exchange Square, hoping to re-list in Hong Kong.

However, Alibaba adopted the "partnership system", and the corporate shareholding structure was "same shares with different rights", which did not comply with the listing rules at that time.

Talking about this past, Li Xiaojia used two "have to": "Ali's first choice is Hong Kong, we talked for a long time. In the end we had to tell them that we couldn't. They gave up and had to go abroad. .” In 2014, Alibaba moved to the New York Stock Exchange to list, raising $25 billion, the largest IPO in the firm’s history.

"Alibaba can't be listed in the mainland, everyone is very clear. In Hong Kong, I can't accept it." The most "legitimate" objection at that time was to "protect investors". "It seems that the stricter we are on the company, the more The more investors can be protected.”

On September 19, 2014, Alibaba Group was listed on the New York Stock Exchange, setting a record for an IPO.

(Getty Images)

"But we didn't ask many questions at the time!" Li Xiaojia questioned, "How can we protect investors? Is letting them go the only way to protect? Is there a better way to protect? What kind of investors need what? protection of?"

So, Li Xiaojia decided to "ask questions" and "ask the right questions".

On September 25, 2013, Li Xiaojia published a blog "Investor Protection Miscellaneous", recording a "dream" of nine roles debating "AB shares listing", including Mr. Tradition, Mr. Innovation, Mr. Disclosure, Mr. Big Fund , Ms. Small Retail, Ms. Pragmatic, Mr. Morality, Ms. Future and Mr. Procedure.

Li Xiaojia took this to express the reasons and doubts of different stakeholders with the most intense emotion.

"This matter is very important to the market, and it is related to the future development of Hong Kong. It must be discussed in a grand, open, and participatory manner. It can't just be settled by a few core people in the room." Li Xiaojia explained the original intention of writing the article, " However, public discussion also needs clear guidance, otherwise it will become abusive, incomprehensible, and venting." Although the article did not find "Mr. Answer", Li Xiaojia wrote an almost "vernacular" article, with "questions" of different dimensions. Discussion started.

Li Xiaojia recorded in "Investor Protection Miscellaneous" that the nine characters in "Dream" debated "listing in the form of AB shares".

(Sina Finance)

The same problem is solved by "asking questions", as well as the listing system of biotech companies.

"The Hong Kong Stock Exchange has a rule that everyone feels unshakable - a listed company must have performance, and must make money for a period of time; even if there is a loss, it must be in the case of a relatively large market value." Li Xiaojia I am very skeptical of this argument. "But biotech companies haven't even produced drugs, and they won't make a penny... It's just a fantasy to go public without revenue."

"How to convince everyone to accept the listing of a company with no revenue? Here we also need to "ask questions" very subtly." Li Xiaojia noticed that the "performance"-led evaluation system often uses "revenue" and "profitability" indicators, but the key It is not about "performance", but to prove the "maturity" of the company.

"How can a mature company prove 'mature'?" Li Xiaojia asked and answered himself, the uniqueness of biotech companies is that their products need to go through the medical approval system, "If it has entered the first phase of clinical trials, it means that it has passed the medical The authorities are strictly regulated, so this company is not a simple, ordinary company, but a highly regulated company.” He likened a company with stable income and profitability to “getting a college degree,” while a company entering clinical trials is like "Three years in the army", "It has been well trained by the army, and its maturity is no worse than that of a 'college student'."

In this way, Li Xiaojia, who likes to ask questions and ask the right questions, finally found the "answer" in 2018.

In April 2018, the Hong Kong Stock Exchange officially issued new regulations for public offerings, allowing innovative companies with different rights to come to Hong Kong to list, allowing unprofitable biotech companies to list in Hong Kong, and allowing companies from Greater China and international companies to come to Hong Kong for secondary listings. second listing.

The reform of the listing system has ushered in the era of IPOs in Hong Kong.

In 2018, a record 218 companies were listed on the Hong Kong Stock Exchange.

In 2020, 154 companies were listed on the Hong Kong Stock Exchange, and the financing amount reached a ten-year high of HK$397.5 billion.

By the end of the year, the Hong Kong Stock Exchange had welcomed 128 new economy companies, including 28 biotech companies and 10 secondary listed companies, with a total financing of HK$553.7 billion, accounting for 57% of the total market financing.

The reform of the listing system in 2018 ushered in an era of IPOs in Hong Kong, with as many as 218 companies listed on the Hong Kong Stock Exchange that year, setting a record high.

(Hong Kong 01 cartography)

"One Napkin" Breaks the Trinity Paradox

from Bridge to Market

Hong Kong is no longer a simple bridge.

Once the investor has passed, it has nothing to do with the bridge.

Hong Kong has become the departure market for Western investors and the arrival market for Mainland investors.

Li Xiaojia on Interconnection

"Asking questions" reflects Li Xiaojia's philosophy of doing things: when confronted with challenges, he can always quickly find the core contradiction, and then "four or two" can be cleverly solved.

The implementation of interconnection systems such as Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Connect is an ingenious example.

With the growing size of China's economy, it has become an inseparable part of the global supply chain. More and more foreign investors want to allocate Chinese assets, and more and more Chinese investors want to invest overseas. Therefore, China Unicom is connected to the mainland capital market. And the needs of the Hong Kong capital market are increasingly urgent.

However, the problem that lies between the two is the state capital account control.

"How to make the Hong Kong Stock Exchange and the Shanghai Stock Exchange seamlessly connect? In the reality that China's capital account is controlled and the renminbi is not freely convertible, this is regarded as an 'impossible task'." Li Xiaojia explained, the financial market There are "two legs" of trading and liquidation. The former is the discovery of prices, and the latter is the handover of funds.

In terms of transactions, interconnected transactions must be "highly market-oriented", "we don't want to pretend, we want a truly market-oriented, large-scale transaction." However, this means that the "big in and big out" of funds will Great pressure on national capital project management and control.

This problem is the specific manifestation of the "trilemma" in the capital market, which means that an economy cannot have both independent monetary policy, exchange rate stability, and free capital flow, and can only achieve both and give up one.

In the long-term development process of the country, the orientation is the first two - an independent monetary policy cannot be abandoned, and a stable exchange rate is also very important, because the safety of the trade "engine" must be guaranteed, so the RMB capital cannot achieve "free flow" .

Without "free capital flow", large-scale, market-oriented transactions would be impossible, but Li Xiaojia broke the "impossible".

"I can think of this when I'm in a hurry, but I can't think of it when I'm not in a hurry." Li Xiaojia smiled and talked about that "historical moment".

At that time, he met with Gui Minjie, chairman of the Shanghai Stock Exchange, in a teahouse in Shenzhen to discuss the possibility of an interconnection mechanism between the two exchanges.

"I said, don't go over with the 'clearing', I will finish the clearing for you, won't it be fine? Gui Minjie also said, yes, then I will give it to you after I have finished it, won't it be enough?" , Since there was no pen and paper at hand, he picked up a napkin and wrote down the results of the discussion at that time.

"It would be great if it was preserved. It should be a very meaningful piece of paper." Li Xiaojia said this with regret.

The physical carrier failed to stay, but the "spark of thought" as the two returned to their respective exchanges, eventually became a plan for the "interconnection system" - "transit in total transaction volume, and transit in net amount of liquidation."

In 2014, Zhou Songgang, the then chairman of the Hong Kong Stock Exchange, and Li Xiaojia, the then chief executive, held a press conference on the Shanghai-Hong Kong Stock Connect.

(file picture)

The two exchanges first established local subsidiaries respectively.

During the daily trading hours, the orders of international investors are traded on the Shanghai Stock Exchange through the subsidiary of the Hong Kong Stock Exchange, while the trading orders of mainland investors are also traded on the Hong Kong Stock Exchange through the subsidiary of the Shanghai Stock Exchange. The trading volume is completely market-based and can fully reflect the information of both sides of the market.” At the clearing stage, the two exchanges first “netted” their own internal transactions, and then exchanged the net transaction value with the other party. If you buy too much, you owe them coupons; if you buy too much, you owe them money. The same goes for them.”

Shanghai-Hong Kong Stock Connect was officially launched in 2014, and two years later, the interconnection mechanism was expanded to Shenzhen-Hong Kong Stock Connect.

"Every day on the Shenzhen bridge, I alone carry the sack, and Wang Jianjun (then general manager of the Shenzhen Stock Exchange) or Huang Hongyuan (the chairman of the Shenzhen Stock Exchange) also carry a sack. Once we exchange, all the other people will not move and do their own thing." Li Xiaojia is vivid and vivid.

On November 10, 2021, on the occasion of the seventh anniversary of the implementation of the "Connectivity System", the Hong Kong Stock Exchange released data: the cumulative transaction volume of Shanghai Stock Connect and Shenzhen Stock Connect was 64 trillion yuan, and the net outflow was 1.5 trillion yuan. The cumulative trading volume of southbound southbound trading was HK$23.1 trillion, with a net inflow of HK$2.1 trillion.

The daily liquidity quota of less than 100 billion can support the transaction depth of trillions. It can be seen that the mechanism has successfully explored the possibility of "seamless" transactions in the mainland and overseas capital markets under the restrictions of capital accounts.

"Hong Kong is no longer a simple bridge. Once investors pass, it has nothing to do with the bridge." Li Xiaojia explained that after the implementation of the interconnection mechanism, Hong Kong has become the departure market for Western investors and the arrival of A-share investors. “I can say that the Stock Exchange Securities Trading Service Company should be the largest shareholder in the A-share market. In turn, China Securities Depository and Clearing Corporation is also the largest shareholder in the shareholder register of companies listed on the Hong Kong Stock Exchange. They represent International and mainland investors.” Li Xiaojia described, “Such a model makes China and the world inseparable in the capital market, and structurally inseparable... This pipeline and system are permanently connected. together."

The interconnection mechanism has enriched the RMB product pool, enriched the RMB's "investment reserve" function, and strengthened Hong Kong's function as an offshore RMB capital pool and offshore RMB hub.

Ba Shusong, Managing Director and Chief China Economist of the Hong Kong Stock Exchange, said at the 2021 Financial Street Forum Annual Meeting that in cross-border RMB settlement, capital accounts account for more than 70%, "mainly Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect Connect, Bond Connect, etc.”.

According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), offshore renminbi transactions processed through Hong Kong account for up to 75% of the global total outside the mainland.

On November 10, 2021, the seventh anniversary of the implementation of the "Connectivity System", the Hong Kong Stock Exchange announced impressive data.

(Hong Kong 01 cartography)

Jigang

explores six major financial functions needed by the country and the world

The development of the country has also brought great opportunities to Hong Kong, but Hong Kong must also think clearly about what the country needs and what does the international community need?

Li Xiaojia on the future development of Hong Kong

When Li Xiaojia left as the president of the Hong Kong Stock Exchange, he left a speech: "I will still stay in Hong Kong, and I hope to use the "water conservancy knowledge" I learned in the Hong Kong Stock Exchange to continue to do things for Hong Kong, the country, and the market. Contribute."

Soon after, the "financial water engineer" announced the start-up project "Drip Irrigation"-like precision investment in small and micro enterprises with agricultural drip irrigation technology.

In April this year, Diguantong completed a US$70 million Series B financing. In addition to Sequoia China’s continued investment after the A round of financing, there are also institutions such as ABC International, Zheng Zhigang, and Li Ka-shing’s Victoria Harbour Investments.

At present, Drip Express has invested in more than 500 small and micro stores in the mainland, covering four major fields of retail, catering, service, and culture and sports.

As he said, drip irrigation is a product that contributes to Hong Kong, the country and the market.

Aiming at the national policy of "common prosperity", Diguantong emphasizes impact investing to solve the financing dilemma of small and micro businesses that has been neglected by traditional finance for a long time.

The difference between impact investing and environmental, social and governance (ESG) investing is that the former advocates proactively using investments to bring about positive changes and positive impacts, while the latter passively avoids investment products that have a negative impact on society and instead chooses Products with less negative impact.

In short, impact investing is "doing good," and ESG investing is "don't be evil."

After Li Xiaojia left as the chief executive of the Hong Kong Stock Exchange, he founded Drip.

(Photo by Liang Pengwei)

At the same time, the investment target of Diguantong provides investors in Hong Kong and even overseas with a "different" channel to stably earn dividends from China's economic development, which can effectively avoid "anti-monopoly" risks.

"If the business loses, there is no need to pay back, but if their business is good, we have to 'eat and drink spicy'." Li Xiaojia said that chain stores are willing to take the money from drip irrigation, because it is not a permanent dilution of the cost , just asking to share profits in future profits, "is a win-win approach."

More importantly, drip irrigation has explored a new investment model to inject fresh blood into the market.

Different from traditional investment models such as shareholding and borrowing, Drip Irrigation adopts a contract model of “share weal and woe”.

When Li Xiaojia was reported by the mainland media "21st Century Finance", he said that even large institutions do not know what assets Drip Irrigation belongs to, but over time, it will have the potential to become a new product and asset class.

Behind the innovative model of drip irrigation is Li Xiaojia's long-term observation of the mainland economy: "After China's digitalization has become so deep and popular, we financial people must ask such questions." Li Xiaojia once again asked "ask" Question "Breakthrough - What changes has digitization brought to the traditional financial model?

The deepening and popularization of digitalization in the Mainland has brought changes to the traditional financial industry.

(Visual China)

The mainland's digital economy is booming, and large-scale chain brand owners can capture the revenue stream of each brick-and-mortar store through digital platforms, "like a small hook to hook it."

This "little hook" replaces practitioners in the traditional financial industry looking for investment targets, pricing, and legal contracts, as well as services such as bank endorsement, legal enforcement, and exchange clearing.

"Traditional finance is a big mainframe, and everyone has to go to it to count. And we are small chips, small sums of money." With new technology to save costs, every penny can be maximized in a short life cycle. on the "Little Flower Grass".

Although he is located in the central ring where traditional finance gathers, Li Xiaojia always has his eyes wide open and fully embraces the ever-changing new technologies, which is the most important reason why he can lead the traditional giant of the Hong Kong Stock Exchange to the new wave.

Standing at the 25th year of Hong Kong's return to the motherland, Li Xiaojia also expects this traditional international financial center to move forward in the form of "asking questions".

In the early days of the reunification, Hong Kong financial professionals used overseas experience to help the country establish a modern financial market and financial supervision system; and Hong Kong itself provided advice and channels for the reform, restructuring and listing of state-owned enterprises with international rules, supervision and connection with the international financial market. .

"China was so difficult at that time and desperately in need of development... If there is no shallow water like Hong Kong, so that our group of 'hairy boys' can cross the river by feeling the stones, it is difficult to imagine the future development." Li Xiaojia sighed, "Hong Kong's contribution is huge, and the country's development has also brought great opportunities to Hong Kong."

"But Hong Kong also needs to figure out what the country needs and what does the international community really need? What is the future development path? How to make the internationalization of the RMB go faster? How can Hong Kong form a scale as soon as possible in the six markets just mentioned? ?" Li Xiaojia emphasized, "These are the questions we all need to ask."

During Li Xiaojia's tenure, the Hong Kong Stock Exchange acquired the London Metal Exchange, the world's largest metal pricing center.

(Reuters)

"Hong Kong cannot passively wait for the 'gift'"

to actively help the country reshape the rules

Hong Kong is not one of the best markets for overseas investors to enter China.

There is no reason for Singapore, Japan, the US, any other market to do better than Hong Kong.

If people do better, it must not be because they are doing well, it must be because Hong Kong is doing badly.

Li Xiaojia on the positioning of Hong Kong's financial center

"The stock market in Hong Kong is very developed, and it is easy for people to regard the stock market as a financial center, but it is not the case. The real financial center must be the most central thing in the country's financial center. What is the most central thing? It is currency." Li Xiaojia pointed out that the bond market, currency market, gold market, and commodity market can best reflect currency, because the core is currency pricing and currency trading.

Take U.S. Treasuries as an example. The reason why the U.S. dollar can become an international currency is inseparable from the liquidity of U.S. Treasuries comparable to cash, and all companies and investment institutions around the world will deploy such products.

He kept asking, "When will China's national debt become a must-have column on the world's balance sheet?"

The new Chief Executive, Li Jiachao, promised to strengthen Hong Kong's status as an international financial center. Li Xiaojia, who was a member of his campaign advisory team, also hopes that Hong Kong will vigorously develop the bond market, currency market, gold market, commodity market, as well as the data market of emerging assets, virtual asset market.

Regarding the first four, Li Xiaojia believes that Hong Kong definitely has the possibility of "overtaking on a curve": "The mature market of these products will encounter a problem in the future, even if they operate very well and are highly market-oriented, the They are all old-generation technologies. Banks, brokerages, and investors all use previous-generation electronic trading systems, even telephone trading systems.” As a “late-comer”, Hong Kong has no “traditional burden” and can directly adopt the next-generation system. Technology, with cheap, simple and convenient digital trading technology, allows investors to easily participate in transactions with the mainland and Hong Kong markets.

When asked why he did not promote these changes during his tenure at the Hong Kong Stock Exchange, Li Xiaojia said with a smile: "Maybe in a very successful place, it is more difficult for everyone to work hard to create greater glories... At that time Our exchange makes so much money, and everyone says why do you love 'tossing' so much, can you stop it?"

Having said that, during his tenure, the Hong Kong Stock Exchange still bought the LME, the world's largest metal pricing center, and established a voice in the commodity market; on the 20th anniversary of the return of the People's Republic of China, the "Bond Connect" was launched to take advantage of the bond market. Under the bridge connecting China and the West, "When people around the world want to invest in onshore Chinese government bonds and corporate bonds, there are also channels... It's a huge milestone."

"But there is still a long way to go before Hong Kong's local market can eventually become a strong bond market, currency market, gold market, and commodity market." Li Xiaojia is not complacent, knowing that "the road is long and the road is long," reminded Hong Kong must seize the advantages of the Mainland's economic transformation, open up new development directions, and strive to establish a genuine and complete local financial market.

For example, under the national “30·60” policy (carbon peaking in 2030 and carbon neutrality in 2060), precious metals and rare metals will become strategic resources urgently needed by the country, and “there will be high demand for both trading and buying.”

Li Xiaojia believes that Hong Kong can re-integrate its terminal resources and build a commodity market for precious metals and rare metals on the basis of the shipping and logistics industry in the past. many places."

For another example, seeing the gradual rise of "Chinese-funded dollar bonds" but not being regulated in management, Li Xiaojia, who is a member of the National Committee of the Chinese People's Political Consultative Conference, submitted a proposal at the national "two sessions", suggesting that Hong Kong should prepare a market-oriented, highly transparent and convenient for the two places. A new type of Chinese overseas bond market supervised by regulators and based on the self-discipline of market participants.

In an exclusive interview with China Fund News, he further explained that the market participants of Chinese-funded dollar bonds are mainly Chinese-funded institutions, and the transaction logic is closely related to the mainland economy, but it is an international market denominated in US dollars, so there will be Institutions are not adapted to market rules and their operations are opaque. "If Chinese capital already has such a large influence... It should consider starting to reshape the rules of the market and build a new market."

Li Xiaojia believes that Hong Kong should take the initiative to innovate for the country's finance.

(Photo by Liang Pengwei)

"We tend to see this as a 'gift' from the state to Hong Kong, such as raising the quota of the renminbi quickly to promote the internationalization of the renminbi... I think this is a passive mentality rather than a proactive spirit. "Li Xiaojia said, "In the end, it's not what the country can give you that makes you successful, but you have to help the country create something new."

"Reshaping the rules" is the function that Hong Kong can best embody "giving full play to its own strengths and serving the needs of the country".

China is already the world's second largest economy, and its participation in world finance should be as active and effective as its participation in the global economy, and the key lies in the "rules".

Li Xiaojia specifically said that foreign investors all want to "deal with" China's huge economic volume, but they may not adapt to the rules of the mainland. Hong Kong's rules are in line with the world and are also recognized by foreign investors.

Hong Kong can build a new bond market based on international rules and slowly incorporate Chinese elements without affecting the participation of overseas investors. The market of both sides, in order to enhance its importance, become the best market for overseas investors to enter China, no one.”

"Singapore, Japan, the United States, there is no reason for any other market to do better than Hong Kong." Li Xiaojia said, "If others do better, it must not be because they are doing well, but Hong Kong must be doing badly. ”

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