China offers Islamic finance

By Peter Cooper

A high-level delegation of Hong Kong financiers held a seminar for 200 guests in Dubai yesterday to promote the Chinese special economic zone as a gateway to Shariah-compliant fund-raising and investment in China.

Deputy CEO of the Hong Kong Monetary Authority, Eddie Yue said: "Some people have expressed scepticism about a role in Islamic finance for Hong Kong. But local market players have been quick to develop Shariah-compliant products."

The first Islamic fund introduced by a local bank was approved last year and is an index-tracking fund for the Dow Jones Islamic Market China/Hong Kong Index. In December the Hong Kong Mortgage Corporation signed a joint venture agreement with Malaysia's Cagamas Berhad to develop Islamic mortgages.

"What makes Hong Kong a natural destination for Islamic funds is our deep and highly liquid capital markets," Yue added. "Almost all the most actively traded financial instruments are available for exchange in Hong Kong."

Nasser H Saidi, chief economist of the Dubai International Financial Centre Authority, said Hong Kong could also play role in developing "straightforward or convertible sukuk" for sale to Chinese savers to fund projects in the Middle East.

"There is a rapid integration of Islamic products into mainstream global finance," he added. "In Dubai the next move will be to centralise Islamic finance with a single DIFC Shariah Board to simplify and standardise the issuing of sukuk. We will be developing our links with Hong Kong."

However, Chinese IPOs have dried up in Hong Kong this year, after a record $76 billion (Dh279bn) was raised in 2007. Some attendees at the seminar thought Hong Kong was now looking for the next big thing in global finance and was late in catching on to Islamic finance. "It may be true that Hong Kong has started development more recently," said Yue. "But so long as the demand is there, it is never too late for Hong Kong to contribute to this vibrant growth sector.

"The abundance of oil-driven liquidity generates a huge appetite for investments that comply with the tenants of Islam, which can not be satisfied within the Gulf area alone."

With a population of 1.3 billion and a GDP that has been growing in excess of 10 per cent, it has hard to argue against investment in China as a long-term proposition.

Several other speakers stressed the scale of the opportunity in Hong Kong as a platform with its strong commercial links and legal system. But Islamic finance in China will be a two-way process both for investment into the Middle East and for investment into the growth story of China.