In this episode of China Money Network, guest Anla Cheng, partner at Sino-Century China Private Equity Partners, talks with our host Nina Xiang, about the importance of protecting intellectual property for companies in China's financial information sector, why she thinks China's IPO market might open sooner than expected, and her hopes for the realization of substantive reforms in China.

Read an excerpt below, but be sure to listen to the full interview in audio or watch an abbreviated video version. Don't forget to subscribe to the podcast in the iTunes store.

Q: Can you give us a brief introduction of Sino-Century China Private Equity Partners?

A: Sino-Century was founded in 2005 by three partners. Our founder, Dr. Hong Chang, used to work at the municipality in Pudong, Shanghai. He was one of the 25 financial architects who built the Pudong district. Therefore, he's very close to the build-up of China's financial center.

We launched our first RMB fund in 2007 focused on small and medium enterprises (SME). We focus on three sectors: financial information and services, which is the mainstay of our fund. About 50% of our assets are invested in this area. The other two are high-end manufacturing and sustainable environment.

Q: Do you currently only manage one fund?

A: We are onto our second fund. Our first fund initially planned to raise $150 million. Then the financial crisis hit and we closed at $73 million. It is mainly in RMB, but also has about 15% of assets in U.S. dollars.

We had several exits already and were hoping for another exit last year. Then the IPO market got closed. But we are on the "queue," of which there are about 800 companies waiting to go public in China. There are about 40 to 80 companies that already received approval to list, one of which is a company we invested.

We are in the final stage of marketing our second fund, which we are targeting $250 million. It's going to be predominately in U.S. dollars because our founder has always a vision to become an international fund.

Q: There are media reports saying that Sino-Century invested RMB84 million in Wind Info for a stake of 7% to 9% in 2007. Are they accurate?

A: Yes. Initially, we invested about $12.7 million for a stake above 7%. Two years after we made the investment, CITIC PE bought a share at about three times of our valuation, and our share got diluted a bit.

Q: Intellectual property is critical in this sector. Wind Info has sued competitors for IP infringement last year, and others have sued Wind Info for the same cause. Do you think lawsuits are effective in protecting IPs in China?

A: Probably not as effective as in other places, but at least it's a beginning. Wind Info's pending lawsuit (against Zhejiang Hithink Flush Information Network Co.) is dragging on a bit but I believe Wind Info has a strong case.

.......

Anla Cheng is partner at Sino-Century China Private Equity Partners. Before joining Sino-Century in 2007, she was the founder of Centenium Capital. Previously, she was senior vice-resident of Robert Fleming for Asian investment; institutional head of the Asia desk for Prudential Bache and portfolio manager at Citibank Asia Asset Management. She started her career at Goldman Sachs.

In this episode of China Money Network, guest Anla Cheng, partner at Sino-Century China Private Equity Partners, talks with our host Nina Xiang, about the importance of protecting intellectual property for companies in China's financial information sector, why she thinks China's IPO market might open sooner than expected, and her hopes for the realization of substantive reforms in China.

Read an excerpt below, but be sure to listen to the full interview in audio or watch an abbreviated video version. Don't forget to subscribe to the podcast in the iTunes store.

Q: Can you give us a brief introduction of Sino-Century China Private Equity Partners?

A: Sino-Century was founded in 2005 by three partners. Our founder, Dr. Hong Chang, used to work at the municipality in Pudong, Shanghai. He was one of the 25 financial architects who built the Pudong district. Therefore, he's very close to the build-up of China's financial center.

We launched our first RMB fund in 2007 focused on small and medium enterprises (SME). We focus on three sectors: financial information and services, which is the mainstay of our fund. About 50% of our assets are invested in this area. The other two are high-end manufacturing and sustainable environment.

Q: Do you currently only manage one fund?

A: We are onto our second fund. Our first fund initially planned to raise $150 million. Then the financial crisis hit and we closed at $73 million. It is mainly in RMB, but also has about 15% of assets in U.S. dollars.

We had several exits already and were hoping for another exit last year. Then the IPO market got closed. But we are on the "queue," of which there are about 800 companies waiting to go public in China. There are about 40 to 80 companies that already received approval to list, one of which is a company we invested.

We are in the final stage of marketing our second fund, which we are targeting $250 million. It's going to be predominately in U.S. dollars because our founder has always a vision to become an international fund.

Q: There are media reports saying that Sino-Century invested RMB84 million in Wind Info for a stake of 7% to 9% in 2007. Are they accurate?

A: Yes. Initially, we invested about $12.7 million for a stake above 7%. Two years after we made the investment, CITIC PE bought a share at about three times of our valuation, and our share got diluted a bit.

Q: Intellectual property is critical in this sector. Wind Info has sued competitors for IP infringement last year, and others have sued Wind Info for the same cause. Do you think lawsuits are effective in protecting IPs in China?

A: Probably not as effective as in other places, but at least it's a beginning. Wind Info's pending lawsuit (against Zhejiang Hithink Flush Information Network Co.) is dragging on a bit but I believe Wind Info has a strong case.

.......

Anla Cheng is partner at Sino-Century China Private Equity Partners. Before joining Sino-Century in 2007, she was the founder of Centenium Capital. Previously, she was senior vice-resident of Robert Fleming for Asian investment; institutional head of the Asia desk for Prudential Bache and portfolio manager at Citibank Asia Asset Management. She started her career at Goldman Sachs.

In this episode of China Money Network, returning guest and veteran investor Jim Rogers, chairman of Rogers Holdings, talked with our host Nina Xiang on his reading of China's third plenum meeting, why China should open its financial markets completely "this afternoon", and what Chinese stocks he has been buying lately.

Read an excerpt below, but be sure to listen to the full interview in audio or watch an abbreviated video version. Don't forget to subscribe to the podcast in the iTunes store.

Q: The just completed third plenum meeting provided a road-map for China's future reforms. It created this renewed sense of optimism about China's future. Do you share that feeling?

A: I was quite delighted to see what they said. The one overriding point is that the market is going to make the final decision. That is contrary to what is happening in the U.S., and that is why the world is moving to Asia.

Q: The policy initiatives may look near perfect on paper, but no doubt the most challenging part will be implementation. What do you see as the biggest risk in implementation?

A: In the past few years, the momentum (for reform) in China has slowed because of vested interests and their fear of losing power. The new leadership now says let's move on and just do it. But it won't happen with a snap of the finger.

Q: What would you like to see in China's financial reform?

A: They should make their currency, the RMB, convertible this afternoon. They started (currency reforms) in 2005 and have taken many small steps. But China is no longer a weak economy. It is the most successful country in the past thirty years. There is nothing to fear.

Q: Interest rate liberalization, floating the currency and opening up capital accounts, which one should come first?

A: I would think all of the above this afternoon. But they've been very slow and only taken small steps. Deng Xiaoping says you cross a stream by feeling one rock at a time. That's correct. But there comes a time when you get to the other side, and let's move ahead. China is on the other side now.

Q: How worried are you about capital outflows if the capital accounts are opened now?

A: Of course there will be capital outflows. The RMB may even go down for a while. But just do it and get it over with. There will be a lot of capital inflows as people like me want to put money into China.

Have you ever heard of people smuggling money into a country with capital controls? No. People in China are trying to get their money out. But there are also many people who want to rush into China. This is the point of a free and open market. Trust me, it's not the end of the world.

The Australians, Germans and Japanese used to worry about (opening up capital accounts). But somehow they all survived. Trillions of dollars flow in and out everyday in the foreign currency market. China will survive too.

Q: You have been bullish on the RMB for a long time, but the RMB only appreciated for roughly 12% since 2008. You can't say that it's a great performance as an investment?

A: That depends on what you compare with. There are many other currencies that were down. We presume one has earned interest as well even if it's just put into a CD (certificate of deposit). Don't forget that those interests get compounded.

But you are right, there are many other investments that could have made a lot more money. But the point is the currency has continued to appreciate and will continue to appreciate. It may be double or triple in the next 10 to 20 years.

Q: Are you buying Chinese company shares now?

A: Yes.

Q: Can you give us a couple of those names?

A: I've never bought Chinese domestic A shares in my life because it's always more e...

In this episode of China Money Network, guest Patrick Chovanec, chief strategist at New York-based Silvercrest Asset Management, talks with our host Nina Xiang about why he thinks the Chinese economy is slowly strangling itself, how to read beyond China's headline economic data and what he expects from the Chinese Communist Party's third plenum meeting.

Read an excerpt below, but be sure to listen to the full interview in audio and subscribe to the podcast in the iTunes store.

Q: China's imports and exports in October reached $339.7 billion, up 6.5% year-on-year. Last week, the Oct official PMI number reached 51.4, hitting the highest level for 18 months. Is China's economy really improving, or is this the same old window dressing before an important political meeting?

A: People tend to be very schizophrenic about the Chinese economy. They see either the bad news or the good news, and say either everything is going to implode or everything is back on track.

Now we seem to be in a cycle where GDP was higher and (economic data appears to be better) as you mentioned. But I don't think things are back on track at all.

For example, it's getting harder to interpret Chinese export numbers. There is a disconnect between the reported Chinese export numbers and the freight shipments out from Hong Kong. It's masking capital inflows to China as Chinese companies are borrowing cheap U.S. dollars and bringing them into the country dressed as export. Then they speculate in real estate and in re-lending.

Q: What kind of trend do you see in the latest M2 and new loan numbers, two economic indicators playing a critical role to China economic performance at the present?

A: What we have seen in the past couple of decades is that the Chinese economy was forging ahead using the export-led growth model. But it's not exports driving growth per se. It's exports that enable a much greater level of investment that would otherwise be possible – that's turbocharging the economy.

So when external demand (for Chinese exports) slowed down, China doubled down on investment. That's the worrying thing. Because those investments have created capacity, which needs an end user that today has to be domestic demand. That's why an internal re-balancing is at the core of the coming third plenum meeting.

We have seen an explosion of credit lately, which in absolute terms makes 2009 stimulus pale in comparison. So credit has been driving more investment and growth. This is a model that Premier Li Keqiang said himself that it's not sustainable.

This dependence on run-away credit growth to both drive investment and also paper over past investments that have gone bad, means that the Chinese economy is slowly strangling itself. It may not be obvious looking at the headline numbers.

I'll give you an example. Chinese companies reported increase in earnings during the first half of this year. But well over half of that came from banks. Of the non-financial companies, all of the increase in earnings, plus more, came from non-core activities. That means speculation in properties, re-lending to shadow banking, etc. Actually core earnings were down.

That says to me that the Chinese economy is unsustainable and needs to be fixed. The greatest sign is the freeze up in the interbank lending market. A lot of people dismiss that as a blip on the radar screen and is easily fixed by the People's Bank of China. In fact, it showed the dependence on credit expansion.

Q: During the past month or so, there have been at least a dozen announced or completed IPOs in Hong Kong and the U.S. Are Chinese IPOs coming back?

A: Given my outlook for the Chinese economy, people would say, then your investment advice would be to run away from China as far away as possible? The answer is no.

In this episode of China Money Network, guest Dr. Zhanlian Feng, senior research analyst in the Aging, Disability and Long-Term Care Program at RTI International, talks with our host Nina Xiang about the enormous demand in China's senior care industry, its regulatory environment and the lucrative business opportunities it presents.

Read an excerpt below, but be sure to listen to the full interview in audio and subscribe to the podcast in the iTunes store.

Q: In 2010, there were 119 million Chinese aged 65 and older, and this number is projected to more than triple to 382 million by 2040. The demand for senior care in China is obviously enormous. What is the situation of senior care supply?

A: You are right. Some of the statistics in China are alarming.

There are estimated 36 million elderly Chinese who need living assistance. It's also estimated that there are about 9 million Chinese with dementia. The real number might be higher as the diagnosis is difficult. In 2010, there are estimated 114 million elderly Chinese with diabetes. These are all chronic diseases that need long-term care.

In addition, among all the families with an elderly person, more than half are empty nesters. In some cities, it is as high as 60% to 70%.

But the supply of senior care is inadequate. Though there is no official number, but it is estimated that there are 40,000 residential care facilities in China. There are about 3.2 million beds in total, and around 2 million elders live in these facilities. This translates into a ratio of less than 2% of seniors who live in senior care facilities as a percentage of total senior population, much lower than 5% or 6% in much advanced economies.

........

Zhanlian Feng is senior research analyst in the Aging, Disability and Long-Term Care Program at RTI International. He is also an adjunct assistant professor of health services, policy and practice at Brown University. His research focuses on the disparities in U.S. long-term care and the growth of institutional elder care in China.

In this episode of China Money Network, our guest is Stephen Roach, current senior fellow at Yale University’s Jackson Institute of Global Affairs and former chairman of Morgan Stanley Asia and the firm's chief economist.

He spoke with our host, Nina Xiang, on the Fed's tapering of its quantitative easing programs and its impact on China; a potential U.S. default and what that means for China's over $3 trillion foreign reserves; and why he believes the fears of a China slowdown are vastly overblown.

Listen to the full interview in the audio podcast, watch an abbreviated video version (coming soon) or read an excerpt below. Be sure to subscribe to the podcast in the iTunes store.

Q: What impact will the U.S. Federal Reserve's reduction of its quantitative easing (QE) programs have on China?

A: The policy experiment of the Fed is very risky. It's untested. It's unconventional. In my view, it's a big mistake.

Initially, the policy grew out of a deep and legitimate concern of the U.S. and the world economy in crisis. Lacking a leeway in cutting interest rates, which were near zero, the Fed embarked on asset purchases, or liquidity injections.

The Fed continued to do it even as the crisis ended and the economy attempted to recover. Last month, when the Fed surprised the market by backing off from QE, it found out that it might be difficult to get out from what could be a "policy trap" that it set itself.

China would be adversely impacted if the global economy were dealt a blow by the Fed's policy withdrawal. Where China is exposed to any direct impact (from the U.S.) is if the U.S. were to default on its sovereign debt. China, with its $3.25 trillion foreign exchange reserves and the biggest share being U.S. dollar assets, could be hit very hard.

Q: With the U.S. in the middle of a government shutdown, can you walk us through what you think is the worst-case scenario if a U.S. default takes place?

A: It's pretty straightforward. The yields of U.S. treasuries will go up. They will no longer be given the premium of the riskless assets that lies at the core of the world's financial systems.

How much it will go up, for how long? It's hard to know. That would certainly result in a loss in the value of any Treasury-based securities.

Q: If you were the governor of the People's Bank of China (PBOC), how would you manage China's foreign reserves differently?

A: The dollar-denominated concentration of China's reserves is very much tied to the currency policy of the PBOC. If the Chinese government were to significantly reduce their exposure to U.S. dollar-based assets, then the RMB would rise, possibly significantly, against the U.S. dollar.

The RMB has risen close to 35% against the U.S. dollar since mid-2005. The Chinese exporters have dealt with it well and managed to maintain their competitiveness. If there were to be a sharp further appreciation of the RMB because of a U.S. default or other reasons, it would put pressure on Chinese exporters.

A U.S. default, which I still believe is a low probability outcome for a sustained period of time, or intensification of U.S. trade frictions that could cause retaliatory reactions from the Chinese, could cause the RMB to appreciate suddenly. But ultimately, I think the best case is to expect gradual further appreciation of the RMB.

Q: What policy initiative would you like to see coming from the Third Plenum of the Party Congress in November?

A: I like to see initiatives aimed at providing broader support to Chinese consumers. The top of my list is to inject public funds into the social safety net institutions like social security and healthcare. The enrollment has increased a lot, but the assets in these plans are small and the benefit streams are limited.

In this episode of China Money Network, guest Keith Robinson, partner in the financial services group at law firm Dechert, talks with our host Nina Xiang about the new changes in hedge fund regulation in China, why it is important for foreign investors to understand the policies and how the "renting" of QDII and QFII quotas work.

Read an excerpt below, but be sure to listen to the full interview in audio and subscribe to the podcast in the iTunes store.

Q: Amendments to China's Securities Investment Fund Law took effect in June this year, impacting how private funds legally operate in China. First, can you explain what are private funds?

A: A private fund is a non-public fund that invests in public securities in China. So it would be what is commonly referred to as hedge funds, rather than private equity or venture funds.

Q: Often, hedge funds are sometimes referred to as "sunshine hedge funds." Why?

A: Generally speaking, a "sunshine hedge fund" is typically sponsored by a trust company and invests with a fairly straightforward long-only strategy, as opposed to more esoteric investment strategies. But there are no clear definitions.

Q: What kind of legal environment existed for hedge funds in China previously?

A: Previously, domestic and foreign hedge funds operated in a legal grey area with no specific guidance from the regulators. There was no explicit recognition of them, nor explicit prohibition against them.

Q: These new amendments took effect on June 1 this year. How did it define investors who qualify for making investments into hedge funds?

A: There are two tests. First is an investor sophistication test, which is subjective. Basically, investors need to have sufficient knowledge and sophistication.

The second test is an income- and asset-based test. An individual investor needs to have total financial assets of at least RMB2 million, and personal average annual income of no less than RMB200,000 for the last three years or household average annual income of no less than RMB300,000 for the last three years.

An institutional investor qualifies if it has net assets of at least RMB10 million.

Q: What type of limitations are there for how hedge funds can market their funds?

A: You have to avoid mass marketing such as newspaper, radio, television, the Internet, or seminars. Generally, private funds will be offered on a private placement basis, or through a network of placement agents to qualified investors.

Also, any investment in a private fund must be appropriate for the investor’s risk profile. There are no details of how to go about doing so. What we are recommending right now is a fairly traditional approach, which is an investor questionnaire to document the investor's suitability.

Q: Do these limitations apply also to a Chinese private equity or venture capital fund?

A: Not necessarily. These restrictions only apply to so-called private funds in the new legal framework.

Q: How do you define "the Internet"? Does that mean a private fund cannot have a website?

A: The new regulations don't provide any guidance on this. So it is difficult to know for sure.

Outside of Mainland China, private fund managers do have websites. There are in fact portals for private fund investors to access information. The general rule of thumb is to take precautions to limit the access to any websites to appropriate potential investors only.

Q: What are the requirements for registration for Chinese hedge funds?

A: The fund manager, which is the primary entity, has to be registered. It is similar with the current U.S. scheme. A private fund manager must register with the Asset Management Association of China (AMAC),

In this episode of China Money Network, guest Keith Robinson, partner in the financial services group at law firm Dechert, talks with our host Nina Xiang about the new changes in hedge fund regulation in China, why it is important for foreign investors to understand the policies and how the "renting" of QDII and QFII quotas work.

Read an excerpt below, but be sure to listen to the full interview in audio and subscribe to the podcast in the iTunes store.

Q: Amendments to China's Securities Investment Fund Law took effect in June this year, impacting how private funds legally operate in China. First, can you explain what are private funds?

A: A private fund is a non-public fund that invests in public securities in China. So it would be what is commonly referred to as hedge funds, rather than private equity or venture funds.

Q: Often, hedge funds are sometimes referred to as "sunshine hedge funds." Why?

A: Generally speaking, a "sunshine hedge fund" is typically sponsored by a trust company and invests with a fairly straightforward long-only strategy, as opposed to more esoteric investment strategies. But there are no clear definitions.

Q: What kind of legal environment existed for hedge funds in China previously?

A: Previously, domestic and foreign hedge funds operated in a legal grey area with no specific guidance from the regulators. There was no explicit recognition of them, nor explicit prohibition against them.

Q: These new amendments took effect on June 1 this year. How did it define investors who qualify for making investments into hedge funds?

A: There are two tests. First is an investor sophistication test, which is subjective. Basically, investors need to have sufficient knowledge and sophistication.

The second test is an income- and asset-based test. An individual investor needs to have total financial assets of at least RMB2 million, and personal average annual income of no less than RMB200,000 for the last three years or household average annual income of no less than RMB300,000 for the last three years.

An institutional investor qualifies if it has net assets of at least RMB10 million.

Q: What type of limitations are there for how hedge funds can market their funds?

A: You have to avoid mass marketing such as newspaper, radio, television, the Internet, or seminars. Generally, private funds will be offered on a private placement basis, or through a network of placement agents to qualified investors.

Also, any investment in a private fund must be appropriate for the investor’s risk profile. There are no details of how to go about doing so. What we are recommending right now is a fairly traditional approach, which is an investor questionnaire to document the investor's suitability.

Q: Do these limitations apply also to a Chinese private equity or venture capital fund?

A: Not necessarily. These restrictions only apply to so-called private funds in the new legal framework.

Q: How do you define "the Internet"? Does that mean a private fund cannot have a website?

A: The new regulations don't provide any guidance on this. So it is difficult to know for sure.

Outside of Mainland China, private fund managers do have websites. There are in fact portals for private fund investors to access information. The general rule of thumb is to take precautions to limit the access to any websites to appropriate potential investors only.

Q: What are the requirements for registration for Chinese hedge funds?

A: The fund manager, which is the primary entity, has to be registered. It is similar with the current U.S. scheme. A private fund manager must register with the Asset Management Association of China (AMAC),

In this episode of China Money Network, guest William Shen, senior partner and head of Greater China at Headland Capital Partners, talks with our host Nina Xiang, about why he sees 4S automotive dealerships in China as the next great opportunity, how Chinese consumers are changing, and what the impact of the economic slowdown has on Headland's investments.

Listen to the full interview in the audio podcast, watch an abbreviated video version or read an excerpt below. Be sure to subscribe to the podcast in the iTunes store.

Q: Can you give us a brief introduction of Headland Capital?

A: Headland Capital was established in 1988. For the past 25 years, we have invested an aggregate of $2.7 billion into around 150 companies based in Greater China, South Korea and Southeast Asia.

Our main focus is either providing growth capital for high growth companies or helping companies perform buyouts. We were part of the HSBC Group and did a spin out in 2010.

Q: Headland has invested heavily in the Chinese consumer sector. How has the economic slowdown impacted the companies you've invested in?

A: The Chinese consumers are still consuming. We are still talking about double-digit annual growth in retail sales. But there are far more choices today than five years ago.

If someone's total budget for clothing, for example, has increased 40% or 50% than five years ago, the amount of choices may have doubled or tripled during the same time. Therefore, as a brand, maintaining their market share becomes more challenging.

For example, in the apparel industry, the old model of operation is to use a good brand sponsor, advertise on TV and sell your products via a wholesale model. You, as the brand owner, do not operate the retail outlets. You rely on a few thousand wholesale distributors across China to sell your products.

In the old days, when choices were few, this model worked for well-managed brands. But with the influx of fast fashion and foreign brands, consumers are becoming far more discerning. So without decent control at the retail level, you wouldn't know which design is selling faster or slower, and inevitably there will be inventory buildup. So in order to do well in the apparel industry, you need to operate your own stores or work very closely with selected distributors today.

.......

In this episode of China Money Network, guest Philip Tye, chairman of the Hong Kong National Group of The Alternative Investment Management Association (AIMA), talks with our host Nina Xiang about what the Hong Kong government is doing to retain and attract hedge funds to the city; why Asian hedge funds haven't rebounded as much as other places; and what should small Asian hedge funds do to stay relevant to investors.

Read an excerpt below, but be sure to listen to the full interview in audio and subscribe to the podcast in the iTunes store.

Q: Currently what regulatory changes are being planned to attract foreign hedge funds to China?

A: The recent changes in the Chinese securities investment fund law enable private funds to register on their own, rather than through a trust company structure. This essentially allows a broader range of regulated funds to operate in China.

Also, in certain jurisdictions in Shanghai, the Qualified Domestic Limited Partners (QDLP) program allows managers of foreign strategies, for the first time, to come onshore and raise money domestically in China to use in offshore strategies. It's an important development for the global hedge fund communities as it brings global players onshore.

But many changes have to take place to allow the hedge fund industry to grow in China, including the broadening and deepening of different financial instruments necessary for hedge fund strategies.

Q: Foreign investors investing in China's A shares need to pay a 10% withholding tax on capital gains. Do you foresee any changes?

A: Most foreign investors invest in China's domestic market through some sort of Qualified Foreign Institutional Investor (QFII) facility. It's up to the QFII to collect on behalf of the government the 10% withholding tax on any capital gains. But I'm not aware of any planned changes.

Q: What are the biggest challenges for foreign hedge funds operating in China?

A: I don't think the challenges are unique to foreign hedge funds in particular. They are faced by domestic funds as well. The hedge fund industry is still at a very early stage. Regulation schemes are not fully in place. There are not enough derivative instruments to allow proper hedge fund strategies.

But of course, China does offer significant opportunities as an investable market and a source of capital over the long term.

Q: Hong Kong is Asia's largest hedge fund center with 32% of Asian assets in the first half of 2012. Hong Kong's government is trying to keep it that way. What are some new policies to attract and retain hedge funds in Hong Kong?

A: For a number of years, we have been proposing to Hong Kong authorities a change in company law to allow the opening up of an investment company, a type of vehicle most hedge funds use. We were also lobbying for a regime to have cross recognition between Hong Kong hedge funds and other countries in Asia, starting with Mainland China.

In the Hong Kong budget earlier this year, the government announced that it would review to look into both changes. These policy initiatives could be very effective over time (in attracting and retaining hedge funds) in the city.

Q: Hedge funds in Hong Kong are heavily reliant on American and European investors who contribute more than 60 percent of their assets. Local money accounts for only 8 percent. Now that the Securities and Exchange Commission in the U.S. has removed a ban on advertising, what kind of impact do you see on hedge funds in Hong Kong?

A: From a regulator's perspective, managers are regulated by their domicile of operations. If you are carrying out investment activities in Hong Kong, you need to be licensed as a fund manager here. And you have to obey the various rules, regulations and codes of conduct here.