Li Xiaojia was in charge of the Hong Kong Stock Exchange for 11 years from 2010 to 2020, which is the highlight of the 25-year Chinese chapter of the Hong Kong Special Administrative region.

As one of the most important financial infrastructure, the HKEx is the most distinct embodiment of the integration of the financial markets of Hong Kong and the mainland. It highlights the internationalization and legalization of Hong Kong, and demonstrates Hong Kong's pragmatic and innovative urban spirit. On the occasion of the 25th anniversary of the establishment of the Hong Kong Special Administrative region, Li Xiaojia, former chief executive of the HKEx and founder of Didi Guantong, gave an exclusive interview with China Fund News, detailing the past events in Hong Kong.

In Li Xiaojia's eyes, Hong Kong is a Chinese market operating in accordance with international rules, and openness and tolerance is one of the core spirits of the city. He believes that young people should open their minds and work with people all over the world to create the future of Hong Kong and realize the value of their own life.

Li Xiaojia believes that Hong Kong today should play a triple role:The first is to help mainland residents achieve global asset allocation; the second is to help Chinese and foreign investors manage offshore investment risks; and the third is to gradually help China to achieve international pricing of commodities and currencies. Hong Kong has been working hard in these three areas in the past and will make greater progress in the future.

Stock interconnection:

Write down the plan on a napkin

Q: in your essay, you focused on three things that Hong Kong needs to do. the first is to help mainland residents achieve global allocation. The Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect launched in recent years can be attributed to efforts in this direction. Looking back at history, what was the biggest difficulty encountered by the Shanghai-Hong Kong Stock Connect at that time?

Li Xiaojia: after 2000, financial practitioners in both places are looking forward to opening up the two markets. This is a dream of our generation of financiers. Since 2012, HKEx has been working in this direction. At that time, there was some consensus among market participants, regulators and exchanges that mainland investors needed to invest in overseas markets, while international investors needed to invest in the mainland. But how to achieve it systematically and in a risk-controllable way? There is no blueprint.

Not only that, there seems to be a pair of contradictions. On the one hand, to achieve the above goals, we must take the road of marketization, and there must not be too many restrictions on transactions, otherwise the connection between the two places will become a decoration; on the other hand, China's capital account has not been fully liberalized, and the exchange rate and interest rates have not been fully liberalized. This kind of connectivity also needs to avoid frequent capital inflows and outflows brought about by cross-border capital flows.This was the core issue faced by the Shanghai-Hong Kong Stock Connect at that time.

How to resolve this contradiction? After a long period of hard thinking, together with Gui Minjie, then chairman of the Shanghai Stock Exchange, we finally found a way. As far as I remember, Gui Minjie and I were in a small teahouse in Shenzhen discussing how to resolve this contradiction and finally wrote down the plan on a napkin.

Since we all believe that transactions must be market-oriented, otherwise the price discovery function of the market can not be fully realized, and we all believe that funds can not go in and out in disorder, can we separate trading from clearing? How on earth is it done? That is, net liquidation.

Net clearing is nothing new and has been adopted by many investment banks and stockbrokers. For example, if you are a client of investment bank X and he is a client of investment bank Y, the transaction between you will be cleared through the clearing house; if both of you are clients of X, then X may first calculate the net amount of your transaction and then settle with the clearing house. However, this kind of net liquidation was not widely used before. We believe that the Shanghai-Hong Kong Stock Connect is very suitable for such a clearing model.

Mainland customers buy and sell Hong Kong stocks through the Shanghai-Hong Kong Stock Connect every day, but they do not settle with Hong Kong Exchanges and Clearing directly, but through China Clearing to settle with the HKEx on behalf of all customers who use the Stock Connect. Similarly, international investors who buy and sell A shares through the Shanghai Stock Connect channel do not settle with the Shanghai Stock Exchange directly, but are settled by Hong Kong Exchanges and Clearing on behalf of all international investors buying and selling A shares through the Shanghai Stock Connect.

For example, it is a bit like the general manager of the Shanghai Stock Exchange and the president of the Hong Kong Stock Exchange exchange securities and cash for clients on both sides at the Shenzhen Bridge after the close of trading every day, thus avoiding the frequent entry and exit of funds.

In hindsight, it seemed natural, but until we came up with this idea, there was nothing we could do. Today, when you look up the shareholding data, you often see words like "Hong Kong Securities Clearing Centre". This means that HKEx holds A shares through Shanghai Stock Connect and Shenzhen Stock Connect on behalf of many international investors.

Unfortunately, the "napkin of history" can not be found, if we can find it, we also hope to use it as a souvenir.

Q: the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect have been running for a long time now. What do you think is the greatest impact of the stock interconnection mechanism on A shares and Hong Kong stocks?

Li Xiaojia:I think the most important impact is the collision of investment ideas on both sides.For example, the stock interconnection mechanism is a bit like the Yangtze River estuary and the East China Sea estuary, which converge with each other. Fish in areas where sea water and fresh water meet each other usually have special skills: they can survive in both fresh water and salt water, with stronger vitality.

With the stock interconnection mechanism, mainland funds are increasingly in line with international rules and international development, and international investors are increasingly able to understand the Chinese market and get a piece of the development of the world's second-largest economy.

Overseas markets are very diverse, with money from the United States, Europe, Japan and other countries participating, just like the sea. At present, the mainland market is still relatively close to fresh water, which is more homogeneous water. ButChina as a big economy, eventually our market will go to the world, and the world will also enter China. Stock interconnection is a small step in this big trend.

Launch offshore A-share stock index futures:

After waiting for 16 years, it finally came to fruition.

Q: the second thing you mentioned about Hong Kong is to provide Chinese and foreign investors with tools to manage onshore risks offshore. At present, the Hong Kong Stock Exchange also has offshore A-share index futures. Why launch A-share stock index futures offshore?

Li Xiaojia: through the stock interconnection mechanism, international investors can enter China's spot market on a relatively large scale. Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect are related to spot transactions.With spot trading, futures are generally needed for risk control and hedging. This is a natural configuration.If there is only spot and no futures in a market, it is incomplete. Of course, futures sometimes go out of shape, but the risk of aliasing can be controlled in a variety of ways. The development of a market without futures can not be sound.

A large number of international investors behind the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect need futures products to hedge risks, but the mainland futures market itself is not yet open, and interconnection does not include futures. Since it cannot be done onshore, there should be futures products for international investors to manage risk in the offshore market.

After 16 years of waiting for the Singapore Stock Exchange to launch A-share stock index futures, the HKEx finally launched a new A-share stock index futures after full regulatory communication. The process of waiting is very painful, but in hindsight, being slow is not necessarily a bad thing.

It should be pointed out that the market characteristics of the two places determine that the supervision of stock index futures in the two places is also different.

The A-share market in mainland China is still dominated by retail investors. In addition to hedging in the A-share futures market, speculation is also very active. Although it is impossible to eliminate speculation in any futures market, the main function of the normal futures market should be to hedge risk. Of course, it also allows speculation, but speculation cannot be the subject. If the market is dominated by speculation and supplemented by hedging, then the market is not very satisfactory. As the mainland of China is a retail investor structure, the futures market will be relatively strictly regulated to protect medium and small investors. The regulation of the overseas futures market is relatively loose, because most of the participants in the overseas futures market are large investors, not retail investors, and the vast majority of participants are mature investors who do not need too much intervention. In such a market, regulators may just need to guard against big risks.These are two regulatory philosophies.

The difference between these two regulatory philosophies makes it a challenge to regulate the offshore issuance of A-share stock index futures products. HKEx fully communicated with regulators in the process of launching A-share stock index futures products before finally landing.

Acquisition of the London Metal Exchange:

"Jiuhe" American Intercontinental Exchange Inc

Q: the acquisition of the London Metal Exchange (LME) is a surprise in the history of the HKEx. Can you share the story behind it? Why do you think China needs to have global pricing power at this stage?

Li Xiaojia: China is the largest importer of commodities in the world. In many categories of commodities, China is also a large exporter. Commodities have a great impact on China's economic development. However, due to historical reasons and the fact that many goods are not of origin in China, China does not have the pricing power of goods. If the price cannot be set, it is disadvantageous to always be the recipient of the price but not the maker. China is a rising star in the global capital market, and most of the time other people's cards have already been set up before entering the market.In most cases, China can only follow the existing rules, but we need to have the ability to influence pricing rules.

The best way is to buy a commodity exchange, which has been in our minds all the time.However, after such a long period of merger, the global exchanges are now concentrated in the hands of several giants, making it difficult to sell.

We were looking for a commodity exchange subject that could be acquired until we found the London Metal Exchange. It is a rare independent exchange that has global influence on non-ferrous metals but does not belong to any giant. At that time, it was membership-based, which actually gave outside organizations the opportunity to acquire.

We had a strong competitor at that time, the United States' Intercontinental Exchange Inc (ICE) had an early eye on the fat piece of LME, because LME could help it make up for its shortcomings.

ICE made an offer for an acquisition, and the members of LME were a little moved. When we heard the news, we wanted to cut off the peace.It's not easy, but we know very well that we have to take it.

ICE is a little underestimated and thinks that we probably won't buy it because HKEx has not done commodity exchange business and they think we are not good at commodity exchanges. I was very firm at that time. I said to the boss of ICE, "Let's not argue. I will always pay a dollar more than you." Because this thing is in our hands, it is worth more than any other person. I believe there is always a price that may be too expensive for you, but for us, there is nothing expensive, as long as we can buy it, because China is so big and non-ferrous metals are so important. "

In retrospect, it was a good opportunity. Apart from that, no exchange has been able to acquire it in the past decade. Exchange is an extremely rare infrastructure in the world, one less than one, so you can catch one by one.In retrospect, the acquisition of LME is not only of strategic significance, but also a relatively successful commercial organization at present.

Reform the listing rules of the HKEx:

Companies that are not profitable can also be listed for trading.

Q: at present, the Hong Kong market has become the preferred choice for the listing of biotechnology enterprises around the world, which is inseparable from the reform of the listing rules of the Hong Kong Stock Exchange at that time. In retrospect, what do you think of this reform?

Li Xiaojia: looking back, I will feel that everything is inevitable, but when I did it at that time, I was faced with a lot of difficulties and there were many voices of opposition, but they also had their reasons. Exchanges always have to strike a balance between protecting medium and small investors and innovation, but it is not so easy to tell what exactly is to protect investors.To protect investors to the extreme is not to let him do anything, so that he has nothing to lose, but this is absurd.It will not work if we stick to the rules and do not move forward in order to protect investors.

It is very hard for us to see an enterprise like BABA leave.For the exchange, it is not terrible to miss a company, but if we miss a whole trend of the times, it is unacceptable.Learning from the bitter experience, after repeated discussions and a little breakthrough, we finally completed the reform of the listing rules.

When it comes to biotech companies, they are too important to China. China is so big, the aging of the population is happening. If our life science research cannot be improved rapidly, life science and drug development will always rely on others, which may not work. For example, the business logic of overseas innovative drug companies is to develop innovative drugs that are effective against a widespread disease, and then sell them at high prices to make the company profitable. But the drugs we need may not be one or two, but a large number of drugs, the price can not be very expensive, so we hope that enough enterprises will invest in life science research. This requires sufficient returns for research, so as not to force our life scientists to end up commercializing in Western countries.

After clarifying this truth, we need to communicate to let everyone understand that unprofitable companies can also be listed and traded.For example, in innovative drug companies, it is impossible for them to have income before the drug is approved. After the acceleration of China's medical reform, we are also more transparent about the acceleration of clinical examination and approval, and the approval of new drugs is quite strict. So, can we judge the profit potential of the enterprise according to its position in the approval of new drugs? This is like saying that teenagers usually go to college at the age of 18, but if they don't go to college, they join the army. The latter is also a strict training. Although he can't give you a transcript of his schoolwork, he has experienced and become more mature.

At first, we had the attitude of giving it a try, but now Hong Kong has become the second largest biotechnology market in the world.

Q: did you have any expectations for the first batch of listed companies? What if the first batch of enterprises all fail?

Li Xiaojia: at that time, some people suggested that the first batch of queuing enterprises should be "guarded" to let the good ones go first, instead of making chicken feathers in the first batch.

But I don't think it's feasible, because I don't think I know which is better. Maybe some experts tell me which is good and which is bad, but are these expert opinions sure to be reliable? Their opinions may not be the same, and is there a conflict of interest behind it? I don't know either. If we think we know well and judge who goes first and who goes first, this is a signal to the market that it must be good for HKEx to let go first. As long as the market feels that the HKEx is in charge of this matter at first, people will stare at the HKEx's hand, then the matter will change. There have been such problems in other markets.

Finally, Hong Kong Traffic is done in a completely market-oriented and transparent way. We have explained the listing standards very clearly and objectively meet the standards. Whoever is willing to go first will go first, and if he succeeds later, he will succeed and fail if he fails. But if a visible hand controls the market behind its back and eventually the market becomes a chicken feather, then everyone's trust in the market will be lost.

We also took a lot of risk at that time. There may be investors who fail to invest two or three singles, which is something we can do nothing about.The Hong Kong market should be highly market-oriented. As a regulator, you can control fraud and disclosure, but don't decide who wins and who loses in the market.

Hong Kong's competitiveness:

To regard Hong Kong as a bridge is to underestimate Hong Kong.

Q: Hong Kong is a bridge between China and the world, and it is also an international financial center. What do you think of these two identities in Hong Kong?

Li Xiaojia: Hong Kong itself is a destination market, not just a bridge between departure and arrival. To regard Hong Kong as a bridge is to underestimate Hong Kong.

Hong Kong's stock market is already globally competitive, but an international stock market is not enough. A real international financial center also needs bond markets, money markets, gold markets, commodity markets, and data markets and virtual asset markets in the future. Relying on the huge economy of China, Hong Kong is duty-bound to develop these markets in the future. Although Hong Kong is a latecomer in these areas, with the help of technology, we may also innovate ways and find advantages of backwardness. Hong Kong has a lot to do in this respect.

Two key words in the Hong Kong market:

International rules + Chinese market

Q: working and living in Hong Kong for many years, what do you think is the greatest charm of the city of Hong Kong?

Li Xiaojia: Hong Kong has an identity that cannot be deprived:It is the largest Chinese market in the world that operates in full accordance with international rules.There are two keys: international rules and the Chinese market.

Hong Kong will always be a Chinese market and a market related to China. People come to Hong Kong because China is the second largest economy in the world, and this economy will only become stronger and bigger, there may be many challenges, there may be certain detours, or there may be short-term ups and downs, but no one can stand in the way of China's development. At the same time, Hong Kong is not China's local market, it operates in accordance with international rules, which distinguishes Hong Kong from cities such as Beijing and Shanghai.

If we recognize this core feature of Hong Kong, we must cherish the international rules, international atmosphere and international characteristics of the Hong Kong market.Hong Kong cannot be deprived of its Chinese characteristics, it exists in its genes, and its international characteristics are learned in history, which is commendable.

In this regard, I am very confident. Mainland regulators do not want to turn Hong Kong into another mainland Chinese market. There are already many markets in mainland China, there is no need for another one, but this one is the only one that is fully internationalized. It is very important to maintain a high degree of internationalization of Hong Kong. Therefore, at present, it is more important to maintain its international rules and characteristics of the international market. As long as global investors are interested in China, if they choose not to enter the mainland market directly, Hong Kong is their starting point and may also become a destination. Maintaining an international position is the basis for the long-term prosperity and stability of the Hong Kong market.

A message to young people in Hong Kong:

Work with people all over the world to create the future of Hong Kong

Q: standing at the moment, what do you want to say to the young people in Hong Kong?

Li Xiaojia: young people should get rid of the thinking of "zero-sum game" and do not think that people from the mainland and people from other countries will have fewer opportunities to compete with young people in Hong Kong.Openness and tolerance is one of the core spirits of Hong Kong.Only by bringing together talents from all directions can Hong Kong have innovation in the midst of full collision.

Hong Kong has no natural resources endowment. In the past, Hong Kong won in the rule of law, in various market mechanisms, and in the integration of Chinese and Western countries. Today, Hong Kong must continue to carry forward these advantages and, with an open and tolerant attitude, welcome opportunities, talents and resources from all over the world to create the future of Hong Kong and realize the value of our own life.

At the same time, young people in Hong Kong can also go to the world, go to the mainland and study in other countries, and broaden their horizons. Making the "cake" bigger together is a win-win situation, and it is also the only way for Hong Kong to prosper.