Monetary Authority Chief Executive Joseph Yam says now is the time to design a channel to link the Hong Kong and Mainland financial markets, making them work in the country's best interests.

In his latest Viewpoint column, published today on the authority's website, he said a good working relationship between the two financial systems will enable the country to benefit from the differences between them. He said their working relationship should be complementary, co-operative and interactive.

"One of the things that needs to be addressed in linking the two financial markets is that the restrictions on currency convertibility - particularly in the capital account, on the Mainland - and other limitations relating to prudential or financial-stability concerns, mean that the mobility of users and providers of financial services, and of capital and financial instruments, between the two jurisdictions is restricted," he said.

"The working relationship between the two financial systems, therefore, needs to focus on creating a channel between the two to restore that mobility through arrangements that, as Premier Wen has put it, have a high degree of controllability, and can be introduced pro-actively and gradually."

Greater liquidity

Supported by the necessary links between the financial infrastructures of the two systems, including the payment, settlement, clearing and custodian systems, the channel will pool the financial markets of the two jurisdictions, providing much greater liquidity and much more efficient price discovery, Mr Yam said.

Although designing a channel to link the systems will involve many policy issues, he said now is the time to do it.

"The Mainland faces a number of imperatives - to improve financial efficiency, achieve a better balance in its international payments, relieve the pressure on the renminbi to appreciate, earn greater returns for domestic savings, lower the savings rate, and achieve more balanced and sustainable growth.