HONG KONG — Hong Kong Exchanges & Clearing Ltd. (HKEx) both coexists and competes with China, a situation that won’t change as China opens up its capital account and links between the two countries deepen, a senior HKEx executive said.

HKEx, which is looking to grow its business in China while acting as a conduit for both international and onshore investors, is well aware of the competition in commodities from other Chinese domestic exchanges, head of market development Romnesh Lamba said.

"I like to call it ‘coopetition’—we cooperate, but today or in the future we will compete with China, particularly with those who operate on both markets (onshore and offshore)," Lamba said in an interview.

"They’re well ahead of us with non-metals and they have good experience in metals, so it’s a question of trying to work with China to create a win-win situation, where it doesn’t feel we’re cannibalizing its business," he said. "Hopefully, if we do it right, LME members shouldn’t feel that they’re cannibalizing their businesses, either. But we have to find a way to create this harmonious coexistence."

However, while China is HKEx’s biggest growth driver, it is not its puppet master, Lamba said. "We always talk about our business in the context of China, but it’s very important to distinguish that China is not telling us what to do—we’re far from a puppet for China."

China poses a contradiction for HKEx, which completed its acquisition of the London Metal Exchange this week (amm.com, Dec.  6). "On the one hand, we’re saying we have access to China and we hope we can work with it to facilitate some of the things we think are good for China and the LME, but there’s no guarantee," Lamba said. "On the other hand, we’re saying, don’t think that China told us to do this and therefore we’ll do it."

HKEx’s promise of potential growth in China was a key reason why the exchange, which had no previous experience in base metals, won its bid for the LME. This growth potential includes the possibility of new contracts, increased trading volumes, additional clients and the establishment of warehousing facilities in China.

As a special administrative region of China, Hong Kong operates under the principle of "one country, two systems."

Hong Kong has specific rules around connected-party transactions that require the Chinese government to be at arm’s length. "We created a very rigid framework that made life difficult for China, but convinced it that it had to agree to those rules in order for foreign investors to buy its company shares. We still have that in place, although we’ve relaxed some parts of it since," Lamba said.

"We have to work with China, use our relationship in order to get more out of them, and we’re perfectly positioned to do that as their trusted partner, but that’s very different from saying, ‘we should do this deal because it helps China policy,’ " he added.