Hong Kong's Financial Hub Boosted by Interconnectivity with Mainland in Lee's Plan
Hong Kong, which has just reclaimed its position among the top three international financial centers globally, will strive to consolidate its hard-earned achievements through the implementation of a comprehensive plan.
On October 16th, Hong Kong Special Administrative Region Chief Executive John Lee delivered his third policy address to the Legislative Council. The third part of the report mentioned that the SAR government will continuously reform to strengthen and enhance Hong Kong's position as an international financial center, outlining a detailed action plan. First Financial Daily reporters noted that the entire action plan frequently mentioned "interconnectivity" with the mainland.
The plan first targets RMB business, proposing to continuously optimize the "interconnectivity" mechanism, strengthen Hong Kong's position as the world's largest offshore RMB business hub, and support the internationalization of the RMB. The main measures include: continuously improving infrastructure, upgrading the Central Moneymarkets Unit (CMU) to facilitate international investors to settle various assets in different currencies; enhancing the fixed income market infrastructure, such as establishing a central clearing system for RMB-denominated repurchase transactions, making RMB-denominated government bonds issued in Hong Kong more popular as collateral in the offshore market; and continuing to study and optimize the "Cross-Border Wealth Management Connect".
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"We are also committed to increasing offshore RMB liquidity, making good use of the currency swap agreements between the SAR and the country, allowing the Hong Kong Monetary Authority (HKMA) to better support the economic and trade development of Hong Kong; enhancing the overnight cross-border service capabilities of Hong Kong's RMB real-time payment and settlement system, facilitating the global settlement of the offshore RMB market; and exploring the provision of more diversified offshore RMB financing channels," said John Lee.
To achieve the above goals, Hong Kong will offer more investment products denominated in RMB. For example, the Hong Kong Stock Exchange will encourage more listed companies to increase RMB stock trading counters and expand the scope of RMB stocks; expand the issuance of RMB bonds, support more green and sustainable offshore RMB bonds issued in Hong Kong; strive for the Ministry of Finance to increase the scale and frequency of government bond issuance in Hong Kong, and introduce offshore government bond futures in Hong Kong as soon as possible; and discuss with the mainland to moderately expand the "Bond Connect" (Southbound Trading), including expanding the scope of eligible domestic investors.
In addition, as the place with the highest concentration of insurance companies and the highest insurance density in Asia, the Hong Kong Insurance Authority will study enriching the asset allocation of insurance companies through capital requirements for infrastructure investment next year to help diversify risks and drive infrastructure investment in the Northern Metropolis and other areas. It will also continue to strive for large mainland state-owned enterprises and other domestic and foreign enterprises to establish captive insurance companies in Hong Kong.
John Lee mentioned in the policy address that Hong Kong will further strengthen its position as an international asset and wealth management center. Hong Kong has 2,700 single-family offices and is expected to become the world's largest cross-border wealth management center by 2028. "We will fully promote more global funds to be managed in Hong Kong, including promoting private equity funds to explore new sales channels through the Hong Kong Stock Exchange, and 'Belt and Road' sovereign fund cooperation, optimizing the 'New Capital Investor Entry Scheme', and expanding the scope of tax relief," said John Lee.
Hong Kong also plans to further optimize the securities market, including implementing the listing of exchange-traded funds (ETFs) that track Hong Kong stock indices in the Middle East to attract local capital to allocate Hong Kong stocks; making good use of the "interconnectivity" advantage with the mainland market to attract international companies to list in Hong Kong, while also promoting large mainland companies to list in Hong Kong.
In response to market demand, Hong Kong will also introduce measures to facilitate cross-border transactions and payments for residents. According to John Lee's report, the Hong Kong Monetary Authority and the People's Bank of China are promoting the interconnection of the two regions' fast payment systems to facilitate real-time small cross-border payments for residents of both places, and will implement the issuance of bank cards in the mainland by branches of Hong Kong-registered banks.
A highlight of the plan is to establish an international gold trading market. John Lee mentioned that Hong Kong's gold import and export volume ranks among the top in the world. The increasingly complex geopolitical situation highlights Hong Kong's safety and stable environment advantages, which are conducive to building an international gold trading center and driving the development of related industrial chains.To this end, the Hong Kong Special Administrative Region government will promote the construction of international-grade gold storage facilities, expand users and investors to store and deliver physical gold in Hong Kong, drive derivative financial services such as collateral and borrowing, and create new growth points for the financial industry. The Financial Services and the Treasury Bureau (FSTB) of the Special Administrative Region government will establish a task force to carry out the establishment of an international gold trading center, including strengthening the trading mechanism and regulatory framework, promoting the application of cutting-edge financial technology, and discussing with the mainland the inclusion of gold products in the "interconnection".
As a leading sustainable financial center in Asia, Hong Kong will also enhance the green finance ecosystem. The Hong Kong Monetary Authority will launch a "Sustainable Finance Action Plan", and the FSTB will also introduce a roadmap for the comprehensive adoption of International Financial Reporting Standards for Sustainability (ISSB Standards) within this year, with the goal of making Hong Kong one of the first jurisdictions to align local standards with ISSB Standards.
Last month, the British think tank Z/Yen Group and the China (Shenzhen) Comprehensive Development Research Institute jointly released the latest International Financial Center Index report, and Hong Kong returned to the third place globally. This is after Hong Kong was squeezed out of the top three globally by Singapore in 2022, and finally overtook its rival. At that time, the chairman of the Hong Kong Financial Development Council, Li Luren, said, "Hong Kong is a super connection hub between mainland China and the global market. With our deep foundation, Hong Kong will continue to attract talent and investment from around the world." Li Jiacheng mentioned this again in this policy report: "With joint efforts, the position of Hong Kong as an international financial center has risen by one place, regaining the world's third place, and shattering various 'decline theories'."
According to the above ranking, Hong Kong's scores in "business environment", "human capital", "infrastructure", and "reputation and comprehensive" aspects of competitiveness are all among the top, and the rankings in the industry fields of "investment management", "insurance industry", "banking", "professional services", etc. have also risen significantly, among which the ranking in "investment management" has soared to the first place globally. In addition, Hong Kong's financial technology ranking has also risen by five places to ninth.