Eddie Yue: New and important frontiers of financial development
reached in 2017
Welcome remarks by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary
Authority, at the Hong Kong-London Financial Services Forum 2017, Hong Kong, 18 December
2017.
* * *
Opening
Richard, distinguished guests, ladies and gentlemen, good afternoon.
I would like to welcome you all to the Hong Kong-London Financial Services Forum 2017,
especially our guests travelling from London. This is already the seventh Forum since the
first Hong Kong-London RMB Forum convened back in 2012. The Forum has proved to be
an effective platform for the private sectors in the two places to collaborate and promote the
use of RMB in the international markets as well as to grasp the associated business
opportunities.
Last year, London and Hong Kong decided to broaden the scope of the Forum to cover not
only RMB business but also other new and important frontiers of financial development
including infrastructure financing, the Belt and Road (B&R) Initiative, green finance, as well
as Fintech. Looking back, it was a good move. As 2017 is drawing to a close, I think most
of you would agree that B&R and fintech are the two hottest buzzwords in the financial
services sector this year.
RMB Internationalisation
But that is not saying offshore RMB business has been all quiet in the past year. On the
contrary, 2017 witnesses important milestones in Mainland China's capital account
liberalisation. Since the start of the year, there have been signs of stabilisation in the
offshore RMB liquidity pool in Hong Kong, now hovering at around RMB 600 billion. On the
other hand, our RMB RTGS system continues to record a high volume of turnover of some
RMB 900 billion per day, indicating that a large amount of RMB financial intermediation
activities have been taking place in Hong Kong.
July this year, the HKMA and the People's Bank of China jointly launched the Bond
Connect. It provides an additional channel for international investors to gain access to the
vast bond market in Mainland China, using international common practice in securities
settlement and custody. This is made possible thanks to new infrastructure linkages
between HKMA's Central Moneymarkets Unit and relevant onshore institutions. So far, over
200 investors have successfully registered as Bond Connect investors, holding some
RMB80 billion Mainland bonds. Daily turnover averaged RMB2 billion per day. This is not
bad in four months' time, but we foresee considerable headroom to grow further. The
investment thesis is compelling - Mainland China's solid economic fundamentals, RMB
internationalisation, inclusion of RMB bonds in major indices, etc. And from an investor's
perspective, the nominal yield of around 4% on 10-year government credit is simply
attractive.
The Stock Connect schemes have been running smoothly and next year, A-share will be
included in the MSCI Emerging Markets Index, which is tracked by some US$1.6 trillion in
assets. This will be a big boost to Stock Connect trading. The RQFII investment quota for
Hong Kong has also been significantly increased to RMB500 billion July this year. In short,
Hong Kong offers unparalleled access to Mainland markets and will continue to be the centre
of action for market participants seeking to capitalise on the Mainland China story.
Another exciting development is the Guangdong-Hong Kong-Macao Bay Area. It is an
ambitious plan to build a cosmopolitan cluster covering Hong Kong, Macao, and nine other
coastal cities in the Pearl River Delta. With a combined GDP of some US$1.3 trillion, it will
be the fifth largest economy in Asia, just after South Korea. It will also be one of the
wealthiest regions in Mainland China. I am sure this Greater Bay Area will provide a bigger
stage for financial institutions to launch and expand their business. The planning is still at an
early stage and we expect more details will be available soon.
Belt & Road Initiative
On infrastructure financing, the high-level Belt & Road Forum for International Cooperation in
Beijing last May has added considerable momentum to infrastructure developments. Hong
Kong has been positioning itself as the infrastructure hub to facilitate the related financial
activities. A lot has been done through the Infrastructure Financing Facilitation Office, or
IFFO in short, set up under the HKMA in 2016. A key mission of IFFO is to build and work
with a cluster of stakeholders in the infrastructure financing and investment space. Closed
to 80 partners have joined the IFFO platform since its launch and today, I am pleased to
I believe City of London will
welcome the City of London as the newest partner to IFFO.
serve as the linkage to foster partnership between the financial institutions of London and
Hong Kong to leverage on the tremendous opportunities in infrastructure financing and
investment.
Being an investor itself, the HKMA is aware of the challenges when it comes to infrastructure
investment. I think there are currently two salient gaps on which IFFO is focusing its work.
First is the funding gap. According to an estimate, there would be a funding gap of over
US$5 trillion in the coming 15 years in infrastructure investment. There is no way the public
sector or multilateral development banks can shoulder this funding responsibility alone.
More private capital is needed. Three months ago, the HKMA signed an agreement in
London with the International Finance Corporation under the World Bank Group, committing
US$1 billion to the innovative Managed Co-Lending Portfolio Program, which is a debt
mobilisation platform for emerging markets. Meanwhile, we are working with some
likeminded institutional investors to identify suitable opportunities. The aim of all these initiatives
is to create a demonstration effect to encourage more private investment in infrastructure.
The second gap is what I would call a language gap. In considering infrastructure pipeline,
institutional investors talk more about the risks and how they can be mitigated, whereas
project developers may be relatively more opportunity-driven. To increase the chance that
project developers can attract private funding, they need to enhance their communication
with investors by understanding their risk concerns and speaking in their risk language. This
is how we can make projects more bankable. On this front, IFFO has developed a
reference term sheet for infrastructure investments in Emerging Markets together with key
institutional investors last March. To further facilitate the use of this common language, IFFO
has also rolled out a number of capacity building initiatives the past year for all partners.
Fintech
Apart from infrastructure financing, fintech counts as another most frequently discussed
topics in industry events and international conferences in the past year. But like
infrastructure financing, we are not just talking about it, we are also doing something about
it. HKMA announced September this year a series of measures to facilitate the financial
services industry to grasp the opportunities in fintech, covering financial infrastructure,
regulatory sandbox, research and talent development, etc. I will leave this to my colleague,
Shu-pui, to share more with you in the panel on fintech later this afternoon. But I wish to
highlight one point, and that is, fintech is borderless. It requires collaboration among
financial centres like Hong Kong and London. A fintech solution that works only in a
particular jurisdiction is of little value to clients and financial institutions that are often located
half-way across the globe. This is particularly pertinent to the Distributed Ledger Technology
platform for trade finance that we are building with the industry. This is why we have earlier
announced a collaborative initiative with Singapore in this area. And I am also very pleased to
note that HM Treasury and the HKMA have just started a dialogue to explore further
cooperation under this project.
Green Finance
If I am asked to predict what will be an emerging theme for the financial services sector in
2018, green finance looks like a safe bet. Green finance is growing rapidly and Mainland
China has become one of the major markets for green bonds. Hong Kong is also keen on
tapping into the green finance opportunities. The Hong Kong Government plans to issue a
green bond for the first time next year. There is much we can learn from and collaborate
with London, which has been a forerunner in this segment of the market. One of the burning
issues is the divergence in various green bonds standards and assessments currently in the
market. I hope today's Seminar could shed some light on this and also the way forward for
green finance development.
Conclusion
The future is not all rosy though. Challenges and uncertainties abound and this calls for
stronger cross-border collaboration. The success of this Forum in the past six years shows
that London and Hong Kong can be an all-weather friend. And I wish all of you a very fruitful
discussion today.
Thank you.