LCQ11: Hong Kong's financial risk management
15.6.2022

Following is a question by the Hon Nelson Lam and a written reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (June 15): Question: Regarding Hong Kong's financial risk management, will the Government inform this Council: (1) as it has been reported that in view of the current geopolitical changes and the impacts of such changes on the global economy and financial market, the Hong Kong Monetary Authority (HKMA) has carried out risk management work such as drawing up contingency plans for extreme circumstances, whether HKMA has assessed the changes in the value of Hong Kong's foreign exchange reserves in case of extreme circumstances, and whether it has conducted stress tests, sensitivity analyses, scenario analyses, etc. so as to assess the value at risk of the foreign exchange reserves and to quantify the risks; if so, of the details; if not, the reasons for that; and (2) as it has been reported that conflicts between China and the United States (US) will trigger a wave of China Concept Stock (CCS) companies delisting from the US collectively, with quite a number of such CCS companies planning to switch to listing in Hong Kong, whether the Government has collaborated with the Mainland's financial authorities in drawing up relevant risk management contingency plans and emergency response plans, with a view to jointly implementing measures for stabilising the financial market when such wave of delisting takes place; if so, of the details; if not, the reasons for that? Reply: President, Financial security is crucial to national security and development. Maintaining financial stability and steady development of the financial sector is vitally related to Hong Kong's long term prosperity and stability. With a robust and mature regulatory regime as well as a stringent institutional framework for monitoring systemic risks, Hong Kong is a long-tested international financial centre that has overcome many adversities and gained the confidence of the market. In facing the challenges arising from COVID-19 pandemic and the recent global market turmoil, Hong Kong's financial systems have demonstrated resilience and stability. President Xi Jinping has repeatedly pointed out that "the world is undergoing profound changes unseen in a century". In light of the complex global environment and rapid changes in financial markets, we will uphold a bottom-line mentality to stay vigilant and prepare for the worst case scenario at all times. To fulfill our commitment in safeguarding financial safety of our country, the Government will co-ordinate the efforts of financial regulators with a view to maintaining financial stability in Hong Kong and ensuring smooth operation of the financial and money markets as well as related systems. We will continue to enhance our regulatory regime to cope with external risks. In consultation with the Hong Kong Monetary Authority (HKMA), the Securities and Futures Commission (SFC) and the Hong Kong Exchanges and Clearing Limited (HKEX), my reply to the two parts of the question is as follows: (1) Amid the various uncertainties faced by the global financial market, including proliferation of the epidemic, monetary and interest rate policies in different places, geopolitical risks, etc., capital flows and their velocity are difficult to predict. The Government has all along been working closely with the financial regulators to enhance regulation of financial markets, as well as put in place contingency plans for coping with various risks. Specific measures include stepping up monitoring and improving cross-agency coordination mechanism; identifying and tackling systemic risks at an early stage; conducting stress tests on relevant sectors to boost their responsive abilities; strengthening security and maintenance of key financial infrastructures; formulating and regularly updating contingency plans to respond to different crisis situations, etc. As far as foreign currency reserves are concerned, Hong Kong has abundant foreign currency reserves of over US$460 billion as at end of May 2022 to support the effective operation of the Linked Exchange Rate System, representing about 1.7 times of our monetary base. The HKMA has over the years drawn up contingency plans under different scenarios. However, as sensitive information is involved in the analysis, it would not be appropriate to disclose such details. (2) Regarding China Concept Stocks, the Financial Stability and Development Committee under the State Council stated after its meeting in March that the regulatory bodies had maintained close communication on the regulation over China Concept Stocks. The discussion was in good progress and the two sides were working on a concrete co-operation plan. In the circular issued on May 31, the State Council further indicated that it would improve the fundraising efficiency of capital markets and regularise initial public offering as well as re-financing in a scientific and reasonable manner. It would also support Mainland enterprises to seek listing in Hong Kong and promote overseas listing of eligible online platform companies in accordance with laws and regulations, etc. Since HKEX introduced the series of new listing regulations in 2018, China Concept Stocks issuers have made relevant arrangements according to their respective circumstances. As of May 2022, 22 China Concept Stocks issuers have returned to Hong Kong through secondary listing or dual primary listing, the total market capitalisation of which accounted for over 70 per cent of all China Concept Stocks listed in the United States. For China Concept Stocks issuers who would like to list in Hong Kong, a series of enhancements to the listing regime has already been implemented by HKEX, including allowing Greater China companies without weighted voting rights structures which are not from innovative sectors to seek secondary listing in Hong Kong, and offering greater flexibility for issuers seeking dual primary listing. The measures are conducive to attracting quality China Concept Stocks to return while balancing the risks involved and investor protection. Hong Kong has a highly open and internationalised market, which provides an efficient and transparent trading platform with an internationally aligned regulatory regime. To monitor securities market, SFC assesses systemic risks through a series of risk management measures, which include closely monitoring trading and clearing operations, short selling activities, over-the-counter derivatives trading, financial soundness of intermediaries, etc., so as to maintain orderly and smooth operation of the financial markets amid volatility. In addition, with closer mutual access between financial markets of the Mainland and Hong Kong in recent years, the Government, the financial regulators and relevant Mainland institutions have also been in close communication on regulatory matters. In the future, we will further strengthen co-operation of the two places and work together to maintain financial stability, with a view to safeguarding financial safety of our country.