LCQ2: Hong Kong as global offshore Renminbi business hub
1.6.2022

Following is a question by the Hon Carmen Kan and a reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (June 1): Question: The National 14th Five-Year Plan expressly supports Hong Kong in strengthening its functions as a global offshore Renminbi (RMB) business hub. In this connection, will the Government inform this Council: (1) of the short, medium and long term strategies for strengthening Hong Kong's functions as a global offshore RMB business hub, and whether it has formulated interim development goals (including goals relating to RMB trade settlement and payment, scale of RMB liquidity pool, scale of RMB financing, types and scale of RMB assets held by investors via Hong Kong's markets, as well as scope of investors); if so, of the details and the latest progress; if not, the reasons for that; (2) how it will effectively drive the various regulatory bodies and relevant government departments to actively engage in healthy interaction with the financial sector (including the banking, insurance, securities and asset management industries), so as to strike a balance between regulation and development of offshore RMB businesses, thereby facilitating the progress of RMB internationalisation; and (3) as there are views pointing out that Hong Kong can strengthen its functions as a global offshore RMB business hub only by continuously enhancing the mechanisms for mutual access between the financial markets of Hong Kong and the Mainland, of the mutual access and co-ordination mechanisms put in place in the past three years between Hong Kong's relevant government departments and regulatory bodies and the Mainland's authorities and regulatory bodies, and how such mechanisms will be further strengthened and enhanced? Reply: President, The 14th Five-Year Plan acknowledges the significant functions and positioning of Hong Kong in the overall development of the country, including enhancing its status as an international financial centre and supporting Hong Kong to strengthen its functions as a global offshore Renminbi (RMB) business hub. My reply to the three parts of the question raised by the Hon Carmen Kan is as follows: (1) and (3) Hong Kong has the world's largest offshore pool of RMB funds and RMB foreign exchange and interest rate derivatives market. We provide a diversified range of RMB products and services with a leading position in RMB settlement, financing and asset management. Hong Kong's status as the world's offshore RMB business hub is continuously consolidated and enhanced. Currently, the RMB deposits (including outstanding certificates of deposit) in Hong Kong exceed RMB800 billion, providing liquidity support to global offshore RMB transactions and financial activities. According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), more than 70 per cent of global offshore RMB payments are processed in Hong Kong. Over the past few years, a number of mutual market access schemes have been launched, including Bond Connect, Stock Connect, Cross Boundary Wealth Management Connect (WMC) and the mutual recognition of funds between the Mainland and Hong Kong. In the process of implementing and deepening the various mutual market access schemes, the Government and the regulators have maintained close communication with the Mainland authorities to expand the mutual market access programmes in a gradual manner. For example, WMC involves three different regulatory systems of the Mainland, Hong Kong and Macao and the relevant regulators of the three places collaborate closely to find policy and implementation space within their respective regulatory regimes and existing practices. The regulatory authorities in the three places have also entered into a Memorandum of Understanding to establish supervisory co-operation arrangements and the liaison mechanism under WMC. We have included pre-revenue/pre-profit biotechnology companies listed in Hong Kong and companies listed on the Mainland's STAR Market (Shanghai Stock Exchange's Sci-Tech Innovation Board) that fulfill certain criteria in the scope of eligible securities under Stock Connect from December 2020 and February 2021 respectively. Moreover, the Hong Kong Exchanges and Clearing Limited (HKEX) launched the MSCI China A50 Connect Index futures contract in October 2021, providing a useful risk management tool for offshore investors participating in the A-share market. In future, we will continue to maintain communication with the industry and relevant Mainland authorities and take forward the following measures: *The China Securities Regulatory Commission and the Securities and Futures Commission (SFC) announced last week their in-principle agreement to include eligible exchange-traded funds (ETFs) in Stock Connect. The HKEX, the Shanghai Stock Exchange, the Shenzhen Stock Exchange and the China Securities Depository and Clearing Corporation Limited also reached an agreement on the overall Stock Connect inclusion arrangements for ETFs at the end of last year. The parties are working closely on completing the technical preparations for launching relevant trading. *A working group, formed by the SFC, the HKEX and the Hong Kong Monetary Authority last year, has completed the feasibility study on allowing stocks traded via the Southbound Trading of Stock Connect to be denominated in RMB. The working group is proceeding with the necessary preparation and discussing with the regulatory authorities and relevant organisations in the Mainland. The Government will roll out supporting measures to increase the liquidity of RMB-denominated stocks alongside the launch of the initiative and is undertaking preparatory work on the necessary legislative amendments. *We will explore enhancements to Southbound Trading under Bond Connect, with a view to expanding Hong Kong's bond market, facilitating the issuance and trading of more diverse dim sum bonds and enriching the offshore RMB fixed income ecosystem. *Drawing lessons from the successful inaugural issuance of offshore RMB municipal government bonds by the Shenzhen Municipal People's Government last year, we will also encourage more Mainland issuers to make use of Hong Kong's platform to issue RMB bonds, including green bonds. *We will amend existing subsidiary legislation to facilitate Mandatory Provident Fund investment in bonds issued or unconditionally guaranteed by the Central People's Government, the People's Bank of China and the three Mainland policy banks. *In light of actual operational experience and market feedback, we will enhance the WMC in an incremental manner, such as improving sales arrangements, expanding product scope, allowing more participating financial institutions, etc. We will also further strengthen our investor education work. (2) The Government and the financial regulators have been striving to put in place a stringent and effective regulatory regime to ensure the orderly development of the banking, securities, insurance, asset management and other financial sectors. The Financial Services and the Treasury Bureau has been in close communication and co-operation with the various regulators. Among others, the Council of Financial Regulators, chaired by the Financial Secretary and comprising different financial regulators, closely monitors the functioning of the financial system, while facilitating the effective co-operation and co-ordination among members in order to enhance the efficiency and effectiveness of regulation and supervision as well as the promotion and development of the financial markets. We also maintain good communication with the trade to keep in view the latest market developments. Among others, we jointly held Hong Kong-Qianhai Financial Cooperation Seminar with the Authority of Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of Shenzhen Municipality in December last year to host in-depth discussion on the strategic direction of the future financial co-operation between Hong Kong and Qianhai. We also met with the private equity industry in March this year to explore the continuing development of the private equity ecosystem in Hong Kong and the promotion of development of the Guangdong-Hong Kong-Macao Greater Bay Area by leveraging private equity capital. Moreover, we plan to hold a seminar on strategic development with Chinese financial institutions in Hong Kong this month. All these initiatives will not only enhance the industry's understanding of the regulatory environment and development opportunities in Hong Kong, but also facilitate the smooth implementation of various financial policies, including the promotion of the internationalisation of RMB. Thank you, President.