The Chinese mainland contributes greatly to Hong Kong's financial services industry thanks to the opening up of its capital market and the yuan's internationalization, and it will further support the Special Administrative Region's (SAR) financial services industry with its One Belt and One Road (B&R) initiative, as well as the launch of the Shenzhen-Hong Kong Stock Connect program, experts noted.
"With the support of the central government, Hong Kong has become the world's largest offshore yuan business hub, with the world's largest offshore pool of yuan funds," a spokesman for Hong Kong's Financial Services and the Treasury Bureau (FSTB) told the Global Times on Thursday.
Yuan deposits and certificates of deposit in Hong Kong totaled 751.3 billion yuan ($112.47 billion) in July. In the first half of 2016, the daily turnover in Hong Kong's RMB Real Time Gross Settlement system amounted to 869 billion yuan, the spokesman said.
According to the statistics from the Society for Worldwide Interbank Financial Telecommunication, around 70 percent of global yuan payments were transacted in Hong Kong in the first half of 2016.
The establishment of the offshore yuan market cements Hong Kong's position as a leading international financial center in Asia, and it can be said that the yuan business is the Hong Kong financial services industry's core advantage, E Zhihuan, chief economist with Bank of China in Hong Kong, told the Global Times on Thursday.
In addition, mainland visitors purchased a record HK$30 billion ($3.87 billion) worth of insurance in Hong Kong in the first half of 2016, up 116 percent year-on-year, according to a report released by the Hong Kong Office of the Commissioner of Insurance on Wednesday. The total accounts for 36.9 percent of the new office premiums for individuals during the period.
Rise of a global financial center
Demand for financing and other financial services is always a crucial issue in Hong Kong. The Chinese mainland market is obviously the primary source of demand for Hong Kong's financial services industry, Liao Qun, chief economist with China CITIC Bank in Hong Kong, told the Global Times.
Groups of mainland companies, many of which have since become global enterprises, started listing in Hong Kong with the emergence of the H-share market in 1993, an Hong Kong Exchanges and Clearing Ltd (HKEx) spokesman told the Global Times on Thursday via e-mail. Those listings helped Hong Kong's financial services industry prosper, and were key to the SAR's development into an international financial center, the spokesman said.
As a platform to attract international capital to China, Hong Kong strove to develop its H-share market in the 1990s and helped hundreds of mainland companies launch initial public offerings, winning itself a position as an international financial center, E said.
A total of 919 companies from the mainland with a market capitalization of $2.1 trillion were listed in Hong Kong as of July 2015, accounting for 61.6 percent of Hong Kong's total market capitalization, data from the Hong Kong Trade Development Council showed.
One advantage that Hong Kong has as a gateway to the mainland is that it can serve as an intermediary between the foreign and mainland capital markets, according to HKEx. The Shanghai-Hong Kong Stock Connect is a good example.
"The connectivity with the mainland stock market offered by the scheme provides investors with more investment choices, and brings a lot more opportunities to financial intermediaries in Hong Kong, including the provision of services ranging from investment management and market research to custodian and brokerage services to Hong Kong and international investors going into the A-share market," the FSTB spokesman said.
Reinvigorating H-shares
The China Securities Regulatory Commission (CSRC) on August 16 approved the Shenzhen-Hong Kong Stock Connect, a program linking the stock exchanges in both cities.
The trading quota cap for the new link was eliminated, leaving only the daily quota limit, which is the same as the Shanghai program's daily quota, according to the CSRC. For the Shenzhen-Hong Kong Stock Connect program, the regulator instituted a 13 billion yuan "northbound" quota for investments from Hong Kong to Shenzhen and a 10.5 billion yuan "southbound" quota for investments from Shenzhen to Hong Kong.
HKEx said the program will be ready to launch in late November.
"The establishment of the Shenzhen-Hong Kong Stock Connect will enable international investors to invest more widely in the mainland's markets through Hong Kong's market, thereby reinforcing Hong Kong's position as an international financial center and a premier offshore yuan business hub," the FSTB spokesman said.
The A-share market is much bigger than the H-share market, which means Hong Kong's capital market will get a big boost once southbound and international capital are guided into the H-share market, Liao noted.
The average daily transaction volume in the H-share market was around 66 billion yuan over the first eight months of 2016, according to Wind Information Co, a financial data dealer. On the A-share market, it was around 530 billion yuan.
The upcoming connectivity will provide new jobs to Hong Kong's securities companies and banks, E said, noting that recruitment needs in the financial services industry may grow by 5 percent to 10 percent.
In addition, Hong Kong's position as an international financial center could be enhanced, because the market can roll out products and services matched with the connection to improve the transactions of small- and medium-sized company stocks, raise the depth and breadth of the market and continue to connect China with foreign markets, she said.
Driven by China's "go global" strategy and the B&R initiative, many domestic companies will do mergers and acquisitions overseas, for which they can raise funds in the Hong Kong market, Liao said. For example, under the "go global" strategy, around 60 percent of mainland enterprises' outbound investments went through Hong Kong.
China's non-financial outbound direct investment rose 61.8 percent year-on-year to $102.75 billion in the first half of 2016, according to data from the Ministry of Commerce in August.
Liao suggested that Hong Kong should also develop its innovation industry by taking advantage of the China Manufacturing 2025 and Internet Plus initiatives to make its economy more robust.
