Hong Kong beefing up status as financial hub

Business leaders, lawmakers and academics in Hong Kong have thrown their weight behind the city's bid to seize opportunities arising from offshore yuan financing, Belt and Road fundraising, financial technology applications and the "finance-plus-technology" development model to strengthen its status as a world financial hub.

The key strategies were laid out in a resolution adopted at the third plenary session of the 20th Central Committee of the Communist Party of China in July.

The resolution pledged to comprehensively deepen reforms to advance Chinese modernization, while highlighting the need to elevate the Hong Kong Special Administrative Region's position as an international financial, shipping and trade center.

Agnes Chan Sui-kuen, chairwoman of the Hong Kong General Chamber of Commerce, the oldest and largest business organization representing multinational companies in the city, said the central government has a vision for Hong Kong amid an evolving global political and economic environment underpinned by geopolitical conflicts, trade protectionism and supply chain disruptions.

Chan noted that Hong Kong, as an international city and vital hub, connects and integrates with the world, including not only traditional Western markets such as the United States, but also emerging markets like member states of the Association of Southeast Asian Nations and countries in the Middle East.

She said the SAR must leverage its niche strengths in key areas to consolidate itself as a global financial center, adding that Hong Kong "stands as the world's largest offshore renminbi hub, processing about 75 percent of all transactions, and will play a crucial role in facilitating the renminbi's internationalization".

Chan also said that in addition to traditional renminbi financing activities, Hong Kong should be leading other financial centers by offering innovative financial services and supporting green and sustainable finance.

"We should consider implementing pilot policies in the Guangdong-Hong Kong-Macao Greater Bay Area to facilitate capital flow and explore cross-border collaboration between the Chinese mainland and Hong Kong in emerging sectors such as green financing, carbon markets and digital currencies."

Chan Chun-ying, who represents the finance constituency on the Legislative Council, said Hong Kong must build up its links and trade with countries involved in the Belt and Road Initiative, allowing the city to retain its place as a regional hub for asset management, green finance and risk management.

In his view, the SAR's banking industry can give full play to the advantages of internal and external connections and actively support the financial service needs of governments and related enterprises in the countries involved in the BRI.

"Hong Kong can use the resources, financing channels and financial infrastructure experience of being an international financial center to provide diversified financing solutions and support for local large-scale infrastructure and specific projects, thus facilitating the funding needs of Belt and Road projects by promoting financial circulation," said the Legislative Council member, who is also a deputy to the National People's Congress, China's top legislature.

To bolster its competitiveness, Hong Kong must expedite financial tech development by enforcing more policies and tax measures to encourage financial institutions to achieve all-around digitalization, Chan said, adding that the SAR government should nurture homegrown fintech talent through training courses and professional recognition.

The lawmaker added that a new cross-border regulatory model in the finance industry should be adopted. "Financial regulators in Hong Kong and other cities in the Greater Bay Area should strive to develop a financial cooperation model with fully integrated rules and systems, such as establishing a Bay Area financial regulatory coordination agency, and coordinating and promoting in an orderly manner effective cross-border regulatory cooperation in legal, tax rate, monetary and financial systems."

He said that Hong Kong and other Greater Bay Area cities can develop a strategic partnership cooperation model of "industry-plus-finance" in developing Hong Kong as a global financial pivot. "Hong Kong financial institutions and industrial enterprises in other Bay Area cities can set up strategic corporate alliances to join in the construction and reorganization of the global industrial chain, thereby consolidating Hong Kong's position as an international financial center."

His views were backed by fintech adviser Oriol Caudevilla, who said that Hong Kong "will play a vital part as a financial hub, while Shenzhen will maximize its technological prowess".

He noted that Hong Kong has been pushing for a friendlier regulatory framework for digital assets, positioning the city as a virtual assets center, and stepping up efforts to make the SAR one of the world's most important hubs for Web3, which is envisioned as a new, blockchain-based web.

"Hong Kong is upgrading its 'super-connector' role in various fields, including the digital yuan and ESG(environmental, social and governance) reporting," Caudevilla said.

Key role highlighted

Billy Mak Sui-choi, an associate professor at Hong Kong Baptist University's Department of Accountancy, Economics and Finance, said Hong Kong's importance as a world financial center is manifested in three aspects — renminbi internationalization, corporate fundraising, and asset and wealth management.

"While Hong Kong, as the world's largest offshore yuan financing center, can promote the national currency in going global and keep the exchange rate of the onshore renminbi stable, it can also prevent financial risks in overseas financial markets from being transmitted to the Chinese mainland," Mak said.

Hong Kong, as an asset and wealth management center, offers a convenient offshore channel for wealthy mainland families and individuals to park their capital, while the SAR's stock and bond markets act as fundraising platforms for the mainland's private enterprises, particularly those that need foreign exchange for business expansion.

"Hong Kong's importance as an asset and wealth management center lies in the fact that, if overseas investors want to diversify their investment assets away from US dollar-denominated assets, the SAR is the place to provide yuan-denominated financial assets," Mak said.

However, Hong Kong faces some challenges in reviving its equity market, as the appetite of US and European capital for mainland stocks is low, and the participation of such capital in mainland enterprises' initial public offerings in Hong Kong is low at this point, thus affecting the local IPO market, Mak said.

Mak and Chan, the Legislative Council finance representative, both said that Hong Kong should pursue product diversification by offering more yuan-denominated financial products, as well as seeking market diversification by promoting the city's capital market to investors from countries in the Middle East, as well as member states of ASEAN and countries involved in the BRI.