The US Congress recently passed the "Holding Foreign Companies Accountable Act". As a result, a number of mainland enterprises listed on the New York Stock Exchange are expected to call it quits and move to Hong Kong for listing when the US president signs it into law. When that happens, the securities market in Hong Kong will have some new clients for sure.
Nevertheless, the SAR government and all sectors of Hong Kong society but especially the financial sector have to prepare for some difficult times in the near future. There are two likely "challenges" on the way. One is from the US when Joe Biden takes office as US president and continues with the existing national strategy of containing China's development by all means necessary but from somewhat different approaches and with adjustments here and there. As such, Hong Kong will remain a "front" or "battlefield" for the US against China. The other "challenge" is the development of Shanghai as an international financial center while the mainland pursues higher quality financial reform and opening-up as well as internationalization of the renminbi (RMB) in the next five years.
Of course these two "challenges" are complete opposites to Hong Kong, as the US will try to mutilate Hong Kong's competitive edge while Shanghai's rise as an international financial center will motivate Hong Kong to open its eyes and mind wider and aim higher. That said, the SAR government and especially the financial sector must take both seriously, however different the motives and objectives of their responses may be. Whatever Hong Kong does to fend off US meddling and sabotage will be aimed at reducing damage, while efforts should be made to be a part of Shanghai's rise as an international financial center and profit from it rather than being a sore loser. Shanghai will not replace Hong Kong in the foreseeable future.
It is imperative that the SAR government guide Hong Kong residents to decide on whether to allow the integration of the Hong Kong dollar and RMB. Otherwise, Hong Kong's financial service development will reach a bottleneck because of the limited size of its economy and its inability to make the Hong Kong dollar an international reserve currency.
In recent months, I have repeatedly emphasized that the SAR government should come up with an alternative to the Hong Kong dollar-linked exchange rate system (the "peg") in case Washington forces Hong Kong out of the US dollar clearing system. The SAR government must also convince the public of the need for the Hong Kong dollar to align with the RMB instead of the greenback sooner rather than later.
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The 6th Shanghai Financial Forum, held on December 12, was focused on the development of Shanghai as an international financial center under the dual circulation development mode. According to a proposed international financial center development plan presented at the forum, Shanghai will aim at matching New York City and London as a top global financial center. When explaining the said proposal, Tu Guangshao, Adjunct Professor at Shanghai Jiao Tong University and Executive Director of the Board of Directors of Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, indicated that Shanghai has reached an important juncture in cultivating its international financial center status. Starting next year China will enter a new stage of development, while Shanghai will have some new missions to accomplish - beginning with pushing for domestic financial system improvement and structural optimization, accompanied by establishing Shanghai as an international center of RMB assets sooner rather than later, so as to boost the internationalization of the RMB. Last but not the least is to play a greater role in raising the efficiency of domestic and international financial resources allocation as well as their benign interaction.
At the moment, the RMB is not comparable with the Hong Kong dollar in terms of its convertibility. However, given that China is the second-largest economy, No 1 in commodity trade and second only to the US in services trade in the world, the RMB will no doubt become an international reserve currency when it becomes fully convertible.
At the 6th Shanghai Financial Forum, Li Yang, Chairman of the National Institution for Finance and Development, criticized some individuals for promoting the internationalization of the RMB through offshore RMB trade. He made it clear that the RMB internationalization should be based on increasing global demand for Chinese commodities. He stressed that other countries want RMB to buy Chinese products (without cost of exchange), and offshore RMB trade exists because it is not available everywhere. Nobody wants RMB just for the sake of having it, he added. The RMB is internationalized only when it becomes as sought-after as the US dollar. "Today we should not discuss this matter just for the sake of it, or discuss finance just for the sake of finance, because the internationalization of RMB depends on growing demands for Chinese products from around the world."
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In Hong Kong, many people still believe that expanding the offshore RMB market will elevate the city's status as an international financial center. It's time they wake up from that illusion. Not long ago, the 5th plenary session of the 19th Central Committee of the Communist Party of China passed a proposed 14th Five-Year Plan (2021-25) and long-range development objective until the year 2035. Unlike the previous five-year development plan, the next one does not contain the words "support Hong Kong in strengthening its status as an offshore RMB trade hub". If anyone failed to understand the significance of omitting those words from the 14th Five-Year Development Plan, they should now forget about that idea and realize the internationalization of the RMB will be driven by growing RMB clearing in foreign trade from now on and it will be carried out by financial institutions based in free trade pilot zones on the mainland, particularly the one in Shanghai.
It is imperative that the SAR government guide Hong Kong residents to decide on whether to allow the integration of the Hong Kong dollar and RMB. Otherwise, Hong Kong's financial service development will reach a bottleneck because of the limited size of its economy and its inability to make the Hong Kong dollar an international reserve currency.
Right now, getting the COVID-19 pandemic under control remains the top priority for Hong Kong. Another one would be addressing some of its system flaws.
The author is a senior research fellow of China Everbright Holdings.
The views do not necessarily reflect those of China Daily.
