As global policymakers turbocharge collaboration and establish new pathways to renewed growth, Hong Kong’s officials are working to establish a new, yuan-denominated trade finance program and expand the Bond Connect.
This move reflects the city’s status as the world’s largest offshore renminbi center and its ambitions to develop closer ties with the capital market of the Chinese mainland.
Riding high on a package of initiatives announced by People’s Bank of China Governor Pan Gongsheng at the 18th Asian Financial Forum in Hong Kong on Monday, Eddie Yue Wai-man, chief executive of the Hong Kong Monetary Authority, said on the sidelines of the two-day event, “Hong Kong’s capital market, with bond and stock markets both included, is embracing a huge catalyst for change.”
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Hong Kong — the largest offshore renminbi hub, processing nearly 75 percent of the offshore renminbi settlement worldwide — has an important role to play in the yuan’s push to become a global currency.
The proposed trade finance program, using 100 billion yuan ($13.64 billion) in currency swaps for periods of one, three and six months, is slated to be rolled out by February, according to Yue.
Under the new facility, banks can exchange their Hong Kong dollars for yuan funding with the HKMA at interest rates linked to onshore rates, which are generally lower and more stable. “Chinese enterprises are not the only beneficiaries of the relatively cheaper yuan funds. Companies from Southeast Asia and the Middle East using the yuan for international trade settlement are also well positioned to reap the benefits,” Yue said.
More changes are swiftly being made to the southbound trading of the Bond Connect program, whose settlement deadline will be extended by one hour to 4:30 pm. The scope of eligible investment products, currently limited to yuan and Hong Kong dollar-denominated bonds, will also be expanded to include US dollar- and euro-denominated ones. Both measures are effective from Tuesday, Yue said.
The scope of eligible mainland investors will be expanded to non-bank institutions such as brokerage firms and insurers in due course, he added.
Offshore investors in the northbound trading of the Bond Connect program have also received good news. They will be allowed to use onshore yuan bonds as collateral for yuan funds in Hong Kong from Feb 10, Yue said.
“Foreign investors will thus be granted enhanced renminbi liquidity to activate yuan bonds at hand, essentially making onshore bonds more appealing to international capital,” he said.
“How to make the best of Hong Kong’s long-cherished role as a world-renowned financial center to facilitate the overall development of the country’s capital markets stands as the main theme of the big story unfolding,” said Hong Kong’s Secretary for Financial Services and the Treasury Christopher Hui Ching-yu.
“What matters is the city’s impeccable strength in professional financial services playing its due role, adding a compelling footnote to its own growth episode while making meaningful contributions to the whole nation,” Hui said.
Hui added that he expects more initiatives on the horizon, including the offshore yuan Treasury bond futures. The Hong Kong Special Administrative Region government will communicate further with mainland regulators over the launch timing and pattern, he said.
At this critical juncture, policymakers across the globe have also joined the fray in seeking their own paths to navigate challenges and power the next growth engine.
One “common challenge” is trade protectionism, which goes against the common interests of both Asia and Europe, Olli Rehn, governor of the Bank of Finland, told a panel session at the forum.
As geopolitics and free trade tensions cast a shadow over global markets, it can be agreed that “globalization benefits everybody”, Yue said at the panel.
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Besides external headwinds, “it should be made clear that the European economy is still in the recovery phase following the COVID-19 pandemic. And the recovery from Brexit is still ongoing,” said Philip Lane, chief economist and member of the executive board at the European Central Bank. This calls for bold, smart moves from policymakers.
Bayardavaa Bayarsaikhan, director general of the Monetary Policy Department at the Bank of Mongolia, and Rogelio V Quevedo, commissioner of the Securities and Exchange Commission of the Philippines, both expressed optimism over the power of digital transformation to stimulate renewed growth.
In 2023, remittances from Filipino migrant workers reached a record $40 billion, positioning the Philippines as the fourth-largest recipient of remittances globally, with further growth projected.
Financial technology will not only generate revenue for banks and companies, but will also provide better access to financial services for the country’s population, said Quevedo.
With strong capital formation and accelerated government spending, the Philippine economy expanded 5.8 percent in the first three quarters of 2024 and remains among the fastest-growing economies in Asia, according to Quevedo. The adoption, efficiency and penetration of digital payments are expected to make a meaningful impact on the country, he said.
