Hong Kong Monetary Authority Chief Executive Eddie Yue Wai-man is on Straight Talk this week.

Eddie Yue talks about how Hong Kong is becoming a green finance hub in Asia and how our financial industry is taking advantage of tokenization to attract global investors.

Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Eddie Yue:

Chan: Good evening! I'm Eugene Chan and welcome to Straight Talk. Our guest this evening is Eddie Yue, chief executive of the Hong Kong Monetary Authority. Yue has been with the HKMA since it was established in 1993. He has been instrumental in numerous major policy initiatives and helped the HKMA to navigate through two significant financial crises. He has also overseen the implementation of the linked exchange rate system, promoted cross border financial market access and advanced the development of green finance. Welcome, Eddie!

Yue: Thank you, Eugene, for inviting me here.

Chan: Eddie, being the chief executive of the HKMA you play a pivotal role in our city's financial landscape, as I said to you earlier, this is why we are asking you this pointed question “Does Hong Kong offer enough value to the international investors?” But before we go to that maybe you let the viewers know how Hong Kong fares as an international finance center (IFC) in general and what is our international ranking that we've been talking about and how it has been happening in the last few years?

Yue: Well, Hong Kong has been doing very well, all along as an international financial center and we do offer tremendous value to global investors. The last few years was a bit challenging for Hong Kong, but all through this period, Hong Kong's financial system remained extremely robust and resilient. And the financial sector has developed still very vibrantly. And some people have been talking about, hey, Hong Kong has been through quite a bit and has there been capital flowing out? Is Hong Kong status as an IFC affected? But if you look at the facts, the reality is that if you look at the deposits, if capital is really flowing out, deposits and asset under management in Hong Kong should be going down right? But if you look at the deposits in the last five years, between 2019 and last year, every year total deposits has been growing, and cumulatively total deposits in Hong Kong has grown by 21 percent. It's the same story in asset management. Between 2018 and 2022, the asset under management in Hong Kong grew by some 27 percent. And mind you 60 percent of the assets being managed in Hong Kong is from overseas investors, and they're not leaving. So, we see this trend going on. I think it's important to understand the facts. And Hong Kong remains the largest international banking center in Asia. We are the largest asset management center in Asia, largest in private banking and also in hedge fund numbers. And we remain very vibrant in the capital markets. Our stock market is one of the largest, not only in Asia but in the world and our bond market, in fact, many people miss that. Hong Kong is actually Asia's largest international bond issuance center, accounting for more than one-third of the bond issuance in Asia. And of course the other important trend coming up globally is the rise of RMB, as international currency and Hong Kong benefit a lot from that. We are the largest RMB offshore center, accounting for some 70 percent of all offshore RMB payments in the world. So, I think we're really well-positioned to continuing our very strong status as an international financial center, but we need to work more to create opportunities, to create new initiatives, so that … you know everybody's moving on, everybody's really progressing, so we need to create new opportunities so as to make sure that we will continue to strengthen this hard-earned status of Hong Kong.

Chan: Right, Eddie. I mean, it's very encouraging when you tell us all those good figures. However, I'm sure the viewers and many of our friends will feel that, in general, the Hong Kong economy isn't doing very well. We have a lot of money in the bank, but people aren't spending the money. And also I've heard from other professionals that there are a lot fewer IPOs in Hong Kong as compared to say Singapore, even back in the States. Why is it happening when we are ranking so high in everything while on the other side we're not feeling it?

Yue: I think one thing is that we are opening up a bit later than the others after COVID. We actually really just opened up in early 2023. And recovery takes time, as you can see from all other economies around the world. So, I think it takes a bit of time for Hong Kong's market to fully recover, especially in the retail area, or in the restaurant area, plus as you're aware, the pattern of tourist spending has been changing, and we have to adapt to it. And the number of tourist arrivals is still not coming back to the peak. So, we need to wait a bit until all our transport infrastructure is there. But in the area of finance, it's actually progressing very well. There's not been any impediment because of our relatively late opening up. So, I think in finance, we've been progressing quite fast, including the many improvement measures that you see in improving the market connectivity between the Chinese mainland, using Hong Kong, and the world.

Chan: That's something we're going to talk about later in the show. I mean, the viewers have often talked about Singapore. I mean there have been talks of people leaving Hong Kong, moving their head office, say to Singapore, in the financial industry. I mean, we know that the financial industry accounts for over 20 odd percent of GDP but it employs eight percent of our population. How have you seen that happen since the last few years, have things improved since? And what is the outlook?

Yue: Well, in fact, I guess perception against the facts. The perception is that during COVID, because we have relatively stricter COVID measure, people and firms were leaving. But if you look at the firms: they’re all here. The Asian headquarters remain here are all the regional CEOs of major global financial institutions are here. And if you can look around the place where I work, Two IFC, the new firms moving in are actually US and European financial firms. So, I think there's actually no firms just really retreating from Hong Kong but rather many are expanding here. But, of course, in terms of individuals, they probably … there might be certain people, especially during 2022 when Hong Kong was still closed, whereas the others are open. They might have relocated temporarily to other places, like Singapore, Dubai, London or their hometowns. Many of them have actually moved back. Talents follow opportunities, wherever there are opportunities, they will just come. Not only that, we're getting the talents who have temporarily relocated coming back, we're actually seeing a lot more new talents coming in, taking advantage of the new opportunities that we're creating for Hong Kong.

Chan: I mean, I'm sure the viewers and I would like to know more of Hong Kong's competitive advantage. How would the HKMA maintain this niche that we have because the whole world is getting very competitive after COVID basically the whole world has been rebooted or restarted again? Any strategies you will try to put in the system to make sure we maintain there and actually where we are ranking right now by the way?

Yue: Well, rankings. Well, you have different rankings. If you look at the size of the market, definitely we're just behind London and New York. But there are all kinds of different rankings around the world, but it's something that we take reference from but we don't really just focus on. In terms of how we are going to develop Hong Kong I think there are two aspects that are important. One is that you have to make the best use of your unique advantage or unique selling point. The unique advantage of the Hong Kong’s ecosystem is that we are the only or the dominant gateway linking China and the world. We are part of China. At the same time, we are part of the global financial system and this is very unique, no other city, no other financial center will be able to have this characteristic and that's why we've been developing the various connect schemes. We've been trying to make sure that for RMB to internationalize, a lot of that will take place in Hong Kong. But the second aspect is equally important in that we are a global financial center. Of course, we will offer mainland-related opportunities, but we also need to be at the forefront on any global trends that are emerging. And these global trends in the last few years and the next few years will be mainly two. One is digitalization that takes many forms whether you're talking about blockchain, AI or other things. Two is green finance, which is a very imminent need for the earth. So, Hong Kong has been moving very fast in the last few years in these fields. And I can confidently say that we are squarely at the forefront of these global trends. And that makes us global as well.

Chan: I'd like to ask you a direct question. I mean, Hong Kong has been known for our robust regulatory framework, and I know you have been trying to maintain a balance between sort of a conducive business environment compared to putting regulations to safeguard the financial system. But we have been known that we are not as flexible, say compared to Singapore where they are trying to get all the deals done. What will you say to our viewers?

Yue: I think there's always a balance between development and regulation. And having regulation doesn't mean that you will have to be very strict or very restrictive on development. We actually do both, same as Singapore. And for the regulation it is important that you have to be on par and aligned with international, global regulatory standards. That’s what Hong Kong is, and that's what other financial centers have been doing. That gives you the credibility that your regulatory environment is professional, we have to stick with that. But within this regulatory environment, there's also got to be flexibility so that you can exercise in order that development will be proceeding as you want. Of course, development is not just about adjusting your regulatory approach, it is more about creating new business, creating new platforms, you know, raising the connectivity and these are done by our market development department, which is a bit separate from our regulatory department. I think there are perceptions that other places may be more facilitative. But if you really again, just like the numbers that I quote, if you drill down to the facts, I think Hong Kong has been very accommodating and facilitative in our market development.

Chan: Right. Thank you. Let's take a break now but viewers stay tuned. We will be right back.

Chan: Thank you for staying with us on Straight Talk. Eddie Yue, the chief executive of HKMA is with us, talking about Hong Kong’s status as an international financial center, and whether we offer enough value to international investors. So, Eddie, I am sure the viewers would have picked up the fact that HKMA is doing everything, you have to, to make sure it is conducive to the business environment, you are fully aware of the competition. One area that we all also talk about a lot is the ongoing tensions between our motherland, China, and the US, and it has a lot of global implication. And I am sure that the financial sector has been affected. So, can you tell us what sort of challenges we are facing as a result? And what step the HKMA is doing to making sure we are least affected by it?

Yue: Well, in fact it is not just Hong Kong, it is everybody, every major financial center will be affected by the tensions between the world’s two largest economies, China and the US. And if they collaborate, there is a lot of value that can be generated for the benefit of the whole world. But if they are in conflict, it affects everybody. But I have to say that there may be more impact on trade, especially on the strategic areas, like technology or the high-tech area. But in finance, it has been very global. Finance is about liquidity, is about financial connectivity across markets. And you cannot really fragment different markets because there won’t be any liquidity. So, it is extremely hard to see finance being deglobalized. And I don’t see that, I don’t see the FX market, the bond market, being fragmented, just like what some people might be fearing. But we all have to be prepared because it's a very uncertain world. So, there are two or three things that you will need to focus on and think about. One is to keep your own house in order and keep buffers, because with geopolitics, it is not just China-US relationship, it is the elections around the world …

Chan: Yes.

Yue: … that is bothering the markets. So, you don't know where volatility will come from and how big that will be. Every economy has to make sure that they maintain the right buffers. For example in Hong Kong, we've got $420 billion as foreign reserve. Our banks are extremely well-capitalized and very liquid, way above international requirements. So, whatever shock wave that might come our way, we will be able to address them. Keeping the buffer, maintaining your own surveillance system, keeping your regulatory system robust and strong – that is the basic requirement for stability. But you also need to create more opportunities, as I mentioned earlier, so that financial institutions around the world will be interested to come here because for financial institutions, it is really about making money.

Chan: Right.

Yue: It is really about finding opportunities to get returns for their investors or their shareholders. So, that is important. The third thing that is important is to diversity; that is what everybody has been doing. You know, make more friends. So, apart from the traditional markets or investors that you have connections with, broaden your scope, go to the Middle East, go to ASEAN, go to other places, where they similarly will have the need to diversify and think about the Asian market, the mainland market, or the Hong Kong market.

Chan: Right. Eddie, I mean it is very encouraging so far listening to you. However, we also hear about, say in the US, they have “ABC”, “Anything But China” fund or investments, for example. So, I mean it may not affect the finance world, as you said. But how can we maintain our attractiveness and sort of ensure our continued competitiveness for Hong Kong?

Yue: Well, maybe for certain, as I mentioned, for certain strategic sectors, there may be more restrictions for investors to invest into China or the other way around. For certain investors, for example, the publicly fund investment funds, they may be more restrained. But the big chunk of capital in the US or in Europe, they come from private capital. And for private capital, there is basically no restrictions. And I won’t see any at all because finance, as I said, is actually … the basic value in finance is that capital can be freely flowing. So, what we need to do is to make sure that you will continue to be interested in the Asian market, in the Chinese market, and you want to give them enough messages, so that they understand where their economy stands, they understand where the policies are going. And for our platform in Hong Kong, we have to make sure that they have every facilitation to go into areas that they want. That is why we keep improving the Bond Connect and the Stock Connect, so that if the US or European investors are interested in accessing Chinese capital markets, they can do it through Hong Kong easily, conveniently, and cheaply. So, I think that is what we really need to strengthen.

Chan: So, Hong Kong, as a gateway for international businesses to access China hasn’t been impacted?

Yue: No, it has not been impacted. If you look at the flow numbers, what we call Northbound Bond Connect, foreign investors investing through Hong Kong into China, has always been inflowed, despite what the rhetoric about China-US relationship is. Stock Connect, the inflow has stopped for a while last year because of the worries about the economy. But since the beginning of this year, foreign investors’ inflow into Chinese equities market through Hong Kong has been quite strong and continuing.  And we are right … we are actually part of the GBA.

Chan: Right. I think you mentioned earlier we have three connections and three facilitations and all that. How is that going to make international investors find this place more attractive? Is it going to do that?

Yue: Well, for our three connections three facilitations measures announced in January, we are aiming at focusing on two things. One is to further improve the connectivity between mainland and global investors, and which is where some of the measures, like allowing global investors holding of bonds to be used as collateral, expanding the scope of wealth management connect, so that there could be more flows from GBA coming into Hong Kong, buy into the international products manufactured by the global asset managers. So, that connectivity creates business for financial institutions to really sort of make use of these opportunities to get returns for their shareholders. But we also have three facilitations. The reason is that there is increasing mobility between Hong Kong and the Greater Bay Area. People retire there, people spend money there. Likewise, many tourists come here to Hong Kong to enjoy themselves. So, the facilitation is to make sure that, hey, if I come across the border to spend, do I have enough convenient payment system? And that's why we are extending the e-CNY wallet into Hong Kong, so that for Hong Kong people, it is very easy, you just use your Hong Kong number, and you punch a few buttons, and then you get the e-CNY wallet. And that's why we also allow more convenient remittance of money for Hong Kong people to remit their money into GBA area to buy properties, where some of them retire. So, there is a lot of these facilitative measures that we have also been doing.

Chan: Right, yeah. And you also recently announced a collaboration with the Banque de France.

Yue: Right.

Chan: That will make HKMA the first non-European participant in the Tesco Central Bank Eurosystem. So, what is the importance of this?

Yue: Right.

Chan: And how is it going to help more investors focus on Hong Kong?

Yue: Well, that is actually very important because … for two reasons. One is that we are embarking on a very, very advanced progressive emergent area in global finance, which is tokenization. It is something that is very new, not many people understand it. But Hong Kong has set up a, what we call, Project Ensemble, and the Sandbox will be launched very shortly to try to create an experiment on the tokenization ecosystem in Hong Kong. We are one of the first in the world to do that. The other one of the first is actually Banque de France, representing the Eurosystem. So, we are actually the two most progressive central banks doing that. And by linking up, we can think about cross-border tokenization, tokenized asset settlement, which has to be one of the first. So, this progressiveness projects a very sort of forward-looking image of Hong Kong in the minds of global investors. So, when they think about Hong Kong now, it is not really just coming to Hong Kong to see what China opportunities there are, they actually want to come to Hong Kong to see what have you been doing in financial technology? You are at the most forefront part of the development, so we want to see what you are doing. That is actually important in placing Hong Kong's brand in global finance.

Chan: That is even more encouraging when they … listening to that. And one area that you mentioned in the first part is green finance.

Yue: Right.

Chan: We are talking about this sustainable finance. I mean what role does Hong Kong play? And will the international investors come to Hong Kong because of that as well?

Yue: Well, of course, because Hong Kong is already a green finance hub in Asia. And thanks to the government’s effort because some 5-6 years ago, they started issuing the government green bond. Currently it is already one of the largest green bond programs by any government in the world. And that helps create the whole green finance, green bond ecosystem in Hong Kong. And we are seeing the green bond market expanding quite rapidly in the last few years. And we are not serving just the green needs of Hong Kong, we are mainly serving the transition needs of mainland China, where they will have the need for lots of capital to finance their green transition when they are aiming at 30/60: 30 peak and 60 neutrality. And the amount that they will need is in the trillions, and they won't be able to finance that solely domestically, they need global capital. And Hong Kong will be the place to do that. Again, we are taking advantage of our very unique position as the platform that links up China and the world. And the green capital could come through Hong Kong, which follows the international standards and channel into China for the transition.

Chan: Right. Thank you, Eddie, for your insights. While there are challenges, this is reassuring that we know tonight that the HKMA is focusing on keeping Hong Kong competitive and attractive to international investors. I like to quote from one of your speeches last year, “We cannot be just China's financial center, we need to be global.”

Have a good evening and see you next week!