In his late February speech unveiling Hong Kong’s Financial Budget 2024-25, financial secretary Paul Chan said the government will “press ahead with the development of an offshore Renminbi (Rmb) ecosystem” to promote the currency’s internationalisation, in the largest offshore Rmb liquidity pool at over Rmb1 trillion ($139.2 billion).
To achieve this, Hong Kong is working to facilitate Rmb cross-boundary investment and two-way fund flows between the Special Administrative Region (SAR) and mainland China. Encouraging financial institutions to provide more offshore Rmb products and risk management tools, as well as carrying our Rmb financing in Hong Kong are among some of the measures.
“We want to be the first destination people, who are out of China and hold Rmb, think of in terms of putting their Rmb or investment and risk-hedging management,” he said during a March 8 event called Redefining Hong Kong hosted by the South China Morning Post (SCMP).
He pointed out that despite a gradual growth in recent years, the global use of Rmb in trade settlement, investment and currency reserves remain low, accounted for some 3% of total. Meanwhile, mainland China’s trade with overseas jurisdictions alone accounted for around 15% of total volume, indicating the great growth potential of Rmb adoption.
Chan emphasised that through connect schemes with the mainland, Hong Kong will continue to attract both offshore and onshore Rmb to its capital pool, offering greater liquidity. The ideal is that this attracts more enterprises to Hong Kong, tapping into both international and onshore currencies on the mainland.
Andrew Fung, chief financial officer (CFO) at Henderson Land Development, agreed that, from a funding perspective, further development of an offshore Rmb market in Hong Kong would possibly be helpful in face of challenges from traditional equities and bond markets.
“We can’t rely too much on the two traditional financial markets, where firms are more passive when it comes to fluctuations,” he told FA. For those who have greater exposure on the mainland, like Henderson Land, utilising Rmb in onshore project capital injection means lower borrowing costs.
Low rates set by the People’s Bank of China (PBOC) have facilitated Rmb as an alternative funding source for firms to maintain growth before traditional capital markets come back, he explained. On the other hand, for banks holding Rmb in Hong Kong, lending to Chinese corporates in certain emerging sectors could also be an alternative source of using the money.
The interview took place on the sidelines of the SCMP event.
In another move to facilitate trading between Hong Kong and China, Tim Liu, chairman of Hong Kong's Securities and Futures Commission (SFC), has handed a petition to the National People's Congress in Beijing asking to lower the minimum asset requirement of the southbound leg of the Stock Connect to Rmb100,000 from Rmb500,000. Liu also wants to improve the registration process for Chinese companies looking to list in Hong Kong and introduce more derivatives products tied to the Rmb.
Chan also shared that the Hong Kong government is actively seeking investment from other regions, including the Middle East and Southeast Asia (SEA). He revealed that the government is currently in discussions with a Middle East delegation on a possible visit to the city later this year.
