Mainland bank stocks rose about 2 per cent in Hong Kong yesterday on reports that Shenzhen was pushing for a pilot project to allow city lenders to lend yuan directly to border city firms - and vice versa.
This comes just days after the city of Wenzhou was cleared to launch a financial reform pilot programme.
Mainland banks were the top three market movers yesterday, with China Construction Bank, Industrial and Commercial Bank of China and Bank of China the most actively traded stocks on the main board.
They comfortably outpaced the Hang Seng Index, which closed 0.93 per cent higher. The H-share financials index gained 1.66 per cent.
Mainland media, including portals sina.com and netease.com, cited documents from the Shenzhen government setting out financial reforms, including making full use of cheap yuan funding in Hong Kong to help develop Shenzhen's Qianhai port city, and to encourage more companies and financial institutions in Qianhai to issue yuan bonds in Hong Kong.
The China Securities Journal, however, said the policies were still under discussion and the final documents were yet to be approved.
Louis Tse Ming-kwong, a director of VC CEF Brokerage, said that if Shenzhen and Hong Kong were to form a partnership, it could help the latter compete with Shanghai as an international financial hub.
'The pilot scheme will have profound repercussions in many aspects,' Tse said. 'In three to five years, the financial systems of Shenzhen and Hong Kong may as well be integrated.'
The arrangement could also speed up the internationalisation of the yuan by helping Hong Kong tap into the pool of yuan in Shenzhen for issuance of so-called dim sum bonds, he said.
It would also speed up investment in mainland stock and bond markets under the renminbi qualified foreign institutional investor scheme, he said.
However, it is not yet clear whether the Hong Kong dollar would be increasingly marginalised, as the pace of yuan internationalisation picks up.
The integration of Hong Kong with the Pearl River Delta has been a subject of long debate.
Supporters of the concept say that if the two regions form a regional financial hub, it can compete against Shanghai and the Yangzte River Delta region in the long run.
Opponents, however, express concern about Hong Kong's economic and legal autonomy.
The renowned mainland economist Wu Jinglian said recently that if Hong Kong wished to keep its leading role as an international financial centre, it would need to play a more active position in spreading its influence throughout the Pearl River Delta.
The delta region had lagged behind the Yangtze delta in recent years, largely because the latter could draw on the support of Shanghai, said Wu.
If Hong Kong could reach out through the mainland's entire southeast and southwestern regions, it would have significant implications for them all.
However, some bankers said further integration between the two regions could also increase the risks of Hong Kong losing its unique advantages, such as a relatively independent legal framework.