Hong Kong has long talked up its future as a global financial hub, riding China's economic ascent. Its fate is therefore shaped by decisions taken by the rulers of the country's economy. In that respect Vice-Premier Li Keqiang said what the city's leaders and business community wanted to hear when he unveiled a raft of measures to boost the local economy - nearly half of them related to financial services and the offshore yuan market. In terms of gifts to the people of Hong Kong, they will yield only modest short-term benefits. In terms of the city's role in Beijing's ultra-cautious policy of gradually opening China's capital account and encouraging wider use of its currency, they are much more significant.
One new initiative is to allow non-financial mainland companies to issue yuan-denominated debt in Hong Kong, on a case-by-case basis in a tightly controlled market capped at 25 billion yuan (HK$31.1 billion). The remainder has been under consideration. And they are small steps typical of mainland economic policymakers. The Exchange Traded Fund linked to Hong Kong stocks, to allow mainlanders to enter the local stock market for the first time, is a slow-boat version of the so-called through-train scheme to allow them to invest directly in the market, finally scrapped early last year amid concerns about a massive outflow of capital. But it is expected to be popular and, if it is deemed to work satisfactorily, could be diversified and expanded gradually into the through-train.
The plan to allow Hong Kong holders of yuan to buy mainland securities will enable them to avoid currency risks but is unlikely to satisfy demand, given that a 20-billion-yuan limit is dwarfed by the city's yuan deposits. That said, these measures will help cement Hong Kong's status as an offshore yuan centre in the light of reports of Singapore's growing interest in that role.
This was the first official visit to Hong Kong by the man expected to succeed Wen Jiabao as premier. As an effort to lift his financial profile it has succeeded. But the measures he announced are part of a financial and economic development blueprint for the whole country. If there is good news for this city, it is to be a testing ground for opening up of the capital account and international use of the currency.
Beijing has announced these moves in the wake of market turmoil triggered by the euro zone debt crisis and a ratings downgrading of US debt. They come at the same time as a strengthening of the yuan exchange rate and speculation that Beijing may manage it more flexibly against a basket of other currencies by widening the trading band against the US dollar. They can only enhance Hong Kong's role as a major financial centre.