Carrie Lam sets Hong Kong up to enhance role as link between China and international financial markets in policy address

The government’s plans will further consolidate Hong Kong’s unique role in connecting international investors and mainland markets, SFC chief says
City’s financial regulators set up working group to study the feasibility of promoting the trading of yuan-denominated securities in Hong Kong

Carrie Lam policy address 2021

Enoch Yiu

Published: 6:33pm, 6 Oct 2021

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Carrie Lam Cheng Yuet-ngor, Hong Kong’s leader, on Wednesday outlined a number of measures aimed at further enhancing the city’s role as an international financial hub amid an ongoing integration with Beijing’s Greater Bay Area development plan.

The measures laid out by Lam, who was giving her last policy address as the city’s chief executive, included allowing mainland Chinese investors to trade Hong Kong stocks in the yuan and deepening collaboration between exchange operators in Hong Kong and Guangzhou for the introduction of carbon emissions futures contracts.

“The government’s plans to strengthen Hong Kong’s offshore yuan businesses and mutual market access arrangement, along with initiatives to develop Hong Kong into a green finance centre, will further consolidate Hong Kong’s unique role in connecting international investors and the mainland markets,” Tim Lui, chairman of the Securities and Futures Commission (SFC), said on Wednesday.

Carrie Lam gave her last policy address as the city’s chief executive on Wednesday. Photo: Felix Wong

The measures outlined by Lam are aimed at boosting Chinese efforts to further open up the mainland markets and the internationalisation of the yuan. Since Hong Kong already has an active stock market and a mature financial system accessed by international investors, the city is ideally placed to improve the links between China and world markets.

The city’s financial regulators, such as the SFC, said on Wednesday that they had set up a working group along with the Hong Kong Monetary Authority, the city’s de facto central bank, and exchange operator Hong Kong Exchanges and Clearing (HKEX) to study the feasibility of promoting the trading of yuan-denominated securities in Hong Kong.

The measures outlined on Wednesday are aimed at boosting the internationalisation of the yuan as well as Beijing’s efforts to further open up the mainland markets. Photo: AFP

Hong Kong’s current listing regime already allows for trading in dual Hong Kong dollar-denominated and yuan-denominated stocks in the city, but such stocks are not actively traded. Shenzhen Investment Holdings Bay Area Development, Hui Xian Reit, 42 exchange-traded funds and 81 debt securities, all of which are denominated in the yuan, are already traded in Hong Kong.

The measured aimed at boosting the use of the yuan in Hong Kong investments has been welcomed by stockbrokers and banks.

“In line with the central government’s policy to internationalise the yuan, it will be helpful for Hong Kong to develop more yuan-denominated products for trading,” said Robert Lee, chairman of the Hong Kong Securities Association.

HSBC, the biggest lender in Europe and Hong Kong, said the new measures would further strengthen Hong Kong’s role as an international yuan trading hub. “The further extension of a yuan product suite in Hong Kong will be well-received by both international and mainland investors and businesses,” said Luanne Lim, the interim CEO for Hong Kong at HSBC.

Mainland Chinese investors currently need to convert their yuan into Hong Kong dollars to trade Hong Kong stocks. The new study will look into helping these investors use the yuan directly to trade stocks in the city.

“What we need to do is educate investors and issuers. It will help to speed up the process, if the southbound stock connect can also invest in yuan share classes of Hong Kong listed stocks,” said King Au King-lun, executive director of the Financial Services Development Council, an industry body.

Nicolas Aguzin, the CEO of bourse operator HKEX. The commitment to Hong Kong’s position as an international financial centre and offshore yuan trading hub in Lam’s address has been welcomed by the company. Photo: Handout

The working group will also work with mainland Chinese authorities to explore the inclusion of yuan counters in southbound trading through the two Stock Connects that link Hong Kong with Shanghai and Shenzhen, the SFC said.

The commitment to Hong Kong’s position as an international financial centre and offshore yuan trading hub in Lam’s address on Wednesday was welcomed by HKEX. “In particular, their support for the expansion of HKEX’s connect programmes, the ongoing enhancement of our listing franchise, the growth of HKEX’s markets as a centre for yuan-denominated products and the development of Hong Kong as a regional green and sustainable finance hub, will continue to underpin the attractiveness of Hong Kong’s capital markets,” Nicolas Aguzin, the bourse operator’s CEO, said on Wednesday.

HKEX signed an agreement with Guangzhou Futures Exchange in August to develop products for both mainland and international investors. Lam said on Wednesday that a potential product for the two bourses could be carbon emissions futures contracts.

Among other measures announced on Wednesday was the development of digital platforms in Hong Kong and other Greater Bay Area cities, which could create new business opportunities for companies in the region. One of these would be a platform that will help banks access the credit risk ratings of small and medium-sized enterprises.

Lam also drew attention to listing reforms such as allowing special purpose acquisition companies or blank-cheque companies to go public in the city. HKEX is consulting the market until the end of this month on a listing regime for such companies.

The chief executive also indicated in her policy address that the city would consider offering tax incentives to encourage family offices to set up here. The Hong Kong government will also explore a sandbox with mainland authorities that will allow financial firms in Hong Kong, Macau and the mainland cities in the bay area to test cross-border fintech applications.

This article appeared in the South China Morning Post print edition as: Plan to promote city as yuan trading hub