Hong Kong’s revamped IPO rules and dual-currency trading counter will drive yuan internationalisation, tech innovation, HKEX says

Hong Kong’s market ‘will facilitate the yuan’s internationalisation and technology innovation’, HKEX’s chief China economist says
More than 30 countries currently use the yuan for trade settlements after China recently reached agreements with Brazil and Saudi Arabia to make trade payments in its currency

HKEX

Zhang Shidongin ShanghaiandDaniel Renin Shanghai

Published: 7:30pm, 17 May 2023

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Hong Kong will become a hub that drives technological innovation and the yuan’s internationalisation by attracting offshore Chinese currency to support listings of hi-tech companies, according to bourse operator Hong Kong Exchanges and Clearing (HKEX).

Two overhauls of its listing rules in 2018 and this year by HKEX, which make it easier for technology firms to go public in the city, and the impending launch of a dual-currency trading counter that will allow individual stocks to convert freely between the Hong Kong dollar and the yuan are complementary measures that will achieve these goals, Ba Shusong, the chief China economist at HKEX, told a forum hosted by the bourse operator on Wednesday.

Hong Kong’s stock market, the third-largest in Asia with a market capitalisation of US$5.5 trillion, will meet rising investment demand created by the offshore yuan, after China recently reached agreements with countries such as Brazil and Saudi Arabia to make trade payments in the yuan, Ba said. This, in turn, will provide capital for innovation taking place in industries ranging from new energy to biotechnology in China and globally, he added.

“Compared with Shanghai, Hong Kong’s market is unique with a large base of institutional and foreign investors,” Ba said. “That will facilitate the yuan’s internationalisation and technology innovation.”

Hong Kong is the world’s biggest market for the offshore yuan, processing about 75 per cent of settlements involving the currency globally. Photo: Shutterstock

Hong Kong stands out as an offshore hub for the yuan and Chinese listed companies at a time when ties have soured between Beijing and Washington. China now hopes to challenge the US dollar’s status as the world’s major reserve currency after convincing more countries to settle trade payments in its own currency. More than 30 countries currently use the yuan for trade settlements.

Hong Kong is the world’s biggest market for the offshore yuan, processing about 75 per cent of settlements involving the currency globally. The city had 1 trillion yuan (US$143 billion) in offshore yuan deposits as of the end of 2022, according to central bank data, versus 718.3 billion yuan in 2020.

The offshore yuan weakened to 7.0150 against the US dollar on Wednesday, the first time it has breached the level of 7 against the US currency since December 2 last year, after key China economic data trailed estimates in April and a recovery in its housing market lost steam.

At least 20 companies, including Anta Sports Products, Kuaishou Technology and HKEX, have applied to trade their stocks through the dual-currency counter, which Hong Kong’s financial regulator aims to start by the end of June.

Tracy Ji, the founding managing partner of Meridian Capital China, told a panel discussion during the forum that top Chinese start-ups that engage in quantum science and develop graphics processing units (GPUs) are advised to float initial public offering (IPO) shares in Hong Kong to speed up the commercialisation of their technologies.

Ba Shusong, the chief China economist at HKEX. Photo: Jelly Tse

“For these companies, it is better to list shares [in Hong Kong] as soon as possible,” she said. “It is important for them to make IPO plans early so that the [fundraising] process will not be delayed.”

HKEX’s latest revamp of its listing rules in March allows companies with no revenue to apply for listings in the city, as long as they can meet a market value threshold of at least HK$10 billion (US$1.3 billion). The bar is even lower – HK$6 billion – if they have at least HK$250 million in sales in the financial year before their IPO. HKEX’s previous requirements – among the most stringent in the world – asked for at least HK$80 million in combined profits in the three years preceding a new listing.

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