Hong Kong should develop itself as a mainland bond trading hub, think tank says
The city is a global leader in offshore yuan trading, but that could change amid new competition
Hong Kong will need to develop a bond connect programme with the mainland and develop more yuan investment products if it is to retain its role as the leading offshore renminbi centre, as new competition emerges from other markets, according to a government think tank.
“Hong Kong is losing out its first mover advantage as the first city worldwide to develop the offshore yuan business. Nowadays, London, Singapore, and many other cities are also developing the yuan business aggressively. Hong Kong is no longer unique as the only offshore yuan centre,” said Qin Xiao, a former banker and a member of the government appointed Financial Services Development Council (FSDC).
Another challenge for Hong Kong is that foreign banks will be able to invest directly in the mainland bond from February, cutting their need to invest in the offshore yuan market.
However Hong Kong could also capture business opportunities as China opens its capital account and as the internationalisation of the yuan progresses, Qin said. But the city would also need to make a change of the type of yuan products it offers.
Since 2003 the city has offered yuan deposit services for individuals, and from 2009 yuan trade services for companies. Qin said Hong Kong now would develop more bond products for central banks.
“Hong Kong traditionally has not been a powerhouse in the bond market. It is also traditionally not a place for the central banks to conduct major transactions . The city needs to do more to provide the investment services for the central banks and other major institutions, which will be big buyers of yuan bonds and other yuan assets in the following years,” Qin said.
