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Hong Kong Monetary Authority (HKMA)
Opinion
SCMP Editorial
SCMP Editorial

Editorial | Latest financial steps with mainland China allay fears for Hong Kong’s future

  • The city will remain a crucial stepping stone for Chinese companies and investors to tap overseas funds, and provide the key gateway for global capital

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Far from being marginalised halfway through the 50 years of “one country, two systems”, Hong Kong is steadily growing in importance to the nation. Photo: K. Y. Cheng
SCMP Editorial
As Hong Kong celebrates the 25th anniversary of its return to China, a whirlwind of financial arrangements has been launched or announced. There should be no doubt about Beijing’s commitment to maintaining and expanding the city’s role as a global financial hub. Against the perennial naysayers and doom-mongers, Hong Kong will remain for a very long time a crucial stepping stone for Chinese companies and investors to tap overseas funds, and provide the key gateway for global capital to get into the mainland. The central government will make sure of it. That is the unmistakable timing of the new financial initiatives.
The new ETF Connect has been launched to enable global investors to tap 83 exchange-traded funds (ETFs) on the mainland – 53 in Shanghai, 30 in Shenzhen – through accounts held in Hong Kong. It is expected to attract up to 200 billion yuan (US$29.8 billion) of investments in less than two years.
And to further enhance the robustness of the city’s financial and banking system, the People’s Bank of China and the Hong Kong Monetary Authority – the respective central banks in both places – will make an existing currency swap facility permanent and expand it by 60 per cent to 800 billion yuan. At a time of rising geopolitical tensions and global financial volatility, the swap facility will provide long-term liquidity support to the local market, help stabilise market changes and the city’s development of its offshore yuan market.

While China has had dozens of bilateral yuan swaps with various central banks around the world, the Hong Kong deal is the first time the People’s Bank of China has made such a swap permanent. It will further give Hong Kong the leadership role in the nation’s push to internationalise the yuan.

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The cross-border Connect programme, first started in 2014, has grown in size, geography and variety, expanding into the Bond Connect in 2017, the Shanghai-London Stock Connect in 2019, as well as various wealth management products last year, and now ETFs.

In a few months, there will also be interest rate swaps, a kind of derivative allowing investors to switch from one stream of future interest payments from one bond product to another. The swap Connect for global investors aims to hedge the risks of 3.7 trillion yuan of offshore bonds held by them, and provide greater quantity and liquidity in the offshore trades.

Far from being marginalised halfway through the 50 years of “one country, two systems”, Hong Kong is steadily growing in importance to the nation. This is both by design and by our inherent advantages. With the latest programmes, doubts about Hong Kong’s viability as an irreplaceable financial hub should be laid to rest.

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