Image source @ Visual China
On January 19, Hong Kong Stock Exchange CEO Ou Guansheng published an article entitled "Embracing the Great Opportunities Brought by China's Financial Development", in which he said that China's rapid economic growth (which is expected to become the world's largest economy in the next 10-15 years) and major reforms in the financial sector are the main driving forces for China's financial development, and Hong Kong, as an international financial center, will usher in major opportunities in this great change.
The Champions League predicts that Chinese mainland stock and bond markets will exceed $100 trillion in 10 years, the size of today's U.S. financial markets. At the same time, the investor base in China's capital market is also changing, and domestic and foreign investors will become more and more mature. He believes that the internationalization of the renminbi may be the strongest catalyst for change.
"Hong Kong's international market mechanism can provide a perfect testing ground for financial product innovation and RMB internationalization." In the view of the Champions League, Hong Kong is a bridge connecting the mainland and the international market, with unique advantages and can play a unique role in China's financial development. Because Hong Kong is both the first choice for international investors to invest in China and the first choice for Chinese capital to invest overseas, in addition, Hong Kong is also a major financing center for new economy companies, providing financing support for the transformation of China and the world economy.
We firmly believe that China's financial development has arrived and hong Kong's role today is more important than ever.
It is reported that this is the first article published by the Champions League in 2022. In May 2021, The Champions League succeeded Li Xiaojia as the new CEO of the Hong Kong Stock Exchange, becoming the first non-Chinese CHIEF Executive Officer of the Hong Kong Stock Exchange. In less than a year at his helm, the HKEX has launched a series of innovative and reform measures, including a major reform of the SPAC listing mechanism, which was officially implemented on January 1, 2022. As a result, the Hong Kong Stock Exchange has become another capital market that has introduced the SPAC listing mechanism after the capital markets of the United States and Singapore.
The following is the original text of the blog released by the Champions League, which was compiled and edited by the Titanium Media App:
I joined HKEX last May and I was excited to join a company that could reshape the global financial market landscape. Over the past holiday season, I have calmly rethought these ideas and become increasingly convinced that Hong Kong can not only play an important role in building a vibrant international financial market, but also in promoting social prosperity.
Globally, many visions of changing the world have been put into action in the wake of the pandemic: the "Rebuild a Better Future" initiative in the United States, the "European Green Agreement" being implemented by the European Union, and the "carbon neutral transformation" on a global scale. At the same time, various scientific and technological innovations are also changing our daily lives at an unprecedented rate, and through them, I see not only the buds of the world economic recovery, but also some more profound changes.
Although the road to global economic recovery is far from smooth, the COVID-19 pandemic still haunts us, and the world situation remains complex, I still believe that the various market participants will become more interconnected.
The rapid growth of China's economy and major reforms in the financial sector are the main driving forces for China's financial development.
This will be the big trend of the future. As a major international financial centre, Hong Kong has a huge role to play in promoting economic development, enhancing connectivity, accelerating cross-border capital flows and innovation, thereby driving a dramatic change that will profoundly reshape global markets and create opportunities for all of us.
This great change is the great development of China's finance, and when I write this blog, this rare great change is happening. Looking ahead to the next decade, I believe that the breadth and depth of Chinese mainland capital markets will continue to grow rapidly, Chinese mainland stock and bond markets will exceed $100 trillion in a decade.
China's rapid economic growth (poised to become the world's largest economy in the next 10-15 years) and major reforms in the financial sector are the main drivers of this upheaval. As the economy continues to develop, more and more Chinese households will begin to "move" part of their savings (the total size may be as high as US$50 trillion) to the capital market to invest in financial products, and deepening reform will promote the further opening up of the mainland capital market and the acceleration of the rmb internationalization process, thereby accelerating cross-border capital flows through Hong Kong and the Chinese market.
We only need simple calculations to easily draw this conclusion. Consider the explosive growth of China's capital market over the past two years: the total market capitalization of mainland bonds and stock markets surged from $18.6 trillion to $30.7 trillion between 2018 and 2020. Although it is impossible to make a simple linear prediction of the past growth rate, even if we assume a conservative growth rate, we believe that the size of the Chinese mainland market will exceed $100 trillion in the next decade, which is equivalent to increasing to the size of today's US financial markets in a decade!
China's financial development has accelerated cross-border capital flows
The trend driving China's financial development mainly comes from the asset reallocation of domestic household wealth into the stock and bond markets, the continuous inflow of international capital, and the continuous growth of domestic institutional investors.
The scale of assets available for investment by mainland households is staggering. According to McKinsey & Company's forecast, mainland assets will increase from 205 trillion yuan (US$32 trillion) in 2020 to 328 trillion yuan (US$52 trillion) in 2025. As the asset base grows, we should be able to see more capital flowing from savings and real estate investments to capital markets and businesses.
In fact, with the participation of more and more Chinese and international investors, we have seen cross-border capital flows accelerating – the Shanghai-Shenzhen-Hong Kong Stock Connect scheme, the increase in the proportion of A-shares in international indices and the emergence of new products are stimulating and meeting the needs of global investors for diversified asset allocation.
China's financial development has brought about four major changes
So, what happens next? Just as the Big Bang of 14 billion years ago began a series of cosmic creation processes, China's financial development will have an equally significant impact on global financial markets.
In many ways, this process has already begun, and as China has pursued financial reforms in recent years, the focus of global financial markets has begun to shift eastward, especially to China.
First of all, the proportion of financing in the global market of China's stock market is rising, according to EY's statistics, china's stock market (including Hong Kong and mainland) raised a total of US$60.3 billion in the first half of 2021, an increase of 95% year-on-year, accounting for 27.2% of the total financing in the global market in the same period.
In an environment that encourages innovation and entrepreneurship, China's new economy is developing at a high speed, and the demand for financing in the future is very strong. According to the Hurun Research Institute, there will be 74 new unicorn companies in China in 2021, bringing the total to 301.
This high-speed growth is not only reflected in the stock market, but also in China's bond market: by the end of 2020, the size of China's bond market has reached $18.6 trillion, becoming the world's second largest bond market, quadrupling in size in just eight years. It is expected that a series of bond market reforms implemented in the past two years will further promote the rapid growth of China's bond market.
In addition, the investor base in China's capital market is also changing. With the further opening up of the Chinese market and the acceleration of the flow and integration of domestic and foreign capital, domestic and foreign investors investing in the Chinese market will become more and more mature.
A variety of connectivity infrastructures provide strong support for this convergence. We are committed to continuously improving Hong Kong's connectivity plans with the Mainland, for example, the recent opening of the Southbound Bond Connect and the recent announcement of the upcoming inclusion of ETFs in Shanghai-Shenzhen-Hong Kong Stock Connect, and we believe we will usher in more efficient two-way capital flows in the capital markets of the two places.
Finally, the internationalization of the renminbi may be the strongest catalyst for change. With the growth of China's economy, the international market's trade settlement and cross-border investment demand for RMB have shown exponential growth, coupled with the inclusion of the RMB by the International Monetary Organization in 2016 into the Special Drawing Rights (SDR) as an international reserve currency, I believe that the RMB will play an increasingly important role in the international arena, and international investors will pay more and more attention to the depth and liquidity of the offshore RMB market in the future.
Hong Kong will play a more important role
Over the years, Hong Kong, backed by the mainland, has been a bridge between the East and the West, becoming an international financial centre with a large number of talented people, strong infrastructure, a regulatory regime in line with international standards, free flow of capital, and an open and transparent international market.
Hong Kong is both the first choice for international investors to invest in China and the first choice for Chinese capital to invest overseas. Hong Kong is the preferred international financing centre for Chinese companies, as well as an international asset management centre, risk management centre and the world's largest offshore RMB market, with RMB deposits reaching RMB868.7 billion as of November 2021.
Hong Kong is also a major financing hub for new economy companies, providing financing support for the transformation of China and the world economy. The share of financing by new economy companies in the total IPO financing in the Hong Kong market has increased year by year, from 49% in 2019 to 64% in 2020 and 87% in 2021, especially since the launch of the listing reform in 2018, Hong Kong has today become the largest biotech financing hub in Asia and the second largest in the world. In 2021, a total of 34 biotech and medical companies were listed in Hong Kong, ranking first in the world in terms of number of listings and second in terms of total financing.
As a bridge connecting the Mainland and the international market, Hong Kong has unique advantages and can play a unique role in China's financial development. Hong Kong's international market mechanism can provide a perfect testing ground for financial product innovation and RMB internationalization.
To meet the growing market demand, HKEX has recently launched a series of innovations and reforms that have been well received by the market, such as the launch of MSCI China A50 Connectivity Index futures, the continuous expansion of Investment Targets in Shanghai-Shenzhen-Hong Kong Stock Connect, and the introduction of a new SPAC listing mechanism. All indications are that, despite the complexity of the international geopolitical situation, there is no "decoupling" between global capital markets, on the contrary, they are becoming more interdependent and the demand for cross-market investment is more vigorous than ever.
In short, China's financial development has arrived, and I believe that Hong Kong's role today is more important than ever.
In the face of this unprecedented opportunity, Hong Kong must keep pace with the times, continue to innovate and continue to enhance its competitiveness. As long as the market competitiveness is continuously enhanced, Hong Kong will certainly be able to use its unique advantages to promote the sustained growth of China's economy, provide rich investment opportunities for global investors, and provide impetus for dreams and innovation. Let us work together to create the future and jointly meet the rare opportunity of China's financial development.
I wish you all good health and all the best in 2022!
(Titanium Media App Editor Ma Qiong Integrated Hong Kong Stock Exchange Official Wei, China News Service, Mammoth Capital Bureau, etc.)