Consolidate and enhance Hong Kong's status as an international financial centre and serve the development of a financial power

By Sun Yu, Vice Chairman and Chief Executive Officer of Bank of China (Hong Kong) Limited

Finance is the lifeblood of the national economy and an important part of the country's core competitiveness. Since Hong Kong's return to the motherland, it has given full play to its advantages of relying on the motherland and connecting with the world, and built a financial artery for the mutual promotion of domestic and international dual circulation, which is one of the important driving forces for the continuous improvement of the mainland's financial global competitiveness. The Central Financial Work Conference and the Third Plenary Session of the 20th CPC Central Committee clearly stated that Hong Kong will consolidate and enhance its status as an international financial center, and as a realistic carrier of a "strong international financial center" as a key core element of a financial power, Hong Kong will continue to play a unique role and important function in the process of building a modern financial system with Chinese characteristics.

Hong Kong is an international financial center that is the strategic fulcrum for the mainland's financial sector to form a pattern of opening up to the outside world on a larger scale, in a wider range of fields and at a deeper level

Financial opening-up is an important driving force for the reform and development of the mainland's financial industry. As an important gateway in the country's opening-up pattern, Hong Kong as an international financial centre actively cooperates with the country to actively and orderly promote the opening-up of the financial industry, continues to expand the breadth and depth of financial opening-up, and achieves continuous improvement in competitiveness in the process of serving the high-level opening-up of the financial sector.

The ranking of global financial centers is firmly at the top. Any financial center is inseparable from the support of strong national strength, and the sustained development of China's economy has created positive conditions for the mainland financial center to enhance its global influence. In the 36th International Financial Center Index report jointly released by the United Kingdom think tank Z/Yen Group and the China (Shenzhen) Comprehensive Development Research Institute in September 2024, the mainland has three financial centers in Hong Kong, Shanghai and Shenzhen among the top 10 in the world, and Hong Kong ranks first in Asia and third in the world, with only one point behind London in second place. In terms of rankings and scores over the years, Hong Kong has been ranked 3rd to 4th since 2007, and the gap between Hong Kong and the top two leading international financial centers, New York and London, has been narrowing, indicating that the market is full of confidence in the development prospects of Hong Kong as an international financial center and the high-level financial opening up of the mainland. The overall strength of the financial system has been continuously enhanced.

Hong Kong is an important window for mainland enterprises to "go global" and for mainland residents to allocate overseas assets, and the scale of business in various financial sectors has been increasing in the process of serving cross-border investment, financing and asset allocation. In terms of capital markets, Hong Kong's stock market has a market capitalisation of over HK$31 trillion and has topped the annual global IPO fundraising rankings for seven times since 2009. Hong Kong is the most important overseas listing venue for mainland enterprises, accounting for 55% of the total number of listed companies in Hong Kong, with a market capitalization of more than 70% and contributing more than 80% of the average daily turnover.

In terms of the banking market, Hong Kong's total banking loans are about HK$10 trillion, and mainland-related loans exceed HK$4 trillion, and Hong Kong accounts for more than 50% of the mainland's total overseas investment, making it the largest source of foreign direct investment (FDI) in the mainland. In terms of the insurance market, according to the 2023 World Insurance Sigma Report released by Switzerland Re, Hong Kong ranks first in the world in terms of insurance penetration rate and second in insurance density in the world, with a total gross premium of HK$550 billion. In terms of asset and wealth management market, Hong Kong is Asia's largest international asset management centre, cross-border private wealth management centre and hedge fund centre, with assets under management amounting to HK$31.2 trillion, of which 10% are held by mainland owners. The function of offshore RMB business hub continues to be strengthened. In the journey of RMB internationalization, Hong Kong has entered a new stage of functional development from the process of exploration and accumulation.

On the one hand, Hong Kong's international financial centre has helped to elevate the international payment function of RMB to a new level. According to SWIFT statistics, in July 2024, the proportion of RMB international payments increased to 4.74%, the highest level on record, and it remained the world's fourth largest international payment currency for nine consecutive months. Among them, Hong Kong processes about 80% of international payments in RMB.

On the other hand, the RMB financing function of the Hong Kong International Financial Centre (IFC) continued to strengthen. In the past round of United States interest rate hike cycle, more and more enterprises prefer to choose Hong Kong to raise funds in RMB, and the issuance of offshore RMB dim sum bonds in Hong Kong in the first half of 2024 exceeded 465 billion yuan, an increase of 28% year-on-year on the basis of the high base in 2023. According to the Hong Kong Monetary Authority, the balance of RMB loans in Hong Kong at the end of February 2024 was RMB488.6 billion, an increase of 1.5 times from the end of 2022. Hong Kong has the world's largest offshore RMB liquidity pool, which has been expanding in size in recent years, exceeding RMB1 trillion, and the clearing volume of the Real Time Payment and Settlement System (RTGS) has been steadily increasing. The innovation of financial market interconnection is accelerating. Hong Kong as an international financial centre plays the role of a bridge between two-way opening-up and works with the Mainland to innovate institutional arrangements for mutual access. Whether it is "Stock Connect", "Bond Connect" or "Swap Connect", the focus of policy has changed from policy-driven to market-driven, and from factor-based opening-up to institutional-based opening-up. As of the end of 2023, the cumulative total trading volume of Southbound Stock Connect reached HK$38.5 trillion, and the cumulative net inflow of mainland funds into the Hong Kong stock market reached HK$2.9 trillion. In 2023, the total value of foreign investment in mainland bonds exceeded RMB15 trillion, of which about two-thirds flowed into the mainland through Hong Kong through Bond Connect.

Hong Kong is an international financial centre with unique advantages in promoting the high-quality financial development of the mainland

In the process of promoting high-quality financial development, Hong Kong International Financial Centre takes "one country, two systems" with Chinese characteristics as its core strength, and takes connectivity, offshore markets, international business networks and risk management capabilities as the starting point, fully enhances its service capabilities in internal and external circulation, and fully participates in the high-level opening up of the mainland's finances.

Give full play to the institutional advantages of "one country, two systems". "One country, two systems" is the key guarantee for the long-term stable development of Hong Kong as an international financial centre. Within the "One Country", the country has made use of Hong Kong's unique advantages to place most of the capital account liberalisation and RMB internationalization pilot projects in Hong Kong, and has continuously introduced various financial policies to benefit Hong Kong, so as to promote the "bringing in" and "going out" of the financial sector and better serve the real economy. Under the "two systems", Hong Kong's capitalist system, free flow of capital, free convertibility of currency, and common law system will remain unchanged for a long time.

For example, in recent years, Hong Kong has made some breakthroughs in virtual assets, family offices, digital currencies and tokenized securities, seizing new heights, and accumulating important experience in promoting practical, theoretical and institutional innovation in the mainland's financial industry. Give full play to the advantages of the interconnection mechanism. Under the premise of fully respecting the laws, regulations, market rules and trading habits of domestic and foreign markets, through the interconnection of financial infrastructure, the institutional arrangements of platform to platform, system to system and rule to rule are formed, providing the greatest convenience for investors on both sides to carry out cross-border financial asset transactions, and also supplementing the original model of directly bringing in overseas funds and releasing domestic funds, which has attracted widespread attention from the world. It has also attracted more and more investors to participate in the ......

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Article source丨Tsinghua Financial Review, Issue 131, October 2024

Editor丨Zhou Mingyi

Editor丨Lan Yinfan