Can Hong Kong deliver in trying to build its yuan credentials?
In September, Chief Executive John Lee Ka-chiu unveiled the city’s first five-year plan along with his policy address, highlighting Hong Kong’s strategic role in promoting the greater use of the yuan outside mainland China as a key priority. In the first of a four-part series on the internationalisation of the yuan, Lam Ka-sing and Denise Tsang examine Hong Kong’s efforts as an international…
Hong Kong recently hosted finance ministers from 21 Asian-Pacific economies, marking its first time as the host city. The primary question for these ministers – and a practical lens for examining the city's 5-year plan – is how Hong Kong's services can help regional companies run their businesses more efficiently and at lower cost.
The plan's direction, outlined in the chief executive’s policy address, highlights the need for usable products, not just the products themselves. This includes settlement, term funding, and collateral. A key focus is the development of market infrastructure, starting with Hong Kong's gold central clearing and settlement system, set to launch in early 2027.
This system will enable physically settled gold futures, with lower tax concessions for physical commodity trading. Insurers' underwriting for gold storage is also expected to increase. Liquidity is another crucial strand, with the plan calling for wider use of the yuan in trade, investment, and financing. Direct exchange and settlement between offshore yuan and the Indonesian rupiah are being explored, as are plans to encourage more foreign banks to join China’s cross-border interbank payment system.
Term funding is a significant focus, with the RMB Business Facility being doubled to 200 billion yuan and then raised to 500 billion yuan, with tenors extending to three years. The policy address also plans short-term offshore yuan instruments to support the development of the yield curve. The final strand is demand, with the policy address proposing to increase the investment limit on eligible index-tracking exchange-traded funds (ETFs) for MPF funds and encourage mainland insurance funds to invest in Hong Kong ETFs through mutual market access.
These measures are interconnected, with market infrastructure supporting business activity, funding and payment arrangements enabling financing and settlement, and investor participation and collateral uses sustaining demand for the market's products.
Written by urgent.news from South China Morning Post - Hong Kong's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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