Hong Kong and Shanghai have become the nation’s twin financial powerhouses. A day after the Lujiazui Forum, an annual gathering in Shanghai of key financial officials, bankers and regulators, Hong Kong announced the long-anticipated
trading of Chinese treasury futures, a crucial move to internationalise the yuan. Trading for futures contracts on the five-year government bonds is expected to start on August 3 on the Hong Kong stock exchange.
Data shows global demand for yuan assets is increasing, especially among central banks from the Global South. The trading launch will further strengthen the city’s status as an offshore yuan hub. The timing is significant. Coming right after the Shanghai forum, which was attended by top officials and business executives, including Hong Kong Financial Secretary Paul Chan Mo-po, the new trading platform will significantly boost the city’s financial growth.
Chinese authorities also made clear at the forum that accelerating
Shanghai’s transformation into a fully fledged global financial hub would be a major policy focus. That kicks off with a pilot programme for offshore-yuan foreign-exchange trading. As envisioned by Beijing, there is clearly an emerging division of labour between Hong Kong and Shanghai in boosting yuan liquidity and its internationalisation.
Beijing has prudently laid the foundation, having already cleaned house with stricter control of capital outflow and a crackdown on violators. Mainland regulators heavily
penalised Hong Kong-based Tiger Brokers, Futu Securities International and Long Bridge Securities for enabling mainland investors to trade overseas stocks without the required licences. While mainland residents can still open offshore accounts in Hong Kong, they may expect tougher scrutiny to ensure regulatory compliance. Those who wish to hold investment accounts must declare that the funds originate outside mainland China. Banks need to be alert against falsified documents.
Given the long-standing free flow of capital through Hong Kong, local banks and authorities must uphold the highest regulatory standards to ensure they serve both capital markets and mainland requirements. Beijing will expect nothing less, having assigned such an important role to Hong Kong as a premier yuan trading hub.
As Chan said at the Lujiazui Forum, Hong Kong and Shanghai help connect the enormous mainland market with global capital. That is a priority in the 15th five-year plan to speed up development of a strong financial nation. As the global economy enters a period of uncertainty, China is increasingly seen as a safe haven due to its reliable policy. That, of course, underlines the nation’s need for the most efficient, advanced and competitive financial powerhouses like Shanghai and Hong Kong to offer both protection and services.
