Hong Kong still the place to make a mint

Thriving offshore business

The offshore renminbi business, which has played a crucial role in Hong Kong's financial development, has helped to bridge the financial systems of Hong Kong and the mainland, offering huge business opportunities by attracting investments from the mainland and abroad.

The HKSAR's journey in developing its offshore renminbi business began in 2004 when banks in the city were allowed to provide offshore renminbi banking services to personal customers.

The business has since undergone significant expansion. The first issuance of dim sum bonds－offshore renminbi-denominated bonds－in 2007 and the introduction of the pilot program for cross-border trade settlement in renminbi in 2009 have accelerated the process.

According to the Hong Kong Monetary Authority, the SAR currently has the world's largest renminbi capital pool outside the mainland－about 874 billion yuan as of April, 14 times the size of that in 2009. The annual issuance of dim sum bonds grew from 10 billion yuan in 2007 to 109 billion yuan last year.

About 75 percent of the world's offshore renminbi payments were settled through Hong Kong as of May, according to the Society for Worldwide Interbank Financial Telecommunication.

The nation's 14th Five-Year Plan (2021-25) stressed Hong Kong's role in developing itself into an international offshore renminbi center, while the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area calls for Hong Kong's offshore renminbi business to be beefed up.

Hong Kong's new chief executive, John Lee Ka-chiu, has vowed to reinforce the city's role as a global offshore renminbi center, an international asset management hub, as well as a risk management center, and promote other financial market businesses.

"Undoubtedly, Hong Kong is the most important offshore renminbi hub," said William Deng Weishen, a North Asia economist at UBS. "Looking back at the past few years, I think the offshore renminbi business has been most important in developing the city's financial services sector. For the future, it will be the most important growth point as well."

HKMA Chief Executive Eddie Yue Wai-man said that despite the challenging economic environment in the past few years, there is huge potential and development space for the city's offshore renminbi business.

China is the world's second-largest economy, but only 18 percent of its cross-border trade is settled in renminbi. This means there is huge room for the Chinese currency to play a part on the world stage, he said. "Hong Kong's offshore renminbi market can play a more important role, especially in the renminbi's internationalization."

The HKMA has been exploring ways to develop the offshore renminbi market in recent years. "There are still two main issues for us to tackle－how to promote the liquidity of offshore renminbi, and how to launch more renminbi products," Yue said.

He said the authority also plans to step up services of its Central Moneymarkets Unit to boost financial links between Hong Kong and the mainland, including the Stock Connect, thereby further invigorating the city's offshore renminbi market and benefiting the renminbi's internationalization. "There's no shortcut. We still have a long way to go. But we should not worry about it because, at least, there's still a way for us to develop it."

Yue also believes green finance is a key area where Hong Kong has great potential. Green finance activities have seen huge growth in recent years, he said, adding that the SAR government has issued green bonds to the public and aided some small and medium-sized enterprises that have applied for green loans.

"As a small open economy, Hong Kong is prone to external shocks and global economic downturns. Its market will, therefore, likely see further volatility in the next 25 years. However, I believe Hong Kong's well-regulated and resilient financial system should help the city navigate any such turbulence and maintain its position as a world financial center," Wong from CPA Australia said.