The 14th Five-Year Plan Preaching. Interpretation | Why has the RMB become the new key to Hong Kong's finance?

"Renminbi" has undoubtedly become a key word for Hong Kong's financial development to a new level.

The SAR government held a "National Fourteenth Five-Year Plan" presentation at the government headquarters this morning, inviting many central officials to go south to show Hong Kong's confusion.

Among them, Zhou Chengjun, director of the Institute of Financial Research of the People's Bank of China, talked about Hong Kong's important role as an "offshore renminbi hub" and believed that Hong Kong has the best conditions to become a global renminbi asset management center, value-added center and risk management center. He hereby calls on the Hong Kong government to strengthen its system.

Zhou Chengjun, director of the Financial Research Institute of the People's Bank of China, believes that Hong Kong has the best conditions to become a global RMB asset management center, value-added center and risk management center.

(China News Service)

The renminbi is the "blood" and "red blood cell" of Hong Kong's prosperity

"I was particularly impressed. In her speech, Chief Executive Carrie Lam said that Hong Kong is an important gene for Hong Kong's long-term prosperity and stability because it is backed by the mainland of the motherland and facing the world." Zhou Chengjun concluded in his speech, "With genes, there must be blood- -The renminbi is the blood, more specifically, the "red blood cells" in it." His vivid metaphor makes the relationship between the "renminbi" and the development of Hong Kong concrete.

Why does the renminbi become the "blood" that connects the mainland and the world, and even the "red blood cells" that "supply oxygen" the economies of the two places?

The so-called "blood" is embodied in Hong Kong's special status and role in the internationalization of the renminbi.

Judging from the historical process of RMB internationalization, Hong Kong has witnessed and participated in many "firsts" of RMB internationalization: the establishment of the first RMB overseas clearing bank, the signing of the first bilateral local currency swap agreement, offshore RMB bonds ( The first issuance of dim sum bonds, the first opening of RMB capital account projects (RQFII/QFII), etc.

Among the many offshore RMB markets in the world, Hong Kong is the most experienced and most mature one among them.

Global investors’ demand for RMB holdings was able to flow into the Mainland through Hong Kong, and a large number of RMB-denominated assets were also able to go out of the world through Hong Kong.

After the outbreak of the new crown virus, the country took the lead in getting out of the epidemic and realizing the economy from negative to positive. In addition, developed countries represented by Western countries adopted monetary expansion policies, resulting in rising demand for the renminbi.

According to the "Global Public Investor Survey 2021" of the Official Forum of International Monetary and Financial Institutions (OMFIF), a British think tank, 30% of central banks plan to increase their holdings of RMB in the next 12 to 24 months. In the previous year, this figure was 10%.

According to statistics from the International Monetary Fund (IMF), the RMB accounted for 2.45% of global foreign exchange reserves in the first quarter of this year, a record high.

OMFIF Chairman David Marsh wrote in the preface of the "Investigation": "Although the renminbi is still behind the U.S. dollar and is still not fully convertible, in some important aspects, the renminbi has come to the age of as a reserve asset. reserve asset)."

Hong Kong must play an important role in promoting the internationalization of the renminbi.

(Information Picture/News Agency)

Regardless of the external environment, RMB-denominated financial products are already very attractive. Zhou Chengjun gave an example. The 10-year treasury bond issued by the Chinese government has a return rate of 2.868%, while the 10-year treasury bond issued by the United States is only 7.263%. "The gap is too big." .

And because of the "multi-level bond custody mechanism", when international investors want to buy Chinese bonds, they can do so through Hong Kong.

At the same time, the internationalization of the renminbi has also brought "explosive" business opportunities to Hong Kong's financial industry, which has also become a "red blood cell."

E Zhihuan, chief analyst of Bank of China (Hong Kong), said in an interview with "Hong Kong 01" earlier that the RMB deposit and bond business has achieved a breakthrough of "zero to 100 billion" in Hong Kong.

Zhou Chengjun compared in this speech that the RMB RTGS system developed by the Hong Kong Monetary Authority and Bank of China (Hong Kong) is the “treasure tool” for international asset risk management, and in Hong Kong’s four-currency real-time clearing system, “RMB transaction The settlement volume has even exceeded the Hong Kong dollar."

Offshore renminbi not only "supplies oxygen" for Hong Kong's financial industry, it also contributes to the mainland's real economy.

Quoting economic data from Guangdong Province officials, Zhou Chengjun pointed out that as of August last year, the proportion of RMB settlement in the foreign economic, trade and investment activities of the Guangdong-Hong Kong-Macao Greater Bay Area had exceeded 52%, making it the "largest transaction settlement currency" most trusted by foreign trade companies.

Behind the bright numbers is the province’s strategy of “move cages for birds” to encourage the transfer of old industries to Southeast Asia. In the process of capacity transfer and construction of overseas industrial parks, companies will choose to use RMB in order to reduce exchange costs and avoid exchange rate risks. Settlement.

On the morning of August 23, the government held a "National Fourteenth Five-Year Plan" presentation at the government headquarters.

RMB internationalization is a new goal of Hong Kong's finance

For the development of RMB internationalization, Hong Kong undoubtedly has a unique and important role.

So, how should Hong Kong unblock the "blood" and proliferate "red blood cells"?

Zhou Chengjun pointed out that the "14th Five-Year Plan" has a lot of implications for finance, but three key words are related to Hong Kong: International Asset Management Center, Risk Management Center, and offshore RMB hub.

Zhou Chengjun said frankly that Hong Kong is absolutely "doing my part" regarding the positioning of the two "management centers."

He explained that the so-called "international asset management center" refers to the fact that market entities all over the world can purchase RMB assets through Hong Kong in accordance with their familiar rules, laws, and language; while the so-called "risk management center" refers to investors In addition to purchasing assets, Hong Kong can also be used to hedge foreign exchange transactions and avoid exchange rate risks arising from holding RMB assets.

"Hong Kong has the best conditions for market entities from all over the world to buy in Hong Kong RMB financial products that meet their personal risk appetite, investment return requirements, and market expectations." Zhou Chengjun summed up Hong Kong's "adequate conditions" as "Five Six Seven "8": "Five" refers to the 500 billion currency swap line between the central banks of mainland and Hong Kong, which is also the world's highest RMB swap line, bringing extremely high liquidity to Hong Kong's offshore RMB business; "6" is Refers to Hong Kong's around 60% of the world’s offshore RMB deposits, reaching 820 billion yuan; “seven” means that Hong Kong accounts for more than 70% of the global offshore RMB settlement business (according to the statistics of the SWFIT system); “eight” refers to the “Dim Sum” issued by Hong Kong "Debt" accounts for more than 80% of the global offshore RMB bonds.

The greater the ability, the greater the responsibility. It can be seen that Hong Kong will be the promoter of the internationalization of the renminbi to a higher level, and it will be "unshirkable."

Zhou Chengjun emphasized that the offshore RMB center is the "financial positioning" given to Hong Kong by the "14th Five-Year Plan", and it is also Hong Kong's "mission goal."

So, how can Hong Kong improve the function of the offshore renminbi hub and help the internationalization of the renminbi?

Ren Zhigang suggested that Hong Kong can promote the use of renminbi as a trading medium in the capital market. For example, it can be used for clearing, trading, and quotation in the constituent stocks of the Hang Seng Index.

(Profile picture)

In terms of asset management, when the convener of the Executive Council Chen Zhisi, the Secretary for Financial Affairs and the Treasury Xu Zhengyu, and the former president of the Monetary Authority Ren Zhigang discussed with Zhou Chengjun, Ren Zhigang mentioned that Hong Kong can promote the use of renminbi as a trading medium in the capital market. The constituent stocks of the Hang Seng Index can be used for liquidation, trading, and quotation: "Two or three years ago, I made relevant recommendations to the government."

Zhou Chengjun said that after the offshore RMB is "Freely Usable", it only needs to comply with local financial regulations. If any economic activity in Hong Kong, including stocks, bonds, and other financial assets, wants to be settled in RMB, "As the Central Bank of China, we are happy to see it." Zhou Chengjun has repeatedly expressed support for Hong Kong's development of an offshore RMB center, and reminded that "the most important thing is for Hong Kong to build a complete offshore RMB infrastructure and supporting facilities."

In terms of risk management, Zhou Chengjun emphasized that Hong Kong’s "major task" is to "provide a variety of RMB exchange rate products and derivatives for market players around the world" so that they can only choose and control the exchange rate risk of holding RMB. This also puts forward new requirements on Hong Kong's financial institutions, requiring "institutions to develop various foreign exchange market trading tools that focus on the comparison between the two currencies."

Zhou Chengjun said frankly: "I admit that in this regard, the capabilities of the mainland's financial institutions are far from adequate. They are not as good as Hong Kong. Hong Kong's financial market has long faced the international foreign exchange market and is very developed in this respect."

Zhou Chengjun hopes that Hong Kong can become a "very prosperous RMB asset market" and that RMB can form a currency price in Hong Kong that is "fair and reasonable and has an equilibrium price level."

This price is expressed in interest rates and exchange rates-the former refers to the formation of a corresponding yield curve around RMB financial assets of various maturities; the latter refers to the "active, deep, and liquidity guarantee" foreign exchange market, forming a RMB pair The offshore exchange rate of each currency, including the U.S. dollar.

"In the true sense, an offshore RMB hub has been formed." Zhou Chengjun concluded, "Moreover, this hub is complete."