The Shenzhen Municipal People’s Government recently issued 5 billion offshore RMB bonds (Dim Sum Bonds) in Hong Kong, and received subscriptions of 17.4 billion yuan (RMB, the same below) from investors from eight different countries and regions. This is an oversubscription of 2.48 times, which shows that Global investors' confidence in RMB-denominated products.
As the "National Fourteenth Five-Year Plan" establishes Hong Kong's important role as an "RMB offshore hub", it is believed that with the support of the state, Hong Kong's financial development will renew the chapter.
In the new stage, Hong Kong should not be passive. Instead, it must actively cooperate with all mainland cities in the Guangdong-Hong Kong-Macao Greater Bay Area so as not to fear competition from other offshore financial markets.
The Shenzhen Municipal People's Government successfully issued 5 billion yuan of offshore RMB bonds (Dim Sum Bonds) in Hong Kong.
Milestones: a strong team to win in one fell swoop
Chief Executive Carrie Lam Cheng Yuet-ngor mentioned in his "Policy Address 2021" last Wednesday (October 6): "The Central Committee sent a delegation to Hong Kong to preach the "14th Five-Year Plan" to all walks of life, reiterating its support for Hong Kong to further promote the interconnection with the mainland financial market. Interoperability, development of offshore RMB business, strengthening of the functions of an international asset management center and risk management center, building a green financial center in the Greater Bay Area, and promoting the development of high-end and high-value-added financial services."
Sure enough, on Tuesday (October 12), the Hong Kong Stock Exchange held a gong knocking ceremony to witness the official issuance of RMB 5 billion bonds by the Shenzhen Municipal People’s Government in Hong Kong.
Carrie Lam said that this is not only the first time a mainland city government has issued bonds in Hong Kong, but also the first time a mainland city government has issued bonds overseas. It is an important milestone in promoting the internationalization of the renminbi.
It is true that the Shenzhen government’s visit to Hong Kong to issue bonds is a manifestation of the state’s support for Hong Kong’s development of offshore renminbi business and the establishment of a green financial center in the Greater Bay Area.
In fact, the State Council last year announced the "List of the First Batch of Authorized Items for the Pilot Comprehensive Reform of Shenzhen's Construction of a Pilot Demonstration Zone for Socialism with Chinese Characteristics." Independent issuance within the quota; innovating the local government debt-raising mechanism, allowing Shenzhen to issue offshore RMB local government bonds overseas".
With the authorization of the "List", the Shenzhen Municipal Government has even more dared to try and dare to venture. In order to raise funds for the construction of public high schools, urban railroads, water and flood control and other projects, it is the first to come to Hong Kong to issue 5 billion "Dim Sum Debt" (that is, in RMB Valuated bonds), including bonds with maturities of 2, 3, and 5 years, with amounts of 1.1 billion, 1.5 billion, and 2.4 billion, respectively, with coupon rates of 2.6%, 2.7%, and 2.9%; among them, the three-year and the 5-year It is a "green bond".
The "National Fourteenth Five-Year Plan" establishes Hong Kong's important role as an "RMB offshore hub."
In 2009, the Ministry of Finance issued 6 billion yuan of offshore RMB treasury bonds in Hong Kong, officially opening the Hong Kong dim sum bond market.
After 12 years, the local government of the Mainland, which used the Shenzhen Municipal Government as a pilot, finally issued bonds overseas for the first time, and it came to Hong Kong to issue bonds, which is equally significant.
Tu Zhensheng, deputy head of the Research Department of Industrial and Commercial Bank of China (International), sorted out the "triple significance" in the research report "Shenzhen Dim Sum Bond Pricing Highlights the Attractiveness of High-quality RMB Assets"——
First, enrich the variety of offshore renminbi-denominated products to help the internationalization of the renminbi.
The Shenzhen government’s bond issuance has been welcomed by the market. It can be seen that “the offshore market has a strong demand for high-quality RMB bonds”, which may attract more local governments to issue dim sum bonds in Hong Kong, further enrich the varieties of offshore RMB bonds, and activate the dim sum bond market.
At the same time, the Hong Kong Monetary Authority also announced on September 27 that the renminbi, dollar and euro bonds issued by the mainland governments at all levels in the offshore market will be included in the list of eligible mortgages for renminbi liquidity arrangements.
This release releases the liquidity of local government offshore bonds and further stimulates the investment demand of international investors.
Second, local governments have opened up new overseas financing channels.
The pricing of the three bond issuances this time is significantly narrower than the initial price by 30-35 points, and "issuance costs are even lower than in the domestic market."
In addition, the mainland government exempts personal and corporate income tax and stamp duty on the bonds; the SAR government exempts Hong Kong stamp duty and profits tax.
With low financing costs, the Hong Kong bond market provides multiple options for local governments to activate funding sources.
Third, to activate the offshore bond market and consolidate Hong Kong's status as an international financial center.
"This issuance fills the gap in the issuance of offshore local government bonds," bringing more high-quality assets to the Hong Kong bond market.
At the same time, in conjunction with the opening of the "Southbound Link" of Bond Connect, Hong Kong's bond market will be activated, "changing the status quo of poor trading volume and liquidity in the Hong Kong bond market," and promoting the "simultaneous advancement of equity and debt" in Hong Kong's financial market.
Hong Kong should take the initiative to cooperate with all mainland cities in the Guangdong-Hong Kong-Macao Greater Bay Area so as not to be afraid of competition from other offshore financial markets.
Cooperation: started but not only in Shenzhen
Of course, Shenzhen is unique as a "socialist demonstration zone." Many policies can be tested first, but other local governments have not been able to have such a large degree of fiscal freedom.
However, Hong Kong’s goal is not to become a green financial center in Shenzhen, but a “green financial center in the Greater Bay Area.” It should actively expand the scope of offshore bond issuance by local governments to all cities in the Greater Bay Area.
On the one hand, the local governments of Guangdong Province and the cities in the Greater Bay Area have huge demands to promote the green transformation of the economy.
Last year, the country put forward the goal of "Peak Carbon in 2030 and Carbon Neutrality by 2060" (hereinafter referred to as "30·60") at the United Nations General Assembly.
This year, the "National Fourteenth Five-Year Plan" expounded the importance of promoting "green development."
Cheng Yusheng, the head of the Department of Economics of Hong Kong Baptist University, previously evaluated in an interview with "Hong Kong 01" that in the "Five-Year Plan", environmental protection indicators are "binding indicators," while other indicators are just "predictive indicators."
This shows that the country is very determined to shift its economic development model from "extensive development" of energy consumption to high-quality, green development.
This change is not easy, especially for the nine cities in the Greater Bay Area-Guangdong Province is the province with the largest manufacturing scale in the country, and the nine cities in the Greater Bay Area are the most developed regions in the province.
According to the "Fourteenth Five-Year Plan for the High-Quality Development of Manufacturing in Guangdong Province," the added value of manufacturing above designated size in Guangdong Province is 3.05 trillion yuan, and the number of manufacturing enterprises above designated size exceeds 50,000, ranking first in the country.
In addition, the nine cities are also the city clusters with the most pillar industry clusters in Guangdong Province (Table 1). To promote the green transformation of industries and achieve the "30·60" target, I believe that the financial pressure of Guangdong Province and the municipal governments at various levels is not small. .
Hong Kong 01 Drawing
On the other hand, Hong Kong can play its role as an international financial center to make the green transformation of the mainland economy more "internationally recognized", thereby strengthening Hong Kong's status as a green financial center in the region.
Zeng Shengjun, the Greater Bay Area Institute of Finance, Bank of China Shenzhen Branch, pointed out in a research report “Shenzhen’s government plans to issue bonds in Hong Kong, and RMB internationalization is one step forward”, pointing out that “the issuance of green renminbi bonds overseas will not only lower the relative interest rate of bonds, but also lower interest rates. Cost, a longer implementation period, and alleviate the pressure of mismatched financing maturities. It is also possible to integrate with the international financial market to give play to the restraint and supervision of foreign credit rating systems on borrowers." International green bond ratings mean higher-quality green Financial projects also mean investor trust.
If the scale can be expanded, Hong Kong's green bond market may be able to form a brand effect, and the development of the local green financial market will also rise to a higher level.
Therefore, the SAR government may wish to use the good cooperation with Shenzhen as a model to continue to promote communication with the Guangdong provincial government and the central government, and strive to expand the local government bond issuance mechanism, especially the "first trial" in green bonds to the Greater Bay outside of Shenzhen. Eight municipal governments in the district.
It is worth mentioning that the central government and financial regulators have always emphasized "financial services for the real economy" and demanded that the financial market "become true."
Therefore, the so-called "Greater Bay Area Green Finance Center" means that Hong Kong's financial function must be aimed at supporting the realization of "30·60" in the Greater Bay Area. It also means that Hong Kong's financial industry must be embedded in the green transformation of the real economy of the Bay Area. .
Only in this way can Hong Kong truly "play its strengths" and serve "national needs."
The country’s goal of "Peak Carbon in 2030 and Carbon Neutrality by 2060" put forward at the United Nations General Assembly, has huge demand from local governments to promote economic green transformation.
Competition: Frequent emergence of the offshore RMB market
The news that occurred at the same time as the Shenzhen Municipal Government’s issue of bonds in Hong Kong but was generally overlooked was: The People’s Government of Guangdong Province also successfully issued 2.2 billion offshore RMB local government bonds in Macau for the first time, with a coupon rate of 2.68% and a maturity of 3 years. .
Hong Kong people’s “impression” of Macau may still remain at the stage of “casino” and “three bus”, that is, there are only gaming and tourism industries. After the announcement of the Hengqin Plan, the central and Guangdong provincial governments are making efforts to help Macau's industrial transformation.
The ninth point of the "Hengqin Plan" is to develop a modern financial industry in the cooperation zone, "support the development of cross-border RMB settlement business in the cooperation zone, and encourage and support domestic and foreign investors in cross-border venture capital and related investments. The renminbi is used in trade.” It can be seen that dim sum debt is not a Hong Kong patent, and Hong Kong is not the only participant in the new stage of renminbi internationalization.
It is believed that with the support of the country and neighboring mainland governments, Macau's financial industry will play a unique role no matter in the Greater Bay Area or on the global stage.
Of course, it is still too early to say whether Macau will "challenge" Hong Kong's financial position or whether Macau will "compete" with Hong Kong.
After all, Hong Kong sits on the world's largest offshore renminbi capital pool, and 70% of the global offshore renminbi business settlement takes place here. It is indeed a well-deserved "offshore renminbi center."
But apart from Macau, Hong Kong’s strong competitors include Singapore and London, which correspond to the financial markets in Asia and Europe, respectively.
According to data from the Bank for International Settlements, in the first quarter of this year, Singapore’s average daily foreign exchange trading volume increased by 0.3% to US$549.5 billion per day, surpassing Hong Kong, which has an average daily trading volume of US$524 billion (down 7.8%), and became the largest in the Asia-Pacific region. Foreign exchange market.
Prior to this, Hong Kong has maintained its position as the third largest foreign exchange market in the world and the largest in Asia.
The "Qianhai Plan" shows that the mainland is advancing the development of RMB internationalization in an orderly manner, and Hong Kong needs to re-examine the relationship of competition and cooperation with surrounding cities.
In addition, from the perspective of the dim sum bond market, Hong Kong's performance in recent years has been unsatisfactory.
According to the "Hong Kong and Singapore Bond Markets" by the Secretariat of the Legislative Council (hereinafter referred to as "Hong Kong Star Bond Market"), the number of dim sum bonds issued in Hong Kong has been reduced from 149 in 2014 to 42 in 2019.
Part of the decline in the number is due to the financial cycle. Financial scholar Ba Qing pointed out in an interview with "Hong Kong 01" earlier that the "negative interest rate" of the US dollar is one of the main factors affecting the scale of dim sum debt.
She explained that the renminbi interest rate level is high. During this cycle, the renminbi shows the characteristics of "investment currency", "people prefer to buy it and hold it." However, because the renminbi interest rate is high, it also means that the cost of issuing bonds will increase. In the offshore market, borrowing in RMB is not attractive.
However, "cyclicality" is not the whole reason.
During the same period, the number of dim sum bonds listed on the London Stock Exchange increased from 19 in 2014 to 109 in November 2020. It can be seen that the European market and institutions are still interested in issuing dim sum bonds, especially those frequently traded with China and need to be used. RMB institutions.
After all, China is already the second largest economy in the world, and the U.S. dollar is no longer the only option.
Of course, the Hong Kong bond market is not without advantages.
Dong Yiyue, director of the Financial Development Bureau and director of policy research, pointed out that the SAR government has actively promoted product innovation in the bond market and issued 30-year green bonds at the beginning of the year, creating a record of green bond maturity for Asian economies.
The 30-year bond product is suitable for institutions that hedge long-term risks, such as insurance companies. The bond attracts more than seven times oversubscription.
But this is obviously not enough. The Hong Kong government needs to consider playing a more active role in the construction of the "offshore renminbi market."
For example, consider issuing dim sum bonds for specific projects during the construction of the "Northern Metropolis".
The "Northern Metropolis" is a 20-year regional development plan for Shenzhen-Hong Kong cooperation. Many of the infrastructure constructions may involve "RMB". Using RMB to promote infrastructure construction can relieve pressure on warehouses and avoid exchange rate risks. .
Now that the Shenzhen local government has "made a good start," the Hong Kong government can imitate and learn from it.
In addition, the SAR government has always made the promise of "achieving carbon neutrality by 2050", and the "Northern Metropolis" also involves a large number of wetland protection projects and the construction of the Dapeng Bay ecosystem. I believe that many of these green projects have the potential for "financialization". , The Hong Kong government can also issue green bonds to enrich the local bond product pool.
The "North District Metropolitan Area Development Strategy" puts forward the concept of "two cities and three circles". Hong Kong can consider issuing dim sum bonds for specific projects. Many of the infrastructure constructions may involve "renminbi". The use of renminbi to promote infrastructure construction can relieve Relieve pressure on warehouses and avoid exchange rate risks.
(Picture of report)