The 25th Anniversary of the Return of the People's Republic of China | HKMA Yu Weiwen: Hong Kong's financial invincibility depends on "a solid foundation"

This year marks the 25th anniversary of Hong Kong's return to the motherland. The development of Hong Kong's financial industry has continued to flourish. From the size of the market to the stability of the financial system, there have been great advancements compared to the 1997 handover.

In an interview with "Hong Kong 01" and other media, Yu Weiwen, President of the Monetary Authority, said that Hong Kong's financial industry has developed at an extremely high speed in the past 25 years, and has always played the role of a bridge between China and the world, and there is still huge room for development in the future.

He emphasized that the success of this international financial center over the past 25 years is that the financial system remains stable, the market's confidence in the linked exchange rate system remains unchanged, and he believes that "a solid foundation" will be able to deal with any risks.

Looking back at the transformation of Hong Kong's financial industry over the past 25 years, a bunch of numbers are really bright.

At the time of the handover in 1997, the market value of the Hong Kong stock market was only HK$4.6 trillion. As of May this year, the market value of the stock market has increased to HK$38 trillion, a cumulative increase of seven times.

As for foreign exchange reserves, which are considered to maintain financial stability, from more than 80 billion US dollars in 1997, it has now increased to 460 billion US dollars, an increase of 4.7 times.

The general public may not be unfamiliar with the ups and downs of the Hong Kong stock market, but the outside world may ignore the development of Hong Kong's bond market.

In 1997, the annual total issuance of the Hong Kong bond market at that time was less than US$20 billion. By 2021, the figure has risen to US$400 billion, a cumulative increase of nearly 20 times.

The total annual bond market issuance in 2021 will reach $400 billion, a nearly twenty-fold increase from 1997.

(file picture)

Hong Kong's bond market develops vigorously and grows faster than the stock market

Yu Weiwen, President of the HKMA, said frankly, "In everyone's impression, Hong Kong's development is not very good because the bond market... But I always encourage everyone to look at the numbers!" In 2021, Hong Kong will account for 34% of the world's share of Asian bond issuers in several major international financial centers, while the United States, the United Kingdom, and Singapore will account for 22%, 17%, and 5%, respectively.

Hong Kong has always served as a bridge between China and the world. Under the interconnection mechanism, North-South connections such as Stock Connect, Bond Connect, and Wealth Connect are gradually opening up, and the scale of transactions involved is increasing day by day.

Take Stock Connect as an example. In 2014 and 2016, the “Northbound Connect” of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect was launched. At that time, the average daily transaction volume was only RMB 5.6 billion and RMB 1.6 billion. 55.3 billion yuan and 65 billion yuan, an increase of 9 times and 40 times respectively.

As for the average daily transaction value of Bond Connect “Northbound Connect”, from 2.2 billion yuan in 2017, it has also increased by 11 times to 26 billion yuan in 2021.

Yu Weiwen reiterated that the development of Bond Connect "Southbound Connect" was slow in the early stage, but referring to the past experience of interconnection, he believed that it will be a major development trend in the next few years, and the related transaction volume is expected to increase gradually.

The President of the HKMA, Yu Weiwen, said that the linked exchange rate is an important cornerstone for maintaining financial stability.

(Photo by Yu Junliang)

For a supercar to show extreme speed and to make the driver comfortable, a stable "frame" and "chassis" are indispensable.

The reason why Hong Kong's finance has been able to develop at a high speed has always been to play a role as a bridge, and has survived ups and downs for 25 years and still stands firm. Resilience is enough."

Reiterates no intention to change the linked exchange rate system peg to the US dollar is appropriate

The linked exchange rate system can be described as one of the "chassis" for the rapid development of Hong Kong's financial center, but with the deepening of the Sino-US conflict, there are voices discussing whether the system needs to be reviewed, or even "decoupling".

Yu Weiwen emphasized that the linked exchange rate system is an important cornerstone for maintaining financial stability, "After going through ups and downs in the linked exchange rate system, market confidence has increased unabated in the past 25 years. Even in the last two or three years, many different challenges have emerged, and the market has not responded to the linked exchange rate. Any doubts. As a reassurance of the financial system, Lianhui can only establish Hong Kong's status as an international financial center based on this ability to stabilize the financial system."

There are opinions from time to time on whether the Hong Kong government should consider linking the Hong Kong dollar to other currencies such as the renminbi.

During the interview, Yu Weiwen reiterated that the HKMA has no intention to change the linked exchange rate system, and reiterated that in Hong Kong, a relatively small and open economy, maintaining exchange rate stability is very important, and the peg to the US dollar is also appropriate.

Indeed, Hong Kong has experienced the financial turmoil in 1997, SARS in 2003, the financial tsunami in 2008, and even the global outbreak of the new crown epidemic in recent years. Hong Kong's status as an international financial center has not been shaken, and the exchange rate of the Hong Kong dollar is "steady as Mount Tai".

According to the International Center Index compiled by the British think tank Z/Yen and the China (Shenzhen) Comprehensive Development Research Institute, Hong Kong ranks third in the world with a score of 715, and it ranks the highest in Asia.

The Federal Reserve started raising interest rates in March this year, and other major central banks followed suit, causing global liquidity to shrink.

(Reuters)

The devaluation of the yen should pay attention to the fact that there is no worry about the Asian financial crisis.

Although Hong Kong has been able to overcome the previous difficulties, the external risks have been unpredictable in recent years. Yu Weiwen also admitted that the global risk spillover (spillover) is more worrying.

As the Federal Reserve and major central banks have just started a new round of interest rate hikes, the stock market has already recorded a significant decline. What's more, the real impact of the shrinking balance sheet has not yet been reflected, so it is difficult to estimate the extent of the contraction in market liquidity.

When there is a large-scale "liquidation" in individual large-scale markets, it involves a wide range of aspects, which is exactly what many Asian economies are worried about.

When asked about the recent sharp depreciation of the yen to a 20-year low, a drop of more than 15% during the year, which is rare in history, Yu Weiwen said that he did not see a major crisis caused by the devaluation of the yen, but stressed that when major currencies depreciate sharply, the HKMA will pay close attention. Happening.

During the interview, Yu Weiwen never forgot to emphasize the stability of Hong Kong's financial system. "Being prepared for danger in times of need is very strong in our DNA." To maintain stability in Hong Kong, we must have a solid foundation, good supervision, and transparency in the system, so that the market will have confidence in it. confidence.

Yu reiterated that the HKMA, as a central banking institution, has been preparing pre-plans and response plans for different scenarios, but the details are sensitive and therefore will not be discussed.

Finally, he also sent a message to the financial industry, "We must seize opportunities and manage risks well."

The 25th Anniversary of the Return | Future Rio Tinto Financial Infrastructure Yu Weiwen of the Financial Authority: Make good use of technology for financial inclusion