Renminbi internationalization is good for countries and Hong Kong

Sunday (3rd) marks the fifth anniversary of the launch of the China-Hong Kong "Bond Connect".

Bond Connect is an important mechanism for the interconnection of financial markets in China and Hong Kong, allowing investors from the Mainland and Hong Kong to invest in each other's bond markets.

In the past, the main buyers of Chinese bonds, especially government bonds, were in the mainland, but the opening of Bond Connect facilitates international investors to invest in mainland bond products through Hong Kong, a free port of capital, which greatly helps the internationalization of RMB bonds.

As more and more foreign investors invest in RMB securities, their corresponding risks also increase.

The People's Bank of China, the Hong Kong Securities Regulatory Commission and the Hong Kong Monetary Authority issued a joint announcement on Monday (4th), pointing out that the mainland and Hong Kong will launch a new interconnection program "Swap", which will allow foreign investors to have more tools to hedge against interest rates and other factors. risk.

According to the preliminary arrangement, the swap link will be launched in six months. First, the "Northbound Link" will be opened to allow foreign investors to trade interest rate swap products with the mainland, such as interest rate derivatives.

Yu Weiwen, President of the HKMA, said that he is happy to see the financial cooperation between the two places expand to the derivatives field.

The "Swap Connect" will create a good synergy with Bond Connect, facilitating the management of interest rate risk by international investors holding mainland bonds.

Mutual benefit between Hong Kong and the Mainland

The continuous improvement of the connectivity mechanism reflects Hong Kong's important role in the internationalisation of the Mainland's financial market.

In the five years since the launch of Bond Connect in July 2017, the total amount of Chinese bonds held overseas has grown at an average annual rate of 40%. The “Northbound Connect” of Bond Connect has also increased from RMB 31 billion in the first month to RMB 675 billion in the previous month. RMB.

At present, foreign investors only account for about 2.7% of the mainland bond market, and there is still a lot of room for development. Moreover, the internationalization of the RMB will be China's key national development policy in the future, which means that Hong Kong still has more room to use the interconnection mechanism to develop remote financial services.

Hong Kong has a particularly precious and rare value in China's financial opening up. During his attendance at the 25th anniversary of the handover in Hong Kong, President Xi Jinping mentioned ""Hong Kong is good, the country is good, the country is good, Hong Kong is better", and expressed the need to maintain and consolidate Hong Kong's Its status as an international financial center proves that the country attaches great importance to Hong Kong.

Li Jiachao, the newly appointed chief executive, also emphasized when attending the Bond Connect Anniversary Forum on Monday that Hong Kong's "one country, two systems" is the advantage of Hong Kong as an international financial center.

Although some people in the past few years have asserted that "Hong Kong is dead" due to factors such as social movements, the implementation of the National Security Law for Hong Kong, and Sino-US wrestling, as long as Hong Kong can seize this opportunity, the future is still bright.

The offshore RMB market in Hong Kong has important strategic value in promoting the internationalization of the RMB.

(Getty Images)

Hong Kong should play a bigger role

The opening of the mainland financial market and the internationalization of the RMB are closely related to Hong Kong.

Although Hong Kong has made some contributions in promoting these matters, it should not be satisfied with the status quo. It needs to seize the time to play a greater role.

Ren Zhigang, the former chief executive of the HKMA and a member of the Executive Council, raised a very serious question in an interview on a radio show on Sunday.

Taking into account the possibility of a Sino-US financial war, he said that in the long run, Hong Kong must reduce its dependence on the US dollar, and to do so, it can only further promote the internationalization of the RMB.

He also criticized Hong Kong's promotion of the renminbi as a trade settlement limited to the current account in the past, excluding capital accounts, and believed that Hong Kong was too slow to deal with related issues.

Although the chances of the US cracking down on Hong Kong's finances in the short term are still small, exposing the weakness to others for a long time is not the way to go.

To resolve the political risks from the US, Hong Kong will inevitably reduce its reliance on the US dollar, reduce its holdings of US dollar assets, and even decouple from the US dollar in the long run.

However, the renminbi is still immature in terms of international flow, which makes Hong Kong in a dilemma in maintaining its relationship with the US dollar, and it is difficult to find a replacement for the US dollar for a while.

To solve this dilemma, Hong Kong can only actively promote the internationalization of the RMB, which is not only to help the RMB, but also to save itself.

The continued strength of the renminbi is an opportunity for Hong Kong. Hong Kong should have policies to grasp the opportunities of the internationalization of the renminbi. Allowing trading in Hong Kong stocks is beneficial to the internationalization of the renminbi.