The world is changing, and Hong Kong must change with the flow. The risks are real, but the opportunities lie ahead. A major opportunity for Hong Kong’s future development is to become the world’s No. 1 RMB asset investment center.
Let’s take a long-term view first, and imagine what the world will look like in 2035, thirteen years later. At that time, China had already become the largest economy in the world, and perhaps China and the United States were still in constant competition. However, following China surpassed the United States, the friction between China and the United States would gradually decrease, because China’s position might no longer be challenged.
China has developed to that point. Of course, the RMB is the currency that circulates around the world. There is a huge pool of RMB funds overseas. China and many countries use RMB for trade settlement. Many countries have a considerable share of RMB assets in their foreign exchange reserves. Private investment in various places Those who also hold a considerable amount of RMB assets. The question is, how do they invest in RMB assets?
Foreign currency assets are mainly divided into three categories: foreign currency deposits, bonds and stocks. How do foreign countries buy Chinese bonds and stocks? This is Hong Kong’s opportunity. Hong Kong will further develop into the world’s largest RMB asset center.
Of course, foreign capital can also directly invest in RMB assets in the Mainland through different channels. However, before the Mainland completely removes foreign exchange controls, there will still be more restrictions on the transfer of assets into and out of the Mainland.
In contrast, when foreign investors buy renminbi bonds and renminbi-denominated stocks in Hong Kong, they don’t have to worry regarding capital flow at all, and funds can freely flow in and out of Hong Kong. In addition, Hong Kong implements the common law system under the “one country” of the country. There are financial laws and regulations that foreign investors are familiar with. Investing in Hong Kong is exactly the same as investing in major financial markets in the world. If you buy it with funds, you can sell it and transfer it away tomorrow. Therefore, Hong Kong has a huge advantage in vigorously developing the RMB asset market.
After the new SAR government took office on July 1 this year, things are also developing rapidly. In September this year, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said that the relevant departments and the Hong Kong financial management department will launch new measures to expand practical cooperation in the capital markets of the two places, including support for Hong Kong to launch RMB stock trading counters, and research on Hong Kong Stock Connect (Mainland Southbound channels for capital investment in Hong Kong) to increase RMB stock trading counters and boost the internationalization of RMB.
At that time, the outside world did not pay much attention to Fang Xinghai’s statement, but the SAR government quickly took action, and began to promote the construction of RMB-denominated stocks in September, including exempting stamp duty for relevant transactions. Hong Kong has already had dual-currency denominated stocks (that is, stocks denominated in RMB and Hong Kong dollars can be issued at the same time). However, the trading of stocks denominated in RMB in Hong Kong is not active, and the public’s interest is not high. There is a price difference. Therefore, the first step is to introduce the market maker system and allow professional institutions to be the market maker, which will activate the transaction of RMB-denominated stocks and attract investors to enter the market.
The second step is “Southern Link”. Mainland stockholders have a gap between A shares denominated in RMB listed in the Mainland and H shares denominated in Hong Kong dollars listed in Hong Kong. The difference between H shares and A shares of the same stock can be as high as 80%. The “Southbound Link” to Hong Kong to buy RMB-denominated stocks is expected to attract a large number of North Rivers to invest in Hong Kong, especially long-term investors. Buying Hong Kong RMB stocks, the stock price is 50% off, and the dividend payout is doubled, which is naturally attractive.
The RMB stock market in Hong Kong has become active. Foreign capital who want to buy RMB assets can invest in Hong Kong. This is a huge new market.
If Hong Kong wants to be at the forefront, it must look forward to the general trend of international development in the next decade or even decades, and quickly expand the business related to RMB assets, and the business will keep coming.
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Lu Yongxiong
