China and Hong Kong broaden investment and financing Links
HONG Kong announced several measures to deepen financial links with China – including facilitating real estate purchases and expanding the Wealth Connect programme – to further integrate the city with the mainland.
Financial Secretary Paul Chan and other Hong Kong officials outlined six new measures on Wednesday (Jan 24), including opening China’s onshore repo market and allowing bonds issued by the Chinese state as well as its policy banks as qualified collateral for the Hong Kong Monetary Authority’s (HKMA) Renminbi Liquidity Facility.
Regulators also agreed to allow greater sharing of creditor information to facilitate cross border financing and to deepen the programme for the digital yuan, according to joint statements.
“These policies will further support Hong Kong’s role as a key offshore RMB centre and a further rise of foreign holding of China onshore bonds,” said Becky Liu, a strategist at Standard Chartered, in a note.
Authorities are stepping up to further financially integrate Hong Kong to the mainland after the city has struggled to regain momentum following years of strict Covid policies and the imposition of a national security law in 2020 that caused thousands to emigrate.
Starting from Feb 26, about 50 financial institutions will be eligible to pledge yuan-denominated onshore bonds as collateral with the HKMA. The de facto central bank said it will continue to explore more usage of onshore bonds.
From the same date, Wealth Connect will allow individual investments to be raised to 3 million yuan (S$563,197) from 1 million yuan, and more funds will become eligible. Chinese and Hong Kong brokers will also be able to pair up to sell wealth management products for the first time, and financial institutions will be allowed to advise clients rather than just execute their trades.
The expansion is coming amid turmoil in both the mainland and Hong Kong markets as China’s economy struggles. Chinese and Hong Kong stocks had lost more than US$6 trillion in market value since a 2021 peak, but have rallied this week as Chinese officials signalled they would cut reserve rates and more forcefully support the market.
Hong Kong has been expanding its financial links with China over the past years, including setting up Stock and Bond Connects to allow cross-border investments. Wealth Connect, launched in 2021, allows for investments in the Greater Bay Area, a region of 70 million people that includes Hong Kong and megacities in the southern mainland such as Shenzhen and Guangzhou. BLOOMBERG
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