US dollar banknotes next to China's yuan bills. Photo: AFP

Financial experts and Beijing officials urged the Hong Kong government Monday to help speed up renminbi internationalization by promoting the use of the Chinese currency in the city’s capital markets.

“If the genes of Hong Kong’s long-term prosperity and stability are the fact that the city is facing the world with the support from the mainland at its back, the blood system of Hong Kong is renminbi,” Zhou Chengjun, head of the People’s Bank of China (PBoC)’s Financial Research Institute, said at a seminar about China’s 14th Five-Year Plan from 2021 to 2025.

Zhou said Hong Kong had the conditions and foundations to become a global renminbi asset management, value-added and risk management control center and the government had to boost its effort to achieve this goal.

Since 2009, China has seen an increasing use of its currency in trade settlements after the PBoC allowed for the first time China’s cross-border trade to be settled in renminbi. It encouraged Chinese companies to purchase overseas assets with renminbi but most foreign companies used their renminbi to buy equipment, raw material and pay salaries on the mainland as there were not enough renminbi investment products for them to buy.

On March 12, the National People’s Congress approved the Five-Year Plan, which called for economic integration and technological cooperation between Hong Kong and the Greater Bay Area.

According to the plan, Beijing will help upgrade Hong Kong’s status as a financial, shipping, trade center and international aviation hub and strengthen the city’s functions as a global offshore renminbi business hub, international asset management center and risk management center.

As the world’s largest offshore renminbi hub, Hong Kong has accumulated a renminbi capital pool of 810 billion yuan (US$125 billion) over the past decade. For many years, investors have demanded more renminbi products in Hong Kong.

Chief Executive Carrie Lam said in June that the Hong Kong government had prepared for the coming launch of the Wealth Management Connect and the southbound Bond Connect schemes that would enhance the connections between financial markets of Hong Kong and the mainland. She said the government would seek new channels to increase the cross-border flow of renminbi with the mainland and strengthen Hong Kong’s status as a renminbi hub.

Chief Executive Carrie Lam said the government would seek new channels to strengthen Hong Kong’s status as a renminbi hub. Photo: RTHK

On Monday, the Hong Kong government held a seminar titled “Seizing the opportunities from the National 14th Five-Year Plan” in the Dining Hall of the Legislative Council Complex.

Lam said Hong Kong’s development had to be tightly linked with that of the mainland, because this was the key to the city’s continued success.

“We should leverage ourselves on our country and face the world. With the unswerving support of the central authorities, we will be able to do more,” she said.

“We need to maintain our competitiveness and we need to achieve prosperity and stability. We will implement the overall jurisdiction of the central authorities over Hong Kong. We will integrate our development into that of the country.”

Luo Huining, head of Beijing’s Liaison Office in Hong Kong, said in the seminar, “Hong Kong must have a thorough understanding of the new development concept of the country, so that we can build a new and comprehensive development pattern.

“The spirit of rejuvenating the great Chinese nation is the trend that cannot be stopped. For Hong Kong, the greatest opportunity of development lies with the mainland. Hong Kong must grasp these opportunities.”

As of August 2020, more than 53% of the trade and investment between the Greater Bay Area and Taiwan had been settled in renminbi, which should be called the largest currency for transaction and settlement in the region, Zhou said.

“In the past two years, the PBoC has emphasized that the Chinese currency should dominate in the transaction and settlement of China’s external trade,” said Zhou.

Director of the Chinese Liaison Office, Luo Huining, said Hong Kong must have a thorough understanding of the new development concept of the country. Photo: AFP

“As Hong Kong has a strong influence in Southeast Asian countries due to its knowledge on the financial situations in the region, it can help Chinese companies facilitate their overseas investments and upgrade industries with their renminbi.”

Zhou urged the Hong Kong government to undergo reforms and launch new policies to help achieve renminbi internationalization.

Joseph Yam, an Executive Council member and the former chief executive of the Hong Kong Monetary Authority, said Hong Kong had a role to help connect the financial markets of the mainland and foreign countries and integrate itself into China’s “dual circulation” development paradigm. He suggested that investors should be allowed to trade Hong Kong stocks in renminbi.

Salina Yan Mei-mei, Permanent Secretary for Financial Services and the Treasury (Financial Services), said the government remained open to the launch of more renminbi investment products in Hong Kong but the pace would depend on market demands and regulatory approvals.

The central government’s latest move to highlight Hong Kong’s status as an international renminbi hub came after Beijing decided to delay the implementation of its Anti-Foreign Sanctions Law in Hong Kong last Friday.

Analysts have warned that foreign banks may have to quit Hong Kong as they won’t be able to comply with US sanctions and China’s anti-sanctions law at the same time. They said the exodus of foreign banks would hit Hong Kong’s markets and slow the pace of renminbi internationalization.

Yam said Monday that it would better to spend more time to look into the potential impact of the Hong Kong version of the anti-sanctions law. He said when Carrie Lam was sanctioned by the US, she took the initiatives to close her bank accounts to prevent her banks from getting into a difficult situation. However, Yam said when there was an anti-sanctions law in Hong Kong, it’s unlikely that foreign countries, particularly the US, would allow Hong Kong-based foreign banks to not enforce their sanctions.

Read: Beijing stalls plan to impose HK anti-sanctions law