Thanks to the fast-expanding
offshore yuan trade in global finance, the Securities and Futures Commission and the Hong Kong Monetary Authority have been energised to move beyond their more traditional roles. Besides being regulators and having the authority as a guarantor of Hong Kong’s US dollar peg, they also have to be creative in developing new financial channels and expanding existing ones.
The latest is
a road map jointly charted by the two institutions to broaden offshore yuan usage and enhance its liquidity. The pair have their work cut out for them. The markets for fixed income and currency trading in offshore renminbi are huge and could one day rival the bond and dollar trading markets in the United States; the road map aims to get Hong Kong there sooner.
Expansion seems to be the operative word, so billionaire family offices and investment funds will be included in a widened investor base for fixed income products. The cross-border repo market – which makes use of bonds issued by the mainland government and policy banks as collateral or borrowing instruments – will be broadened to enhance market liquidity, as will a futures market for offshore Chinese government bonds.
Going northbound, or from Hong Kong to the mainland, the Swap Connect channel will see its daily net trading quota raised to 45 billion yuan (US$6.3 billion) from the current 20 billion from mid-October. First launched in 2023, it’s an innovative way to enable outside investors to trade and hedge interest rate risks onshore.
Next-generation electronic trading platforms are being developed to match digitalised or tokenised fixed income products.
Stablecoins are digital examples using blockchain technology.
Meanwhile, investors are warming to
dim sum bonds, or bonds denominated in offshore yuan. The market in Hong Kong has grown in tandem with those for offshore yuan foreign exchange trade and interest rate derivatives. As of August, dim sum bond issuances hit 475 billion yuan and are projected to exceed last year’s record of 700 billion yuan. China wants it both ways – capital controls domestically but a liberalised yuan trade offshore. So long as that continues, Hong Kong will stay indispensable.
