Again, Let the Facts Speak for Themselves


29 Sep 2021

Again, Let the Facts Speak for Themselves

Within the past few weeks, both the Cross-boundary Wealth Management Connect Scheme and the Southbound Trading under Bond Connect were successfully launched, further broadening and deepening the existing Connect schemes and expanding the horizon for the financial industry. During my recent encounters with industry stakeholders, everyone was excitedly gearing up for, and actively discussing how to capture the opportunities arising from these developments. Many of them are already steps ahead (as one would expect nothing less from the financial industry!) and considering how to further enhance the various Connect schemes so as to bolster Hong Kong’s position as an offshore renminbi centre and international financial centre.

These recent developments are a sharp contrast to the condition in the past two years or so. Early last year, Hong Kong had just emerged from social unrest and was facing challenges from the pandemic. The promulgation of the Hong Kong National Security Law (NSL) in July 2020, while deemed a necessary move by the industry, had given rise to some concerns over how this brand new law would be implemented and its impact on the business environment and future prospects. At the time, our discussion with the industry mainly focused on the implementation of the law and significant efforts were made in addressing questions from the industry.

A year has passed and the financial industry generally reckons that, just as we have emphasised, the implementation of the NSL would not have impact on the normal operations of the financial industry. Rather, it has helped rebuild social order and restore a safe and stable business environment, thus allowing the financial sector to focus more fully on the business in Hong Kong and opportunities for further development.

What has alleviated the industry’s concerns? The answer is facts. I have always emphasised that we should let facts speak for themselves and dispel myths. Today, let us once again examine the facts and figures which will clearly demonstrate that our financial markets are operating robustly and continue to thrive.

  • The Linked Exchange Rate System is operating smoothly. The Hong Kong dollar exchange rate against the US dollar has remained on the strong side of the Convertibility Undertaking, reflecting the market’s demand for and confidence in the Hong Kong dollar.
  • The banking industry is growing steadily. Total deposits in the banking system in 2020 increased by 5.4% as compared to 2019, with Hong Kong dollar deposits up by 6.2%. The rising trend continued into the first half of this year, with total deposits and Hong Kong dollar deposits up by 4.6% and 7.6% respectively compared to end-2020. The banking system has also remained robust, with the capital adequacy ratio and liquidity ratio at 20.5% and 148.2% respectively in the first quarter of 2021, both well above international standards. Although the economy was hit by the pandemic, the classified loan ratio remained relatively low at around 0.9%.
  • Fund-raising and trading activities in the stock market are vibrant. Benefitting from the fund-raising needs of Mainland enterprises, particularly new economy firms, funds raised through initial public offerings in Hong Kong last year amounted to HK$397.5 billion and the average daily turnover amounted to HK$129.5 billion, 49% higher than that in 2019.
  • The bond market is also thriving. In 2020, the amount of bond issuance arranged in Hong Kong reached US$196 billion, ranking first in Asia in terms of the amount of international bond issuance arranged. As for the emerging area of green finance, the Hong Kong market has been developing rapidly. In 2020, the amount of green debt financing arranged in Hong Kong reached an annual record high of US$12 billion.
  • Driven by the inclusion of renminbi assets in major international financial market indices, as at 31 August 2021, the daily average turnover of northbound trading under the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect reached RMB120.7 billion, representing an increase of 34% compared with the same period a year earlier. The daily average turnover of the Bond Connect in the first eight months of this year amounted to RMB25.9 billion, a 34% increase compared to a year earlier.
  • Hong Kong’s asset and wealth management businesses continued to record notable growth. In 2020, assets under management in Hong Kong grew by 21% year-on-year to HK$35 trillion, about one-third of which was contributed by net fund inflows.

As pointed out in the Report on Hong Kong’s Business Environment published recently, the Hong Kong economy has always been positioning itself to leverage the support from the Motherland while engaging the world. The financial industry is no exception. Hong Kong has always been the indispensable bridge linking the Mainland market with international financial markets, providing international investors with a familiar regime and platform to conduct various kinds of financial, investment and wealth management activities. Many of the examples listed above involve international capital flows into and out of the Mainland through Hong Kong. Taking equities and bonds as examples, currently, around two-thirds of holdings of Mainland stocks by international investors are held through the Stock Connect; around 60% of international investors’ turnover in onshore bonds is traded through the Bond Connect. On the asset management front, over 60% of funds came from outside Hong Kong, the bulk of which were from Europe, the US and the Mainland, amply demonstrating the extent of internationalisation of Hong Kong’s market.

When we are able to get hold of the facts, it will become clear why the focus of our current discussion with the financial industry has shifted from “dispelling doubts” to “capturing opportunities”. The most obvious opportunity arises from the rising demand for renminbi assets by international investors and the increased use of renminbi in trade, investment and settlement activities around the world. As the largest renminbi offshore market, Hong Kong is the most suitable platform for meeting the demand of both Mainland and international investors. As a result of the hard work over the past decade or so, Hong Kong has established a sophisticated offshore renminbi business system and plays a pivotal role in terms of renminbi liquidity pool, turnover, product types and related services. Let’s look at the related statistics:

  • Hong Kong has the deepest renminbi liquidity pool of over RMB800 billion and is also an offshore renminbi clearing hub. Renminbi trade settlement handled by banks in Hong Kong reached RMB6.3 trillion in 2020, up 18% from 2019, and continues to grow in 2021.
  • Hong Kong is the largest offshore renminbi foreign exchange market. According to the Bank for International Settlements Triennial Survey of Foreign Exchange and Derivatives Market Turnover, Hong Kong’s average daily turnover of renminbi foreign exchange transactions amounted to US$107.6 billion in April 2019, representing 30% of the world’s renminbi foreign exchange turnover and 42% of the turnover outside the Mainland.
  • According to SWIFT statistics, over 70% of the world’s renminbi payments are settled through Hong Kong.
  • Dim sum bonds regained momentum in recent years following a slowdown around 2015. The Ministry of Finance and the People’s Bank of China have been issuing renminbi bonds in Hong Kong on a regular basis. The Shenzhen municipal government will also launch the inaugural issue of renminbi bonds in Hong Kong shortly.

Looking ahead, we will continue to collaborate with the industry to take advantage of the ample opportunities. We will also work closely with the Mainland authorities to enhance the various factors contributing to the success of the offshore renminbi market and promote the internationalisation of renminbi in a prudent manner, so as to effectively serve Hong Kong’s unique bridging role while reinforcing Hong Kong’s status as an international financial centre.


Eddie Yue
Chief Executive
Hong Kong Monetary Authority

29 September 2021

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Last revision date : 30 September 2021