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Aligning mindset and vision

Last week, the Central Government sent a delegation led by the Hong Kong and Macao Affairs Office of the State Council to publicise and explain the National 14th Five-Year Plan to different sectors in Hong Kong. The exchanges aimed to explore how Hong Kong can better connect with national development strategies and how Hong Kong can achieve better development by integrating with our Country's overall development. The delegation shared the strategic considerations, overall framework and key directions of the Outline of the 14th Five-Year Plan (the Outline), allowing people in Hong Kong to have a comprehensive overview of its planning and train of thought. Finance and innovation and technology were among the key areas of in-depth discussion in the talk.

I delivered a remark on the Embracing the 14th Five-Year Plan and Dual Circulation Strategy Summit last week.

As an international financial centre and the world's largest offshore RMB business hub, Hong Kong's development is dependent on our geographical proximity to Mainland and its huge market potential. So, during the period covered by the 14th Five-Year Plan, what does the Mainland need? How should Hong Kong derive its strategic plan to seize the pivotal opportunities?

Our Country is already the world's second largest economy, with a middle-class population of about 400 million. Along with our Country's continuous reform and opening-up, as well as steady economic growth, the "size" and "quality" of the Mainland economy will grow and improve further, and the financing and risk management needs of enterprises will increase. The growing middle-class will also mean a much bigger demand for asset management services. More importantly, as the size of the economy and external trade and investment continue to expand, the demand for RMB for overseas transactions and investment is bound to increase. All these bring new opportunities and new room for development for Hong Kong.

Hong Kong is one of the world's top fund-raising platforms for IPOs. In terms of bond issuance, Hong Kong ranked third in Asia (except Japan) after the Mainland and South Korea. Although we have made certain achievements in the bond market development, we still need greater efforts in various aspects so as to seize the new opportunities ahead and embark on a new phase of development.

First, we should promote a deeper and wider bond market. Although Hong Kong has achieved a robust development in stock market, we should provide more diversified financing channels for corporates, with bonds being one of these important tools. From the investors' perspective, bonds are an important option that allows funds to, based on the desirable investment time horizon, effectively match investments with similar maturities and risk levels. Developing the bond market will also help establish a yield curve with long tenors, which is an important benchmark for the cost of long-term capital. It helps investors manage risks and channel the long-term capital for the growth of the real economy. In short, the asset and risk management functions of bonds help gather long-term capital. With the huge demand driven by the continued economic growth of the Mainland and the upcoming launch of the Southbound Bond Connect, Hong Kong's bond market will enjoy more room for development.

Yet, we still need to make breakthroughs in some aspects in order to drive our bond market development to a new level. For instance, many bonds are currently traded over-the-counter with insufficient price transparency, which increases costs and weakens efficiency in transactions. In fact, the entire "ecosystem" of the bond market should be reviewed, including bond issuance, trading, clearing, listing, custody, taxation and credit rating services, etc. In order to accelerate the development of Hong Kong's bond market, the Steering Committee on Bond Market Development in Hong Kong led by me has started its work last week.

On the Summit, the delegation led by the Hong Kong and Macao Affairs Office of the State Council had exchanges with different sectors in Hong Kong on how Hong Kong can better connect with the National 14th Five-Year Plan.

Secondly, we strive to deepen and diversify our asset management market. The asset management business of Hong Kong has recorded a continuous growth in recent years. The growth in asset under management last year reported over 20% increase to HK$35,000 billion, among which over 60% of the funding were sourced from overseas. The cross-boundary wealth management connect pilot scheme in the Guangdong-Hong Kong-Macao Greater Bay Area is ready to be launched soon, which will drive more demand for funds and products.

Thirdly, the development of green and sustainable finance will be another new impetus for the growth of our financial market. Our Country's carbon neutrality goals and the active efforts of other countries around the globe in combating climate change have focused the market's attention on the significance of green and sustainable development. It follows that green bonds, green finance and funds raised from sustainable development investments will bring new momentum to the financial market development.

In fact, in addition to the diversified development of our market and products, the National 14th Five-Year Plan also sets out a very important and attractive development theme for Hong Kong: consolidating the development of the offshore RMB market and contributing to the internationalisation of RMB.

Our Country's economy will continue to expand and develop under the Belt and Road Initiative and the new development pattern of "dual circulation", which emphasises the domestic and external markets boosting each other. As such, the demand of offshore using, holding and investing of RMB by Mainland or foreign enterprises, financial or other institutions will substantially increase. As the world's largest offshore RMB business hub, Hong Kong is not only a "reservoir" for providing offshore RMB funds, but should also develop an "offshore ecosystem" for RMB. Hong Kong is equipped to develop more offshore RMB-denominated investment tools, and to provide return-generating channels, financial instruments and projects, in addition to effective and efficient treasury management services such as currency exchange and exchange rate risk management, which will enable the circulation of RMB funds in the offshore market. As an offshore RMB market in the Country, Hong Kong can fully perform the role as set out in the Outline, i.e. to prudently advance the internationalisation of RMB through market-driven policies and enterprises' independent choices, and promote a new mutually beneficial and cooperative relationship with the free use of RMB.

To link up with the National 14th Five-Year Plan, Hong Kong must also have corresponding strategies and plans. From the financial sector to other areas, we must set new directions for development from the perspective of reaching a new level, so that we can firmly grasp the development opportunities. We need to prepare ourselves to better connect with the Mainland's policies, industries and markets; and more importantly, to align with our Country's vision and mindset for development. Only in this way can we mobilize the power and resources of the whole society to the greatest extent in the complex and interactive market, and promote the better development of Hong Kong in our Country's blueprint for the future. The Country's new development pattern and strategy have created a new stage and new spaces for Hong Kong. We must expedite our work - "only by doing well today, can we win tomorrow."

August 29, 2021