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Deepening Hong Kong’s development as an international financial centre
In recent years, in view of the increasing risks posed by global climate change to human socio-economic activities, various financial tools and alternative investments which are effective in transferring relevant risks are gradually gaining the market’s attention. Hong Kong has recently welcomed its second issuance of insurance-linked securities (ILS), which amounts to US$ 150 million and covers industry losses inflicted by typhoons in Japan. This ILS issuance marks the steady progress of the diversified development of Hong Kong’s financial services industry.
This ILS is a catastrophe bond issued by a Mainland reinsurer, and is also the second ILS issuance in Hong Kong since the announcement of the “Pilot Insurance-linked Securities Grant Scheme” in the 2021-22 Budget. The objective of the Scheme is to strengthen Hong Kong’s function as an international risk management centre, and each eligible application can obtain a subsidy up to HK$12 million under the Scheme. At the same time, we have established via legislative means a dedicated regulatory regime for ILS (including catastrophe bonds), with a view to building a vibrant ILS ecosystem, enhancing underwriting capacities, strengthening financial resilience and bridging protection gaps.
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For many years, the vibrant IPO capital raising activities in Hong Kong’s financial markets have been the talk of the town. Yet, we are determined to develop Hong Kong into a more comprehensive international financial centre of greater depth. Apart from the stock market, we have dedicated efforts to promote various products including bonds, funds, insurances and derivatives. On bond market, for example, our efforts have started bearing fruit in recent years.
In fact, bonds are also an important investment tool for investors, allowing them to match their capital with the right projects according to their investment horizon and risk tolerance level. Bond market development can help build a yield curve for longer tenors, which is an important reference for the long-term cost of capital, facilitating investors to manage risk and channelling long-term capital into the development of the real economy. In short, the asset and risk management functions of bonds help pool together long-term capital.
To expedite the further development of the local bond market, the Steering Committee on Bond Market Development in Hong Kong, which I chaired, conducted a comprehensive review of the local bond market ecosystem last year. We are committed to enhancing the transparency and efficiency of bond trading in Hong Kong, so as to further stimulate the development of our bond market. In fact, in recent years, we have been actively promoting the issuance of diversified types of bonds in multiple currencies and making use of tax measures to attract more entities in the region to raise funds through issuing bonds in Hong Kong’s market. For instance, the Shenzhen Municipal People’s Government issued RMB 5 billion of bonds in Hong Kong in October last year, which was the first time a Mainland municipal government issued bonds outside the Mainland. The HKSAR Government also issued euro- and renminbi (RMB)-denominated green bonds for the first time last year. Our bond market development has seen good progress in terms of the speed of development, market size, product types and risk management.
In fact, green bonds as well as other green and sustainable finance will be an important direction in promoting Hong Kong's debt market development in the future. Our Country has been very supportive of the development of green and sustainable finance in Hong Kong, and set out in the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) and the Opinion on Providing Financial Support for the Development of the GBA, promulgated in 2019 and 2020 respectively, to support the development of Hong Kong into a green finance centre in the GBA. As a green and sustainable finance hub in the region, Hong Kong can play a vital role in channelling international capital to support the green transformation of the Country’s economy, and contribute proactively in helping our Country to achieve its "3060 Dual Carbon Targets" in relation to carbon emission peak and carbon neutrality.
In the past few years, the HKSAR Government has been working in concerted effort with financial regulators and the industry to promote the development of green and sustainable finance in Hong Kong through a multi-pronged strategy. Since 2019, the HKSAR Government has successfully issued about US$10 billion of green bonds in total, which have been well received by investors, providing an important new benchmark for potential issuers in Hong Kong and the region, and enriching the green and sustainable financial ecosystem.
These issuances also achieved a number of breakthroughs. For instance, the US$2.5 billion of green bond we issued in February 2021 was the world’s largest US dollar government green bond deal at that time, in which the 30-year tranche was even the US dollar government green bond with the longest tenor in Asia. We later issued around US$4 billion worth of green bonds in November and included the euro tranches and RMB tranches for the first time, in which the 20-year euro tranche was the euro government green bond with the longest tenor in Asia at that time. We also issued the inaugural retail green bond of HK$20 billion earlier, which was the largest retail green bond issuance across the globe thus far. The issuance has not only broadened the variety of green and sustainable financial products, but also further enriched the retail bond market in Hong Kong.
Apart from issuing Government bonds, we also hope to provide a green finance platform for governments and corporates around the globe and encourage more businesses and external reviewers to make use of Hong Kong as their green finance base. Last year, we launched a three-year Green and Sustainable Finance Grant Scheme to provide subsidy for eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services. Over the year since its launch, close to 100 applications have been approved, involving a grant amount of about $100 million. Earlier, we have lowered the minimum loan size threshold from $200 million to $100 million in respect of applications for subsidies for covering external review costs under the scheme, so as to benefit more enterprises.
In addition to the bond market as well as green and sustainable finance, the offshore RMB business is also a key area that Hong Kong must continue to develop and promote in the future.
Hong Kong is the world’s largest offshore RMB business hub, processing 75% of global offshore RMB payments. Last year, the total amount of RMB trade settlement handled by banks in Hong Kong was over RMB7 trillion. The offshore RMB liquidity pool in Hong Kong is over RMB800 billion, accounting for about 60% of the world’s offshore RMB deposits. Moreover, the Ministry of Finance has issued RMB sovereign bonds in Hong Kong for 13 years consecutively, totalling RMB238 billion so far. The People’s Bank of China (PBoC) also established a regular mechanism of central bank bill issuance in Hong Kong and has been issuing RMB bills in Hong Kong since 2018, totalling RMB500 billion so far. From the perspective of international trend, following the continuous expansion of the Country’s economy, the demand for RMB in international trade, investment and reserves will continue to grow. Hong Kong, as an offshore RMB business hub, will play a more critical role.
Looking ahead, we will further promote the development of Hong Kong's offshore RMB ecosystem in multiple directions, providing more RMB-denominated investment tools and channels, as well as stable and highly efficient treasury services such as foreign exchange, exchange rate risk and interest rate risk management tools, etc. We will also enhance the relevant market infrastructure to enable a better circulation of RMB in the offshore market, so as to give full play to Hong Kong's function as an offshore RMB centre in the Country and facilitate the internationalisation of RMB.
We will continue to push forward the diversified development of Hong Kong’s financial market. As long as we correctly identify our advantages and positioning, consolidate our strengths, make up for our shortcomings, precisely assess the international trend and serve the needs of our country well, Hong Kong’s financial industry will undoubtedly achieve further development in terms of quality and quantity.
June 5, 2022
