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Embracing Changes to Open up New Growth Areas

Last week, the Chief Executive delivered his Policy Address. At a time when the global environment is changing rapidly and our local economy undergoing critical transformation, the Policy Address has put forward a series of measures to drive the whole society to "reform for enhancing development". These measures aim not only at reinforcing the strengths of industries in which Hong Kong enjoys clear advantages, but also opening up new economic growth areas. Among them, the establishment of an international gold trading centre and the creation of a commodity trading ecosystem are two new growth points for Hong Kong to enhance its status as an international financial, shipping and trade centre.

Last week, I held a press conference together with the Secretary for Financial Services and the Treasury, Mr Christopher Hui, and the Secretary for Commerce and Economic Development, Mr Algernon Yau, to elaborate on the measures to promote financial and economic development as outlined in the Chief Executive's 2024 Policy Address.

[Gold Trading Centre]

Gold serves as a crucial anchor within the precious metals category, possessing multiple attributes as a commodity, a reserve asset, and an investment product. At a time of increasing global political and economic uncertainty, gold acts as one of the key hedging tools. With the geopolitical environment becoming more complex and regional situations remaining unclear, it is foreseeable that global demand for gold will remain substantial. Meanwhile, gold, as a reserve currency asset, operates under a pricing mechanism that differs from other commodities, and it is highly significant in financial markets.

Hong Kong's gold trading market has a long history. Due to its proximity to the Mainland and India, two of the world's largest gold consumer markets, Hong Kong's geographical location is advantageous. Hong Kong ranks among the world's largest import and export markets for gold by volume. The city's gold trading volume has continued to increase, with the total turnover of 99 Tael Gold on the Chinese Gold and Silver Exchange growing steadily over the past decade, achieving a compound annual growth rate of more than 18%. In the first quarter of this year alone, it grew by about 20% compared to the same period last year.

In response to an increasingly complex geopolitical environment, many investors now wish to store their gold in different regions, leading to a surge in demand for world-class storage facilities. This presents an opportunity for Hong Kong to develop the gold market. In fact, given the global market's trends, there is significant growth potential for Hong Kong's spot gold trading. Industry professionals estimate that the current daily trading volume of approximately US$100 million has the potential to grow a few folds.

As a first step, we plan to expand Hong Kong's gold storage facilities and rapidly scale up related support services such as trading, insurance, and logistics. Following this, we aim to extend into related derivative transactions such as collateral, loan, and hedging, and gradually build a complete ecosystem. The Financial Services and the Treasury Bureau will establish a working group, including industry professionals, by the end of the year, to formulate plans for optimising the market's trading mechanisms.

Once the infrastructure for gold storage and trading is firmly in place, we can further explore strengthening connections with the Mainland's gold market. Under the unique "one country, two systems" framework, Hong Kong can connect the Mainland with international markets. On the premise that the risks are manageable, we can develop more risk management tools and derivative products tailored to market needs. In the long run, this will greatly enhance our country's influence in the global gold market and strategically enhance Hong Kong's status as an international financial centre.

[Commodity Trading]

Beyond gold, trading in commodities like base metals is also a critical component of the economy, driving demand across sectors such as trade, shipping, logistics, and storage. For manufacturers in various industries, it plays a crucial role in ensuring a stable supply of key raw materials. In essence, commodity trading entails a long industry chain, which would generate a significant demand for financial services such as risk management and hedging.

For this reason, the development of a commodity trading ecosystem could become a new pillar supporting the interconnected growth of Hong Kong as an international financial, shipping, and trade centre. It will also help drive more robust shipping and trade development within the Greater Bay Area, and help stabilise the supply chains of regional manufacturers. In the short to medium term, our priority is to increase the volume of trade and promote value-added services derived from commodity trading. Within the commodity ecosystem, the buyers and sellers of commodities are cargo owners. Therefore, we must compete for goods as well as cargo owners, striving to attract commodity trading companies to establish headquarters or regional offices in Hong Kong. By building the core markets and trade structures, we will naturally boost demand for high-value-added services and supply chain services, attracting more professional service providers to Hong Kong. We will also explore tax and other support measures to provide incentives for these companies to establish their presence in Hong Kong.

Moreover, the London Metal Exchange, a subsidiary of the Hong Kong Exchanges and Clearing Limited, recently announced that it is studying the establishment of accredited warehouses in Hong Kong for delivery of commodities, including non-ferrous metals, thus further enhancing its warehouse network in Asia. The Mainland's demand for commodity trading is immense, and having accredited warehouses in Hong Kong will offer the most convenient, more cost-effective, and safer transshipment channels for users in the Mainland and across Asia. It will also better leverage Hong Kong's advantages in trading, shipping, and financial services.

From the development of an international gold trading market to the creation of a commodity trading ecosystem, they can bring fresh impetus and new opportunities to various industries. Hong Kong has enormous development potential in these areas, and we are pressing ahead with full steam along the path. By identifying the right development objectives, formulating sound development strategies and advancing firmly and steadily towards our objectives, we will certainly be able to provide new growth momentum, accelerate the economic transformation and development of Hong Kong in a new era, and make new and greater contributions to the country's development.

October 20, 2024