DDN Business Insider | Internationalize RMB: 2024 Policy Address leads to new paradigm for HK's gold industry
Editor's note: On October 16, Chief Executive John Lee delivered his third policy address with an array of measures to develop an international gold trading market, which aims to support the internationalization of the RMB and to optimize the securities market. What impact will these new measures have on Hong Kong? What advantages does Hong Kong possess in facing these opportunities?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang.
On October 16, Chief Executive John Lee delivered his third policy address with an array of measures to develop an international gold trading market, which aims to support the internationalization of the RMB and to optimize the securities market. What impact will these new measures have on Hong Kong? What advantages does Hong Kong possess in facing these opportunities? To discuss these topics, we have invited Chan Chan-ying, Legislative Council member, Lee Wai-Hong, Legislative Council member, and Zhang De xi, the President of the Chinese Gold and Silver Exchange Society, for commentary and analysis. Welcome, everyone!
【Anchor】Welcome, everyone! The policy address proposes to transform Hong Kong into an international gold trading center. First, I would like to ask Member Chan, why you think this new positioning as an international gold trading center was proposed.
The proposal in this policy address is driven by multiple reasons. In recent years, the global demand for gold has been steadily increasing, but the main trading and storage of gold are mainly concentrated in New York and London. With that said, having the advantages of being a free port, Hong Kong has historically delivered good performances of physical gold delivery, ranking sixth in global gold imports and tenth in exports. The financial industries using precious metals as collateral have also seen significant growth in Hong Kong. If Hong Kong wants to consolidate its position as an international financial center, it should not only improve existing businesses but also establish new growth points. I believe that by transforming into an international gold trading center, we can simultaneously expand our gold storage business, which will benefit the simultaneous development of shipping, logistics, insurance, and other industries.
【Anchor】The policy address mentioned that Hong Kong is in a leading position in gold import and export volume. In addition to the import and export volume, what advantages do you think Hong Kong has to develop as an international gold trading center, Mr. Cheung?
Our main advantages lie in our market share, trading volume, and import-export activities. We also play a significant role in the global gold market. This reflects the foresight of our Chief Executive that Hong Kong's unique status under "one country, two systems" will allow us to function as part of the nation while enjoying free foreign exchange, tax exemptions for imports and exports, and various other benefits. These factors represent Hong Kong's special advantages within this dual system. We are backed by our motherland while connecting with the international market, which is our strength.
【Anchor】What does Mr. Lee think about the advantages of Hong Kong developing a gold trading center?
Hong Kong has advantages in this regard because we have been very active in business and have been so for many years. More than a few traditional banks already have trading desks for commodities or have engaged in physical gold trading, along with the jewelry industry. There are many experienced professionals in Hong Kong who have been in this business for many years. Moreover, gold is not just an ordinary commodity; it also serves a unique function as a reserve currency and is held by all central banks around the world. There is also commercial demand for gold in various sectors, including technological and industrial uses, as well as in the jewelry industry. Therefore, if we establish trading, storage, clearing and settlement, and develop spot gold trading in the future, it can drive significant growth across many industries—not just in finance, but also in professional services, logistics, and other areas, which will greatly benefit our overall economy.
【Anchor】Additionally, the policy address mentions the construction of international-grade gold storage facilities. Mr. Cheung, from an industry perspective, what is the significance of storage for the development of the gold market?
Storage is very important for the development of the gold industry because gold is a physical asset, and its delivery and transportation require secure storage facilities. Having the ability to store gold safely will enable Hong Kong to concentrate and retain international gold assets, which will bring significant benefits and will be of special symbolism for Hong Kong as an international financial hub.
The gold storage will facilitate the delivery, settlement, and storage of gold. It is crucially important for a safe haven location with adequate legal protection and strong foreign exchange liquidity to have gold storage capabilities.
【Anchor】Finally, I would like to ask Mr. Cheung, in the process of constructing an international gold trading center, what other aspects do you think deserve special attention to develop?
Actually, Hong Kong is well-positioned to develop its gold industry as a trading center because we have all the necessary supporting conditions already in place. We have international gold traders, refining companies, and an international airport along with gold storage facilities. Although the storage capacity may not be sufficient yet, Hong Kong has already, for decades, ranked third or fourth globally in gold trading. If the government's policies align with this direction, which is to promote interconnection between gold trading and the domestic market, it will signify that the country recognizes Hong Kong as a free trade zone in developing gold trading. With this interconnection, the international market's attention will begin to focus on Hong Kong, as everyone wants to do business with China. China can leverage Hong Kong's "one country, two systems" advantage to develop the gold industry.
【Anchor】I would also like to ask Mr. Cheung, how you believe the establishment of an international gold trading center will impact Hong Kong's continued development as an international financial center?
The gold industry is one that the entire world places great importance on. Beyond being the reserve currency, gold serves as hard currency, attracting global attention. Central banks accumulate gold to establish a gold standard for their currencies and to facilitate trade transactions. This is one of the unique characteristics of gold—it is a distinctive product and industry on its own. Hong Kong, as an international financial center, has been strong in gold trading for many years. Currently, as other countries rise and align their policies to capture parts of the gold industry, Hong Kong should strive to secure its status as an international gold trading center.
【Anchor】The policy address mentions that the SAR government will continue to optimize the "Inter-connected Mechanism" to solidify Hong Kong's position as the largest offshore RMB business hub. Mr. Chan, what underlying reasons or considerations do you see are in play here, regarding the introduction of a series of measures for RMB internationalization?
The mainland has incorporated the RMB internationalization into its national development strategy, which further solidifies its determination to promote the international use of the currency. The 14th Five-Year Plan explicitly stated the need to cautiously advance RMB internationalization while developing Hong Kong as a global offshore RMB business hub. Currently, Hong Kong is the largest offshore RMB business center in the world with a fund pool steadily growing. This year, offshore RMB deposits surpassed one trillion RMB, ranking first globally. I believe that Chief Executive John Lee's policies emphasize on both aligning with national policies to leverage Hong Kong's advantages to accelerate the RMB internationalization and helping to solidify our position as an international financial center.
【Anchor】What advantages does Hong Kong have in developing an offshore RMB center, Mr. Lee?
Hong Kong has core advantages in developing RMB operations, particularly in offshore RMB businesses. As outlined in the 14th Five-Year Plan, Hong Kong should leverage its unique characteristics as an offshore RMB hub. As RMB is widely adopted in international trade, Hong Kong has accumulated a significant amount of offshore RMB. In the future, there will certainly be a need to diversify various products and services, especially in the Hong Kong Stock Exchange's commodity desk. It will offer a wider range of stocks, various bonds and fixed-income products to provide more channels for RMB investment and financing.
【Anchor】Regarding the measures announced in the policy address to support RMB internationalization, Mr. Chan, what impact do you believe they will have on Hong Kong's development as an offshore RMB center?
As I mentioned earlier, Hong Kong's offshore RMB development is quite robust, with total RMB deposits exceeding one trillion. However, in terms of the use of offshore RMB loans, there is a lag in development due to interest rate differentials and restrictions on usage. Other RMB investment products are also quite limited other than dim-sum bonds and the recently introduced RMB-denominated stocks.
I believe one significant measure from the policy address is to increase our options for RMB assets, including encouraging more listed companies to expand the variety of RMB stocks and issuing more green bonds and offshore RMB bonds. Besides, it might be beneficial for the Ministry of Finance to issue national bonds in Hong Kong and to expand the Southbound trading channel. All these measures will enhance our options for RMB investments, which in turn can promote the accelerated development of RMB deposits, creating a healthy and sustainable environment for the continued growth of our offshore RMB center.
【Anchor】In terms of the capital market, Chief Executive John Lee stated that the government will optimize the securities market and seek for cooperation with large funds in the Middle East to jointly establish funds for investing in mainland and other regional assets. How do you view the measures related to the capital market in this policy address?
As an international financial center, one of our core missions is to allow global investors to access the mainland market through Hong Kong, while also assisting mainland enterprises in expanding internationally. Hong Kong is home to many different financial institutions with diverse capital backgrounds and scales. If we can collaborate with the Middle East, I believe there will be significant synergy. If they share common investment goals with us, we can connect to identify good investment opportunities for robust returns while strengthening cooperation in this area.
【Anchor】Mr. Chan, how do you view the capital market measures in this policy address?
Due to geopolitical influences, cooperations between Hong Kong and European or American capital are always limited, which has put pressure on our local capital market for a prolonged adjustment period. On the other hand, the Middle East, with its abundant resources such as oil, has relatively ample capital supply, and is less affected by political factors. Therefore, the emphasis on capital from the Middle East in the policy address is an effective measure to optimize and expand our capital market.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Kato Ip, Jerry Wang | Proofread: Chris Liu | Photography: Ping Luo
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