Global and Chinese banks are reorganizing their operations in Hong Kong to capitalize on new measures aimed at strengthening the yuan and the gold market. The initiative includes expanding the renminbi liquidity facility and establishing a gold settlement system, positioning the region as a key hub in these areas.
On July 7, the People’s Bank of China, the Hong Kong Monetary Authority, and the Securities and Futures Commission announced 11 measures to enhance liquidity and markets in renminbi. These actions aim to consolidate Hong Kong as the primary offshore center for the yuan and a benchmark for gold trading, aligning with the growing internationalization of the Chinese currency.
The most notable measures include an increase in the quota of the RMB Business Facility, which will rise from 200 billion to 500 billion yuan, equivalent to approximately $73.6 billion. This mechanism will provide additional liquidity to banks in Hong Kong, facilitating activities such as financing and commercial transactions in renminbi. Meanwhile, opportunities are being expanded for international investors in the Chinese bond market, with improvements in access to both sovereign and corporate debt issuances.
The gold-related component is crucial in this strategy. Hong Kong has launched a new central gold settlement system and has revived the futures market, two steps that enhance its role as a regional center for gold reserves. According to Reuters, the new system not only improves storage capacity but also promotes connections with the Shanghai Gold Exchange, facilitating transactions in RMB and the conversion of yuan into physical gold.
Banking sector executives have indicated that the swift implementation of these measures will allow institutions to adapt and capture market share in the new opportunities emerging in Hong Kong. Competition will intensify between international and Chinese banks, as they seek to position themselves in the bond issuance business and services related to gold and renminbi.
The 11 measures announced on July 7 by the PBoC, HKMA, and SFC aim to strengthen Hong Kong’s bond, foreign exchange, and offshore renminbi markets, and are as follows: info
The 11 Measures
- Develop an electronic trading platform for fixed income and foreign exchange in Hong Kong with the collaboration of financial infrastructures from Hong Kong and mainland China. info
- Expand the Southbound Bond Connect, including more annual investment quota, repo operations using bonds from that program as collateral, expansion of products to bonds in HKD and RMB, connection with the Macau bond market, and improvements in market maker management. info
- Allow onshore bonds issued by the Ministry of Finance and policy banks of mainland China, held via Northbound Bond Connect, to be used as eligible margin collateral in HKFE Clearing and SEHK Options Clearing House. info
- Improve the functioning of Northbound Bond Connect to expand settlement hours and gain operational efficiency. info
- Expand Swap Connect to include the Seven-Day Fixing Depository-Institutions Repo Rate (FDR007) as a reference rate. info
- Support the launch in Hong Kong of five-year futures on Chinese government bonds by HKEX, scheduled for August 3. info
- Raise the RMB Business Facility of the HKMA from 200 billion yuan to 500 billion and extend the terms to 9 months, 2 years, and 3 years, effective from July 10. info
- Explore an auction mechanism to provide offshore RMB liquidity for 7 days. info
- Explore the issuance of short-term offshore RMB debt instruments to help build an offshore yield curve. info
- Promote a bilateral transaction framework between the Indonesian rupiah and offshore RMB. info
- Issue best practices for banks to encourage the use of renminbi. info
