After decades of serving as Beijing’s default platform for international trade, Hong Kong-China financial relations find themselves on the back foot and this unfamiliar position was no better showcased than the past month.
Already there were signals at Beijing's fifth plenum in late October which featured an understandably downbeat tone when discussing Hong Kong-related matters. Along with Macau, the two semiautonomous cities were highlighted for their need to enhance national awareness, patriotism and integrate via the Greater Bay Area project.
While China has traditionally spotlighted Hong Kong’s role in growth-related matters such as international development, finance and trade, the latest meeting by the 19th Communist Party Central Committee focused more on something acutely different: stability.
Confidence Crisis
Even Hong Kong officials now openly admit that the security of the hub’s status has been shaken and efforts are being made to reinvigorate links to the mainland.
«The primary objective of this policy address is to look at ways to get Hong Kong out of the impasse and to restore people’s confidence as soon as possible,» said the city’s chief executive Carrie Lam in her annual speech to unveil new major plans.
«[I]t's clear to everyone that if we want our economy to bounce back, there is no better place than the mainland of China for us to tap into, because other parts of the world are still struggling with the pandemic, with high unemployment, with economic slowdown and so on.»
Hong Kong: Tweaking Bridges
Hong Kong-China relations in the financial sector have recently been defined more by tweaks of existing links rather than the creation of new ones.
Lam’s latest policy address called for the expanded scope of Hong Kong’s cross-border stock trading program with the mainland to include the eligible biotech stocks. The Hong Kong Exchange and Clearing is also bolstering the channel by testing a smart contracts platform – HKEX Synapse – to improve trade settlement speeds.
A previous attempt was made by the local bourse to expand the city's international investor base by acquiring the London Stock Exchange but talks fell through with chief executive David Schwimmer even taking jabs publicly at Hong Kong by naming Shanghai instead as the long-term «financial center of China».
Elsewhere: Building Bridges
Meanwhile, November has been a month of financial bridge-building between China and other financial hubs, most notably, in Singapore. Recently, an agreement was signed for iSTOX to set up a digital securities exchange in Chongqing and an advisory group co-sponsored by the Monetary Authority of Singapore (MAS) and the Chongqing municipal government was also formed. The MAS even suggested greater ASEAN cooperation through the digitalization of commonly used documents in land and sea trade route connected the two regions.
Separately, Singapore is in talks with Beijing as a participant in its sovereign digital currency ambitions. A former central bank governor recently called for more collaboration on the electronic yuan, specifically in retail payments to avoid regulatory issues.
Even in the U.S., the China Securities Regulatory Commission (CSRC) said last week that it was seeking fresh talks to improve auditing access of New York-listed Chinese companies – an outstanding issue that could lead to delistings.
New Era
In addition to the extensive focus on the Greater Bay Area, Lam’s desires to inspire closer ties was best demonstrated by her choice to wear a pin of two crisscrossed flags of Hong Kong and China – a getup that media reports were quick to point out was a first at a policy address.
Historically, Hong Kong’s success as a hub was oft-cited for its status as a relatively independent gateway that enabled global investors to access mainland China. Time will tell how the international financial center will fare under a significantly more integrationist path.
