Interview with the Secretary for the Treasury of Hong Kong: Will Singapore replace Hong Kong? Is competition greater than cooperation in the financial sector between Shanghai and Hong Kong? Capital | RMB | Hong Kong

On the afternoon of June 9th, in an interview with reporters, it was the last official itinerary of the Secretary for Finance and Treasury of the Hong Kong Special Administrative Region Government, Xu Zhengyu, in Shanghai. Afterwards, he will take a flight back to Hong Kong. The day before, he came to Shanghai to attend events related to the Lujiazui Forum and visited local financial institutions.

More than 20 years ago, Xu Zhengyu, who graduated from Oxford University, worked in Shanghai for a period of time as a staff member of Standard Chartered Bank. "For me, Shanghai is a constantly changing memory, a young and mature city." As an authentic Hong Kong native, he speaks Mandarin very well, and even occasionally has some "er hua" sounds.

Xu Zhengyu remained true to his main business in three sentences: "I feel that Shanghai's financial institutions, talent density, and financial service quality are constantly improving. Some people say it's the same every year, but I feel it may be even faster." He even politely said, "Hong Kong also needs to learn from how Shanghai's speed is achieved.".

Of course, as a senior official of the SAR government, his interview still started from the local area of Hong Kong.

Will Hong Kong be replaced by Singapore?

"Are you worried that Hong Kong's position as an international financial center will be replaced by Singapore?" the reporter asked him. In recent years, the global financial landscape has quietly shifted. There is a view that Singapore will soon replace Hong Kong as the world's third largest financial center, and the former "Port of Nuremberg" will historically become "Nuremberg.".

"I have no such worries at all," Xu Zhengyu answered decisively, emphasizing that it was not because he was in charge of the Hong Kong Treasury that he said so. The data shows that Hong Kong's financial market data is stronger than Singapore's in terms of stocks, bonds, foreign exchange, asset management, and wealth management. Taking the stock market as an example, at the end of 2021, the total market value of the Hong Kong stock market was HKD 42.4 trillion, and the total market value of the Singapore stock market was SGD 800 billion. The market value of the Hong Kong stock market is more than 9 times that of Singapore.

Another more important point is that Hong Kong has the advantage of "international level funding convergence", which is the core meaning of Hong Kong as an overseas international financial center - promoting the integration of funds between the mainland and overseas.

"I have always said that Hong Kong should play a good role as a super contact." Xu Zhengyu described it as a "hub" that gathers global and mainland capital, and then either introduces it to the mainland or goes overseas. "Hong Kong, as a very important and unique financial function, will become stronger in the future.". For example, 80% of the current market value of Hong Kong stocks comes from mainland enterprises, and high-quality mainland assets prioritize listing in Hong Kong rather than other regions; For example, Hong Kong has always been the first channel for mainland capital to enter the world.

Xu Zhengyu also acknowledges that the restrictions imposed by the United States and the West on the financial development of Hong Kong will have a certain negative impact on its status as an international financial center.

"Although there may be various political considerations, capital is always driven by profit, and Hong Kong also has the advantage of free flow of capital." Xu Zhengyu said that Asia is widely regarded as an important growth point for economic recovery worldwide, and China is recognized as the largest engine of Asian economic growth. "Although different people may have different ideas in the short term, in the medium to long term, most people will still come to our country to seek opportunities, because whether it is Hong Kong or the whole of China, it will bring returns beyond other regions."

"Even during black storms or epidemics in Hong Kong, our entire financial system and market remain highly resilient and highly trusted by the international capital market. From this perspective, Hong Kong has never been absent in serving national development," said Xu Zhengyu.

Is the enhancement of Hong Kong's financial function still weakening?

As some Hong Kong media have pointed out, as the mainland further adjusts and optimizes its financial policies, the pressure on Hong Kong is also quietly increasing. Xu Zhengyu acknowledges that in order for Hong Kong to enhance its ability to serve the country, it must "creatively" play its role as an international financial center in the current context.

In his view, on the one hand, it is necessary to continue to improve the financial environment. He takes the Hong Kong stock market listing as an example. In 2018, the Hong Kong Stock Exchange revised Chapter 18A of its Listing Rules to allow biotech companies with no income or profits to submit listing applications, significantly lowering the IPO threshold. Between 2018 and 2022, a total of 56 mainland biopharmaceutical companies went public in Hong Kong through the "18A" clause, raising HKD 116.3 billion. The Hong Kong Stock Exchange also became the world's second largest biotechnology financing center.

"This year, we will continue to carry out listing reform." Xu Zhengyu introduced that the Hong Kong Stock Exchange implemented the "18C" clause at the end of March, expanding the previous support for biotech companies to list in five high-tech fields, allowing small and strong technology companies from mainland China to list in Hong Kong. "The introduction of a new listing mechanism will help the new generation of companies in the innovation field connect with the capital market and contribute to the development of the Hong Kong financial market."

In addition to practicing hard, Xu Zhengyu mentioned the need to continue strengthening connectivity with the mainland market - in addition to connecting spot markets such as bonds and stocks, it should also extend to derivative products.

On the 19th of this month, the Hong Kong stock market will launch RMB counter services to help investors purchase Hong Kong stocks in RMB. "I estimate that it will account for about 40% of Hong Kong's daily trading volume." Xu Zhengyu said he wants to "have connections" and the next step is to integrate Hong Kong securities market products into the vast mainland Chinese yuan market. Mainland investors do not need to have a foreign exchange process to buy Hong Kong stocks as they do now, but can directly purchase them in Chinese yuan.

"Directly purchasing Hong Kong stocks with RMB is not only a policy relaxation, but also requires support such as technological advancement and cross-border capital flow. This is the direction of Hong Kong's efforts, and we hope to quickly implement the connection between overseas markets and domestic RMB markets." Data shows that as of the end of last year, Hong Kong's RMB deposit amount was close to trillions of yuan; 75% of global offshore RMB settlement business is completed in Hong Kong. Xu Zhengyu believes that after a series of reforms, the ability of Hong Kong's financial market to serve the country will be effectively improved.

Is financial competition between Shanghai and Hong Kong greater than cooperation?

This year marks the 20th anniversary of the establishment of the Shanghai Hong Kong Cooperation Mechanism. For a long time, Hong Kong has been the largest source of foreign investment in Shanghai. "I came to Shanghai to participate in the Lujiazui Forum, hoping to discuss with my colleagues in Shanghai what new measures are needed for future financial cooperation." In Xu Zhengyu's view, at least discussions can be conducted between Hong Kong and Shanghai in areas such as capital connectivity, financial talent cultivation, and cooperation between the two free trade zones.

Xu Zhengyu takes promoting the internationalization of the renminbi as an example. "Nowadays, in order to avoid risks, governments, enterprises, and individuals are considering pure US dollar assets towards assets outside of the US dollar, and I believe that the Chinese yuan will be more favored." He hopes that the RMB counter business in Hong Kong stocks on June 19th is just the first step, and in the future, there will not only continue to be $45 billion in "Hong Kong Stock Connect" turnover between the two places, but also more capital flow methods to help Hong Kong Unicom connect the domestic RMB market and consolidate its position as an offshore RMB hub.

Xu Zhengyu strongly disagrees that Hong Kong and Shanghai "compete more than cooperate" in the financial field. Our country is so large, and the real economy has such a high demand for capital, which is a huge driving force for Hong Kong and Shanghai. The country can fully accommodate multiple financial centers.

He further analyzed that although both regions proposed the construction of international financial centers, there were still division of labor and differences between them. For example, Hong Kong is more of an overseas financial center, while Shanghai is more of a domestic financial center; For example, Hong Kong implements common law and capitalism, and is familiar with both the international market and the international market. Shanghai is backed by a large mainland market and has a good financial management structure, so the two places can fully achieve mutual exchange.

Xu Zhengyu believes that instead of distinguishing between the stronger and weaker regions, it is better to think about how to further make good use of advantages - for example, from the perspective of Hong Kong, how to make good use of internationalization, marketization, and legalization advantages; For Shanghai, how to radiate the mainland's larger real economy. Overall, Shanghai and Hong Kong should learn from each other, complement each other's strengths and weaknesses, complement resources, and compete to move forward.