President Xi Jinping stressed, in a study session attended by principal officials at the provincial and ministerial levels last week, the need for China to develop into a financial powerhouse through institutional opening-up in the financial sector. 

Xi laid down six core elements for the future financial powerhouse: a strong currency, a strong central bank, strong financial institutions, strong international financial centers, strong financial supervision and regulation, and a strong financial talent pool. He emphasized that “by boosting opening-up, China will work to enhance the efficiency and capability of financial resource allocation, improve global competitiveness and rule-making influence”.

As the financial industry is a major economic pillar of the Hong Kong Special Administrative Region, President Xi’s vision of developing the country into a financial powerhouse via opening-up is inspiring to Hong Kong as it has significant implications for the city’s future development. 

Xi stressed the need to promote high-level financial opening-up with a focus on “institutional opening-up”, which is the most comprehensive opening-up. Given the size of China’s economy, the imbalance in economic growth among different regions, and the complexity of transitioning from a planned economy to a market economy, the central government has been cautious about opening up the country’s financial sector. Xi’s reiteration of pursuing “institutional opening-up” in the financial sector indicates the central government’s commitment to opening up the financial sector. 

In fact, the Chinese mainland has stepped up efforts to open up its financial industry since last year. For example, the China Securities Regulatory Commission (CSRC) has lifted the restriction on foreign shareholdings in financial institutions in its attempt to further open up the financial sector to foreign investors; in a bid to expand the reach of Chinese financial instruments, the CSRC has continuously made efforts to raise the weights of A-shares in international indices, open up specific types of futures and options to foreign investors, and allow foreign banks to trade in the domestic treasury bond futures market, as well as support the launch of A-shares index futures in Hong Kong. 

The central government’s firm commitment to opening up the mainland’s financial sector comes as a boon for Hong Kong. It implies that the central government will encourage more mainland enterprises to get listed in Hong Kong, and Hong Kong financial institutions will be given greater access to the vast and expanding mainland market, which is convincingly the ideal choice for Hong Kong’s financial industry to up its game.

President Xi noted that “more should be done to regulate overseas investments and financing activities and improve financial support for Belt and Road cooperation”. This suggests there is room for improvement in financing Belt and Road Initiative (BRI) projects. While providing financial support to BRI projects is warranted and the vast majority of Chinese investments in those projects have yielded returns, fruitless financing activities still emerge as a result of uneven economic development among BRI-participating countries and regions, differences in legal environment and culture, and geopolitical repercussions over recent years.

Xi’s emphasis on “improving financial support” could be interpreted as requiring that market rules should be respected and that every investment should go through a scientific decision-making process. As an international financial center with rich experience in a broad range of international investments, Hong Kong should take up the role as an experienced adviser for mainland enterprises to help improve the quality of their investments in BRI projects. 

Hong Kong, being a free market, imposes no restrictions on capital flows, making it an attractive place for hot money. However, it cannot afford to become a hub for money laundering and risk its advantages as a free port. Rather the city should pull its weight to help the country improve its financial supervisory mechanism as it seeks to step up financial opening

Connectivity creates opportunities for HK

President Xi stressed the need to “enhance the connectivity of domestic and foreign financial markets, make it easier for cross-border investment and financing, and actively take part in global financial regulatory reform”. 

Over recent years, the central government has been dedicated to enhancing the connectivity between Hong Kong’s financial market and those of the mainland, with the Shenzhen-Hong Kong Stock Connect and the Shanghai-Hong Kong Stock Connect specifically set up for that purpose. In March last year, the scope of Stock Connect was further expanded to include qualified stocks of major foreign firms listed in Hong Kong. 

The reiteration of “enhancing connectivity of domestic and foreign financial markets” heralds new opportunities for Hong Kong’s financial market, as the central government is likely to give Hong Kong priority consideration when implementing any pilot plan for greater financial connectivity, hence granting the city a first-mover advantage in such an initiative. Meanwhile, promoting stronger connectivity between domestic and foreign financial markets encompasses many aspects, including new foreign exchange facilitation policies for cross-border trade. A good example would be to encourage banks and payment institutions to develop new trade settlement business such as cross-border e-commerce. Hong Kong’s financial institutions should capitalize on such policy initiatives to develop business on the mainland.

Connectivity involves a wide spectrum of activities; and it behooves Hong Kong to take the lead to systematically take stock of the existing connectivity vacuum between the city’s and the mainland’s financial markets, and find potential areas of institutional innovation and complementarity between the two markets. Above all, Hong Kong needs to win the central government’s support for it to play a gainful role in bolstering financial connectivity.

As President Xi pointed out: The country must maintain the bottom line of financial security when opening up its financial sector; and financial oversight must carry weight.

Previously, criminals have laundered illegally acquired money via offshore investment and financing, causing huge losses to the nation. It is very difficult to recoup the money in question once it has been remitted outside the country. It is, therefore, necessary to take precautionary measures and have comprehensive supervisory mechanisms in place.

Hong Kong, being a free market, imposes no restrictions on capital flows, making it an attractive place for hot money. However, it cannot afford to become a hub for money laundering and risk its advantages as a free port. Rather the city should pull its weight to help the country improve its financial supervisory mechanism as it seeks to step up financial opening.

The author is vice-chairman of the Committee on Liaison with Hong Kong, Macao, Taiwan and Overseas Chinese of the National Committee of the Chinese People’s Political Consultative Conference, and chairman of the Hong Kong New Era Development Thinktank.

The views do not necessarily reflect those of China Daily.