By Selena Li and Jiaxing Li
Beijing and Hong Kong authorities announced a range of measures Tuesday to bolster currency, bond and gold trading in Hong Kong, stepping up efforts to establish the city as a leading offshore yuan centre amid heightened geopolitical tensions.
Hong Kong launched a central clearing system for gold on Tuesday and also revived gold futures trading as it seeks to become a regional reserve hub for the precious metal.
The launch will create the foundation for Hong Kong to build a comprehensive gold trading ecosystem, Chief Executive John Lee told an investment conference.
"If gold is the world's safe haven, then Hong Kong will be its safe harbour," Lee said, adding that there would be tax incentives for gold trading and settlements.
People's Bank of China (PBOC) governor Pan Gongsheng said the Southbound Bond Connect scheme's quota, which allows mainland Chinese investors to buy bonds in Hong Kong more easily, would be expanded from 500 billion yuan to 800 billion yuan.
"Chinese bonds, with their relative stability and low volatility, offer distinct diversification advantages, and continue to attract demand from international investors seeking to allocate assets," Pan told the forum.
"Coupled with lower yuan financing costs, Hong Kong's offshore yuan bond market now faces a development opportunity."
He said Hong Kong should be able to attract more sovereign issuers and international companies to issue yuan-denominated bonds in the city as it aims to become the region's leading finance hub.
Pan said China had started deploying more of its national foreign exchange reserves into Hong Kong's financial markets across a range of assets. That would be extended in the future, he added.
"The state's foreign exchange reserves continue to increase the proportion of assets allocated to Hong Kong, injecting more momentum into the development of Hong Kong's capital market."
The new initiatives underpin Beijing's ambition to leverage the offshore financial hub of Hong Kong to accelerate its yuan push globally and attract foreign capital into Chinese assets.
As part of the gold announcement, Hong Kong also kicked off a "Delivery Connect" scheme with the Shanghai Gold Exchange to facilitate cross-border gold settlements, and is considering rolling yuan-denominated gold futures contracts, chief executive Lee added.
Hong Kong, which is competing with Singapore to become Asia's gold hub, is seeking to capitalise on rising global interest in the yellow metal at a time when investors are seeking alternatives to the U.S. dollar amid heightened geopolitical uncertainty.