Hong Kong and China have unveiled a series of measures aimed at bolstering financial links between the two regions as part of efforts to further integrate the city with the mainland. The announcement, made by Hong Kong's Financial Secretary Paul Chan and other officials, includes six key measures. These measures range from opening up China's onshore repo market to allowing bonds issued by the Chinese state and policy banks as qualified collateral for the Hong Kong Monetary Authority's Renminbi Liquidity Facility.
One of the significant changes will see approximately 50 financial institutions become eligible to pledge yuan-denominated onshore bonds as collateral with the HKMA, starting from February 26. The central bank has also expressed its intention to explore further usage of onshore bonds. Moreover, the Wealth Connect program will be expanded, allowing individual investments to be raised from 1 million yuan to 3 million yuan. The expansion will include the eligibility of more funds, enabling Chinese and Hong Kong brokers to pair up and sell wealth management products for the first time. Financial institutions will also be permitted to offer advisory services to clients, as opposed to solely executing trades.
These measures come at a time when Hong Kong is seeking to regain momentum after facing challenges due to strict Covid policies and the implementation of a national security law in 2020, which led to a significant exodus of residents. By deepening financial links and integration with the mainland, authorities hope to revitalize the city's economy.
The move also reflects China's efforts to shore up its own markets, which have experienced volatility and a loss of market value. Chinese and Hong Kong stocks have recently witnessed a significant decline, with total losses exceeding $6 trillion since their peak in 2021. However, market sentiment improved this week following signals from Chinese officials that they will implement measures to support the market, including potential reserve rate cuts.
Hong Kong's efforts to strengthen financial ties with China have been ongoing in recent years. Initiatives such as Stock and Bond Connects have already facilitated cross-border investments. The Wealth Connect program, launched in 2021, further expands investment opportunities by allowing investment in the Greater Bay Area, a region encompassing Hong Kong and several major cities in southern mainland China, including Shenzhen and Guangzhou.
The measures introduced by Hong Kong and China aim to bolster Hong Kong's status as a key offshore RMB center and promote increased foreign holding of onshore bonds. These initiatives are expected to enhance financial cooperation and deepen economic integration between the two regions, offering new opportunities for investors and financial institutions alike.