Five senior Chinese economic and financial officials attend a joint news conference in Hong Kong, south China, June 30, 2012. Five senior Chinese economic and financial officials on Saturday elaborated on an array of supportive measures just unveiled by the central government to enhance cooperation and exchanges between the mainland and Hong Kong. (Xinhua/Cheong Kam Ka)

by Lu Hui

The central government has unveiled an array of supportive measures to enhance cooperation and exchanges between the mainland and Hong Kong and to further support Hong Kong's economic and social development.

The measures, announced on the eve of the 15th anniversary of Hong Kong's return to the motherland, cover six broad areas, namely trade and economy, finance, education, science and technology, tourism and cooperation between Guangdong Province and Hong Kong.

Fifteen years after its historic return on July 1, 1997, Hong Kong钬檚 economy, living through a crippling regional financial crisis and global financial crisis, is thriving and its role as an international financial hub has since been elevated and enhanced.

It grew 5 percent on average between 2004 and 2011, outpacing most developed economies, and it is continually ranked by international financial institutions as one of the world's most competitive economies. In terms of financial prowess, Hong Kong is deemed on a parallel with New York and London as the coined term 钬？Nylonkong" appeared on Times Magazine suggests.

HK's status as offshore RMB hub

The central government vowed to promote the further development of the offshore yuan market in Hong Kong to help secure Hong Kong's status as a major international financial hub.

The central government will encourage foreign investors to use China's currency, the yuan, to conduct trade settlements and investment in Hong Kong.

Other financial policies include improving the variety of offshore yuan-based services in Hong Kong and facilitating long-term investment from Hong Kong in the mainland's capital market.

The central government will encourage mainland and Hong Kong enterprises to invest abroad together and promote coordination among airports, harbors and train systems in the Pearl River Delta, including Hong Kong.

The move to expand offshore use of yuan will further secure Hong Kong's place as a major international financial centre, said Andy Ji, currency strategist at Commonwealth Bank Of Australia in Singapore.

It also "will help boost renminbi demand in general as more instruments (for yuan-related investments) are made available," he said.

In another move, China's Ministry of Finance (MOF) announced to issue 23 billion yuan (3.64 billion U.S. dollars) in yuan-denominated sovereign bonds in Hong Kong, the fourth and largest of its kind, as an effort to support Hong Kong's economy.

According to a memorandum of cooperation signed by the ministry and the Hong Kong Exchanges and Clearing Limited (HKEx), yuan- denominated sovereign bonds can get listed in HKEx.

"I believe the inaugural listing of yuan sovereign bonds will increase institutional investors' recognition of sovereign bonds and encourage listing of more yuan bonds in Hong Kong," said Donald Tsang, former chief executive of Hong Kong.

Tsang also believed the status of the HKEx as a secondary market for transactions of yuan products will thus be enhanced.

This move will provide the central banks with a new channel for capital flow as well as further promote the internationalization of the yuan, Vice Minister of Finance Li Yong said.

Looking ahead, Li said the MOF will continue to expand the scale of yuan sovereign bond issuances in Hong Kong on a long-term basis, giving its full support for the development of offshore RMB businesses in Hong Kong.

With increasing demand for RMB financing, issuance of offshore yuan-denominated bonds in Hong Kong (dim-sum bonds) reached 108 billion yuan in 2011, three times the total of 2010 with a broader range of issuers.

The issuance of RMB sovereign bonds for the fourth time demonstrates clearly the central government's support for Hong Kong's development as an offshore RMB business center," said the city's Secretary for Financial Services and the Treasury K C Chan.

The offshore RMB bond market started in 2007 when China's central bank permitted mainland-based financial institutions to issue RMB bonds in Hong Kong.

Hong Kong now possesses the largest offshore RMB liquidity pool, with offshore RMB deposits growing from 310 billion yuan at the end of 2010 to 589 billion yuan at the end of 2011.

According to the Hong Kong Monetary Authority (HKMA), trade settlement in RMB handled by banks in Hong Kong amounted to 1,915 billion yuan in 2011, more than five times the amount settled in 2010.

Cross-border Investment

As part of plan to boost financial exchanges on both sides, China has approved mutual listings of exchange traded funds (ETFs) on Hong Kong and mainland exchanges, said the Securities and Futures Commission (SFC) of Hong Kong.

"The SFC welcomes the China Securities Regulatory Commission's approval today of two ETFs to be listed on the Shanghai and Shenzhen stock exchanges that will invest directly in Hong Kong-listed stocks, each tracking a Hong Kong stock index," the SFC said in a statement.

"The approval of the Hong Kong Stock ETFs represents a milestone in implementing the relevant measures under supplements VI and VII to the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)," SFC's Chairman Eddy Fong said.

"Hong Kong Stock ETFs provide an alternative channel for mainland investors to participate in the Hong Kong securities market and further strengthen the cooperation between the mainland and Hong Kong capital markets," he added.

The SFC has also authorized the world's first Renminbi Qualified Foreign Institutional Investor (RQFII) A-share ETF for listing on the Stock Exchange of Hong Kong.

In another sign of growing financial cooperation between mainland and Hong Kong, the Hong Kong Exchanges and Clearing Limited, one of the world's leading exchange companies by market value, agreed to form a joint venture with Chinese exchanges to develop index-linked and equity derivative products.

The new company, expected to be established within three months from the execution of the agreement, will also engage in market promotion, customer services, technical services and infrastructure development, it said.

"The joint efforts of the three exchanges have great strategic significance and mark a milestone in financial co-operation amongst Shanghai, Shenzhen and Hong Kong," Hong Kong Financial Secretary John Tsang said while addressing the signing ceremony.

Yao Gang, vice chairman of China Securities Regulatory Commission, said the commission will continue to support qualified mainland enterprises to go public at the Hong Kong bourse while allowing Hong Kong financial institutions to open joint venture brokerages, fund management companies and futures firms on the mainland.

Song Liping, president and chief executive officer of Shenzhen Stock Exchange, said the JV will help increase foreign investors' exposure to the mainland market via Hong Kong.

"In addition, the JV can help raise the mainland capital market 's influence in offshore markets and provide opportunities to explore opening up measures," Song said.

Economic cooperation

Detailed policies were announced to foster a special zone in the southern boomtown of Shenzhen in a bold move to speed cooperation between Hong Kong and the mainland.

Under the plan, Qianhai zone, a stretch of 15-square-kilometer reclaimed land in Qianhai Bay in western Shenzhen and near Hong Kong and Macao, will become a testland for financial industry open-up, after an array of steps taken by the government to increase the international use of the yuan

Meanwhile, a new supplementary agreement to the Mainland and Hong Kong Closer Economic Partnership Arrangement(CEPA) was signed to open the mainland market wider to Hong Kong's service industries, which contributed to more than 90 percent of the city's annual economic output.

The supplement, taking effect from January 2013, provides for a total of 43 measures for services liberalization and trade and investment facilitation, covering 22 service sectors such as education, medical treatment, construction, telecommunication, banking, brokerage, tourism and railway transportation.

The new supplement is also aimed at promoting the mutual recognition of professional qualifications in Hong Kong and the mainland.

CEPA, signed on June 29, 2003, aimed to forge closer ties between Hong Kong and the mainland. The pact covers three broad areas, namely trade in goods, trade in services as well as trade and investment facilitation.

There are also arrangements in the supplement to encourage qualified mainland enterprises to go public at Hong Kong bourse while letting Hong Kong financial institutions open joint venture brokerages, fund management companies and futures firms on the mainland.

Jiang Yaoping, vice minister of commerce, said the ministry will implement all policies under the framework of the CEPA and its supplementary agreements, by further liberating service trade, while encouraging qualified mainland enterprises to invest in Hong Kong or team up with Hong Kong partners to "go overseas."

Hong Kong Financial Secretary John Tsang said the new supplement fully reflected the support of the central government to Hong Kong's development, showing the resolution of both sides to promote the service liberalization.