Hong Kong long-term financial competitiveness to stay strong: DBS

Hong Kong has the deepest renminbi liquidity pool outside the mainland of over 600 billion yuan (US$94 billion), according to the Hong Kong Monetary Authority.

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Hong Kong's Victoria Harbor is seen in this photo taken on May 12, 2021. (PHOTO / XINHUA)

March 16, 2022

HONG KONG – Hong Kong’s financial competitiveness will stay strong in the long term thanks to its offshore renminbi business, according to Singapore-based DBS Bank.

“It is easier for companies to arrange their capital to flow in and out from the Chinese mainland through Hong Kong, compared with other economies. Renminbi deposits remain ample and rose by 28 percent year-on-year by the end of 2021,” said Samuel Tse Ka-hei, economist of Group Research at DBS Bank (Hong Kong).

Samuel Tse Ka-hei, economist of Group Research at DBS Bank (Hong Kong), said he expects Hong Kong’s GDP growth rate to stand at 2.4 percent this year if the city’s swelling outbreaks are brought under control by April 20

“This serves as the base of the regional offshore RMB hub,” he told China Daily.

Hong Kong has the deepest renminbi liquidity pool outside the mainland of over 600 billion yuan ($94 billion), according to the Hong Kong Monetary Authority. SWIFT statistics show that about 76 percent of the global renminbi payments were settled through Hong Kong in 2021.

Under the central government’s 14th Five-Year Plan (2021-25), Hong Kong will strengthen its status as an offshore renminbi business hub. The city issued 5 billion yuan in offshore renminbi green bonds — the first renminbi-denominated bonds — in November as part of efforts to consolidate the city’s role as a facilitator and an innovator in promoting the internationalization of the Chinese currency.

Financial Secretary Paul Chan Mo-po said in the 2022-23 Budget that channels will be expanded for the two-way flow of cross-border renminbi funds, and allowing stocks traded via Southbound Trading of Stock Connect to be denominated in renminbi is under discussion. The authorities in Hong Kong and on the mainland have also made plans on expanding the scope of eligible investment products under the Cross-boundary Wealth Management Connect Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area.

Tse noted that the brain drain in Hong Kong under the pandemic will be a short-term phenomenon. “Relatively low income and profit tax rates will attract foreign direct investment and talent to stay in the long run,” he said.

The city’s skilled labor force in the professional and business services sector dropped by 3.8 percent year-on-year between November 2021 and January 2022, according to DBS.

Tse said he expects Hong Kong’s GDP growth rate to stand at 2.4 percent this year if the city’s swelling outbreaks are brought under control by April 20. If not, he said DBS may downgrade its growth forecast to 1.7 percent or even 1 percent as tough approaches against the pandemic may be extended.

The Chinese mainland sent 75 medical workers to Hong Kong on Monday, lending a hand in the city’s battle to stem the fifth wave of coronavirus infections, with another 300 due to arrive later this week. Hong Kong logged more than 27,700 positive cases on Tuesday.

Tse added that the depreciation of the Hong Kong dollar exchange rate is largely due to US interest rate hike expectations and the Russia-Ukraine conflict in Eastern Europe instead of the pandemic. The Hong Kong dollar traded at 7.82 per dollar on Tuesday, its weakest level since January 2020.

 

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