OREANDA-NEWS. May 07, 2014. It is a great pleasure to join you at the dinner party hosted by the Hong Kong SAR Government. Let me extend warm congratulations on the opening of the Hong Kong Session.

Over the years, Hong Kong has, as the window of the Chinese mainland’s reform and opening-up and a bridge linking the mainland and the rest of the world, played an important role in supporting and promoting the mainland’s reform, opening-up and modernization. The theme of this session, “Opportunities and Challenges for Hong Kong in the Process of RMB Internationalization”, reflects the closer and deeper financial sector interactions between the mainland and Hong Kong. Earlier this morning, Premier Li Keqiang, said in his keynote speech that the central government has been encouraging and attaching great importance to the development of Hong Kong, and the financial sector in the mainland also has high expectations in deepening financial cooperation between the two sides. The central government has rolled out a series of supportive policies and measures to actively support Hong Kong to develop into an offshore RMB business hub and an international RMB asset management centre.

In his keynote speech, Premier Li emphasized that China will start a new round of opening-up at a higher level, and an important part of this endeavor is to further open up the services sector, including the capital market. For example, we will actively create conditions to establish a Shanghai-Hong Kong stock exchanges connectivity mechanism, and further promote two-way opening-up and healthy development of the capital markets on the mainland and Hong Kong. Especially, Premier Li’s speech highlighted the opening-up and development of the capital market. Over recent years, the mainland and Hong Kong have, after consultations, reached consensus on the establishment of Shanghai and Hong Kong stock trading mechanism and for direct trading of shares on the other’s market. Both sides will actively make technical arrangements. After the technical arrangements are put in place, the Shanghai-Hong Kong Stock Connect will begin its formal operation. This mechanism is consistent with the trend of global development, and the connectivity of the Shanghai and Hong Kong stock markets will help expand the scope and participants of the two markets. It will also help foster long-term stability, prosperity and development of Hong Kong’s financial market, and consolidate Hong Kong’s status as an international financial hub. In addition, it is also conducive to improving the capital market mechanism and promoting the development of a multi-tier capital market in the mainland, so as to promote the common prosperity of the mainland and Hong Kong and promote further integration of Asian capital markets, for the benefit of the economies in Asia. In addition, as an important element in the cross-border use of RMB, the new mechanism will also help increase the cross-border use of RMB and facilitate financing for trade and investments in the region.

Currently, the volume of cross-border use of RMB has increased significantly. However, as a new option for market participants, the cross-border use of RMB still has a long way to go. We have repeatedly said that the choices of currency are left to market participants. Of course, from the perspective of the government and regulator, we will do our “home work”, and leave the final choices to those in the market. We will create favorable conditions in relation to policy, strength, confidence, and etc.

Not long ago, the Hong Kong Financial Services Development Council released a batch of research reports, the first time of report release since its establishment, including six reports such as Strengthening Hong Kong as a Leading Global International Financial Centre. These reports put forward many good suggestions on development of Hong Kong’s financial markets. Many of these recommendations can be further discussed and elaborated to promote their implementation, in order to strengthen Hong Kong’s position as an important international financial centre in Asia, and at the same time further enhance Hong Kong’s comparative advantages such as openness, free competition, innovation and rule of law, and strengthen its core competitiveness.
We are pleased that Hong Kong has played a very important role in promoting cross-border use of RMB. The offshore RMB market in Hong Kong has developed rapidly, with the trading of spot, forward and other RMB derivative products registering rapid growth. The development of the RMB offshore market has effectively consolidated and strengthened Hong Kong’s status as an international financial centre.

In the next stage, we will continue to encourage mainland enterprises and financial institutions to issue RMB-denominated bonds in the Hong Kong market, and encourage Hong Kong-based financial institutions, enterprises and other overseas institutions to issue panda bonds on the mainland market. Studies will be conducted on allowing foreign institutions to use their RMB bond holding as pledges to do bond repo on the mainland interbank bond market. The RMB Qualified Domestic Institutional Investors (RQDII) scheme will be advanced, and domestic institutional investors will be allowed to conduct overseas portfolio investment with RMB. This scheme, together with the RMB Qualified Foreign Institutional Investors (RQFII), will help broaden the two-way flow channels for both domestic and overseas RMB funds, increase the oversea RMB fund pool, support oversea RMB product innovation, and promote the development of RMB offshore markets. In the meantime, we hope Hong Kong will bring its advantages into fuller play, such as a highly developed financial market, a comprehensive trading system, and a rich pool of talents, and develop more RMB financial products, so as to meet diversified needs of the market.

As the use of RMB in cross-border trade and investment increasingly expands, other countries and regions also have considerable demand for offshore RMB business. This represents both a challenge and an opportunity to Hong Kong. The RMB business has broad market prospects. I believe that Hong Kong is fully confident, strong, and capable to play a greater role in promoting cross-border use of RMB, and serves as an offshore RMB centre.

At the moment, we in the mainland are following the major decisions made at the 3rd Plenary Session of the 18th CPC Central Committee, focusing on the decisive role of market in allocating resources, and comprehensively deepening the reform and opening-up of the financial sector. First, efforts will be made to further the opening-up of the financial industry. The pre-access national treatments and a negative list approach will be gradually implemented, restrictions on foreign shareholding and scope of business will be relaxed, so as to achieve opening up of the financial service industry at a higher level. Second, the RMB exchange rate regime will be improved. The market will play a greater role in determining the RMB exchange rate. The central bank will gradually withdraw from regular intervention of foreign exchange market. Recently, the floating band of RMB against the U.S. dollar has been expanded from 1 percent to 2 percent, and the market-based approach will be continued. Third, the market-based RMB interest-rate reform will be accelerated. In light of financial market development, the scope of floating of RMB deposit rates will be expanded at an opportune time, and the independent pricing power of financial institutions will be increased. Fourth, the convertibility of RMB under capital account will be accelerated. Convertibility for capital account and capital market transactions for individuals will be improved in an orderly manner, and cross-border direct investment will be facilitated. These reforms and the development of RMB business will support and reinforce each other.

Ladies and gentlemen, the world economy has both upside and downside risks. The external economic situation is very complicated, and some emerging markets face severe challenges. In general, there are many favorable conditions for the growth of Chinese economy, while the deepening reforms, structural adjustment and on-going urbanization will inject new impetus to the sustainable development of the Chinese economy. This is conducive to common prosperity and development in the mainland and Hong Kong. Closer and effective cooperation between the mainland and Hong Kong is of great importance to safeguarding and promoting economic and financial stability and healthy development in the two places. We are confident that Hong Kong will make full use of its advantages, seize the favorable opportunities of financial reform on the mainland to further enhance its position as an international financial centre, and bring the role of Hong Kong’s RMB offshore centre into full play, so as to promote long-term prosperity and stability of Hong Kong.