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Hong Kong blessed with new development opportunity

By Shi Jianxun (People's Daily Overseas Edition)

14:56, August 24, 2011

Edited and Translated by People's Daily Online

China's Vice Premier of the State Council Li Keqiang announced on Aug. 17 a series of measures adopted by the central government to support Hong Kong's development and deepen its cooperation with the Chinese mainland.

Of them, the most noteworthy are some policy measures to accelerate the pace of developing Hong Kong into an offshore RMB business center. China's central bank governor Zhou Xiaochuan has accordingly released 10 specific opinions on the implementation of the measures, including allowing Chinese mainland institutions to expand the size and scope of issuing yuan-denominated bonds in Hong Kong, permitting qualified foreign institutional investors to make yuan-denominated investments in the Chinese mainland's financial market and supporting Hong Kong-based enterprises to make yuan-denominated foreign direct investments in the Chinese mainland.

The series of measures announced by the central government amid the critical moment of the U.S. and European debt crises and the financial market turbulence have again provided care and support to the Hong Kong Special Administrative Region and Hong Kong compatriots and injected enormous vitality to Hong Kong's economic development. This is of great and far-reaching significance to stabilize Hong Kong's society, boost the confidence of Hong Kong compatriots and promote its economic development and transformation.

The financial sector is Hong Kong's pillar industry. Following the establishment of the offshore RMB business center in Hong Kong, more yuan-denominated financial products will be launched in Hong Kong, bringing more transactions. This will help cement and elevate Hong Kong's status as an international financial center and enhance its competitive edge.

In addition, these new measures also accord with the overall strategic requirement of China's financial development, are helpful for establishing a RMB backflow mechanism and have important strategic significance for accelerating the course of RMB internationalization, strengthening the attractions, competitive powers and vitalities of Hong Kong and the mainland's financial markets.

Establishing a RMB offshore market is an inevitable step for accelerating RMB internationalization. The development of offshore financial market means opening a buffer area for RMB to flow freely and promotes RMB internationalization.

In the current situation of free convertibility being limited under RMB capital projects, in order to make the governments, financial organizations, enterprises and residents of China's trade partner countries willing to hold the RMB, it is urgent to establish a RMB offshore market of a certain scale. According to current conditions, Hong Kong has extremely great advantages for establishing such a market.

Hong Kong, as an important international financial market, not only is within in the dominion of China but also has a fully-internationalized financial market that is different from that of the mainland. Not only does it have mature financial supervision, service and legal systems that are geared to international standards, but also it is closely connected with the mainland economically and financially. Hong Kong is quite influential to Asia and countries around it economically.

As an international financial center and a major offshore center for yuan trade settlement, financing and assets management, Hong Kong plays an important role of a bridge between the Chinese mainland and global financial markets. Yuan circulation has gradually expanded from the mainland to neighboring economies over the past 20 years, and the yuan has become an emerging currency for trade settlement and investment in recent years.

The internationalization of the currency is well underway thanks to the opening and steady economic growth of the Chinese mainland. As one of China's special administrative regions and a major international financial center, Hong Kong plays a unique and irreplaceable role in the yuan internationalization.

Hong Kong should accelerate the construction of the hardware and software infrastructure for an offshore yuan business center, establish a global yuan clearing system as soon as possible, accelerate the innovation of offshore yuan-denominated financial products and expand offshore RMB business.

Furthermore, the region should also coordinate its efforts with the financial regulators, markets and enterprises on the Chinese mainland as well as with the development of Shanghai into a global financial center so as to form a sound interaction mechanism featuring a reasonable division of labor, win-win cooperation, controllable risks and quality services. There are no doubts that Hong Kong will qualify as a "bridgehead" and "proving ground" for the internationalization of RMB.

The author is a freelance commentator for People's Daily and a professor at the School of Economics and Management under Tongji University.

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