China unveils US$13 billion trade finance facility in boost to yuan hub in Hong Kong

New incentives will enhance Hong Kong’s role as an offshore yuan hub as well as deepen the city’s bond market with more institutional players

Reading Time:2 minutes

HKMA CEO Eddie Yue Wai-man delivers a speech at the Asian Financial Forum Hong Kong on January 13, 2025. Photo: Enoch Yiu

Published: 1:18pm, 13 Jan 2025Updated: 7:00pm, 13 Jan 2025

China has unveiled fresh measures to strengthen Hong Kong’s role as an offshore yuan financing hub, including establishing a new yuan funding facility for banks and companies and expanding access for mainland investors to invest in foreign-currency bonds in the city.

The People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) will offer a 100 billion yuan (US$13.6 billion) liquidity facility for banks to help their customers obtain funding for one, three and six months to support trade. The cross-border Bond Connect scheme will also be tweaked to deepen the market.

“The prosperity and development of the capital market are at the core and foundation of Hong Kong’s status as an international financial centre,” PBOC Governor Pan Gongsheng said at the Asian Financial Forum in Hong Kong on Monday. Both sides will work to expand financial market interconnectivity, “including encouraging more high-quality enterprises to list and issue bonds in Hong Kong”, he added.

People’s Bank of China Governor Pan Gongsheng, seen during a press briefing in Beijing in September 2024. Photo: Reuters

Pan also spoke about substantially increasing the “asset allocation operation in Hong Kong” from the nation’s foreign exchange reserves, without elaborating. The reserves, which stood at US$3.2 trillion, are mostly invested in US dollar assets, specifically US government and agency bonds and gold.

China could use the city to store more of its gold, which amounted to 5.7 per cent of its reserves in October, according to Anderson Cheung, head of global commodities at Best Profit Capital. Airport Authority Hong Kong announced in October a plan to expand its gold vault capacity at the city’s airport to 1,000 tonnes from 150.

Meanwhile, the new yuan liquidity facility is an upgrade to an existing programme, which backs trade financing for up to seven days, HKMA CEO Eddie Yue Wai-man said on the sidelines of the forum. It will make companies and banks “feel more comfortable” to use yuan to settle trade, he added.

“Many banks would like to develop their yuan financing business but are limited by their yuan-based deposits,” HKMA deputy CEO Darryl Chan said. “The new facility will provide a stable source of yuan for them to support their corporate clients.”