Opinion

Hong Kong’s status as a finance hub makes it a US target, which may force China to change tactics for internationalising the yuan

Hong Kong’s importance to the yuan and Congress’ new bill show that the trade war has turned into a financial conflict. China’s goal to internationalise the yuan may require greater diversification in the face of such scrutiny

3-MIN READ3-MIN

Chinese 100 yuan banknotes and US$100 notes are seen at a money exchange shop in Causeway Bay, Hong Kong, on August 5. The city is the largest offshore yuan centre worldwide. Photo: Roy Issa

Published: 9:00pm, 13 Oct 2019Updated: 10:02pm, 13 Oct 2019

Politicians in the US Congress are due to vote soon on the Hong Kong Human Rights and Democracy Act. Whether or not the bill is passed, it shows that US intervention in Hong Kong will only increase as the city becomes a geopolitical battlefield amid US-China strategic competition and friction. This will not only affect Hong Kong’s entrepot trade but also its status as a financial centre and the internationalisation of the yuan.

Unlike trade, financial transactions are focused on market stability and risk control. If a market’s position cannot be determined, investors will be encouraged to withdraw to a less risky place. The current crisis will undoubtedly affect Hong Kong’s development as China’s largest offshore yuan trading centre, a growing market of more than 600 billion yuan (US$84.5 billion).

Yuan deposits in Hong Kong have risen to about 644 billion yuan, with total cross-border trade settlement in yuan remittances worth nearly 500 billion yuan. Hong Kong is the world’s largest offshore yuan foreign exchange and over-the-counter interest rate derivatives market, and the largest offshore yuan bond market. It also boasts an established mechanism to issue central-bank notes.

So it’s easy to see why Hong Kong’s financial markets, especially its offshore yuan trading market, are becoming American targets.