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Opinion | How Hong Kong can connect China’s carbon market with the world

  • Hong Kong can act as the testing ground for mainland carbon products, showcasing them to international investors, while providing a source of important feedback for mainland market players
  • In addition, the region’s carbon market opportunity can help support local fintech innovation, particularly in the use of blockchain

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Billows of steam and smoke are emitted from a coal-fired power plant in Beijing in February 2017. China’s carbon emissions trading market is estimated to be three times bigger than the European Union’s. Photo: AP

Despite the many challenges and limitations brought on by the pandemic, Hong Kong’s financial regulators have continued to find opportunities to preserve its current and future status as one of the world’s leading financial centres.

Following the launch last year of schemes to bridge China and international markets, like the Wealth Management Connect and Southbound Bond Connect, policymakers in Hong Kong and their mainland counterparts have been stepping up efforts to position Hong Kong as a sustainable finance hub.
This development also feeds into Hong Kong’s most recent budget, which tagged green and sustainable finance development as a key initiative in Hong Kong’s Climate Action Plan 2050, seeking to combat climate change and achieve carbon neutrality.

There is no other financial centre in the world better placed to tap into China’s massive – but still nascent – carbon emissions trading market, estimated to be three times bigger than the European Union’s and set to grow by another 70 per cent by 2025.

Looking to the future, Hong Kong can play to its traditional strengths: bridging China’s carbon markets with the rest of the world by offering regional expertise and market understanding that cannot be found elsewhere. There is, however, no guarantee of success unless steps are taken to solidify this opportunity.

Feedback garnered from the local financial sector echoes the latest assessment by Hong Kong Exchanges and Clearing, and the Securities and Futures Commission, that Hong Kong is well placed to become the mainland’s offshore risk management centre for carbon market development.
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