New measures to strengthen financial cooperation between HK, Mainland China

Hong Kong will launch a new RMB Trade Financing Liquidity Facility with a total size of $106.21b.

The Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBoC) have announced new measures to enhance financial connectivity between Hong Kong and Mainland China.

The initiatives aim to strengthen Hong Kong’s position as a global offshore RMB business hub and include the introduction of liquidity facilities, bond market enhancements, and cross-border payment improvements.

The HKMA will launch a new RMB Trade Financing Liquidity Facility with a total size of $106.21b (RMB100b) to provide Hong Kong banks with stable, low-cost RMB funds for corporate trade financing.

The facility will offer one-month, three-month, and six-month RMB funds at interest rates linked to onshore rates plus a spread. Banks will access the funds via repo transactions or currency swaps with the HKMA, which will source the RMB from the PBoC through a Currency Swap Agreement. This will boost the liquidity of Hong Kong’s offshore RMB market and meet the increasing demand for RMB trade finance. The facility is expected to be launched by late February.

The HKMA and PBoC will also expand the Southbound Bond Connect program by extending settlement times under Central Securities Depositories (CSDs) and enabling multi-currency bond settlements in RMB, HKD, USD, and EUR. Over time, the scope of eligible Mainland investors will also be expanded.

These changes aim to improve asset allocation options for Mainland investors, increase market efficiency, and support the development of Hong Kong’s bond market, particularly the Dim Sum bond segment, HKMA noted.

Moreover, the HKMA is supporting the development of an offshore RMB repurchase (repo) market using Northbound Bond Connect bonds as collateral. This will help establish a market-based liquidity management tool for offshore RMB.

Additionally, Northbound Bond Connect bonds will now be eligible as margin collateral for derivative transactions at OTC Clearing Hong Kong Limited.

In terms of cross-border payments, the HKMA and PBoC are linking Hong Kong’s Faster Payment System (FPS) with the Mainland’s Internet Banking Payment System to allow real-time, small-value remittances, and cross-boundary remittances.

In the Greater Bay Area, the PBoC has expanded the list of banks authorised to offer account-opening attestation services for Hong Kong residents, providing easier access to payment services for Hong Kong residents living and working in Mainland cities.