HK should focus on integration into GBA financial development
The Guangdong provincial government proposed its own “14th Five-Year Plan” and “Long-Range Objectives Through the Year 2035” on Dec 18. The proposed development programs aim to turn the Guangdong-Hong Kong-Macao Greater Bay Area into an international financial hub in the next five years by joining with the neighboring special administrative regions of Hong Kong and Macao in expanding multilayered capital markets centered on the Shenzhen Stock Exchange (SZSE) and Guangzhou Commodities Exchange, advancing the construction of capital and futures markets to elevate the quality of listed companies and the ratio of direct financing against indirect financing.
Soon after, in January, the China Securities Regulatory Commission (CSRC) approved the establishment of the Guangzhou Commodities Exchange (GZCE) and the merging of the main board with the small and medium-sized enterprises board of the Shenzhen Stock Exchange. Hong Kong-based media reported these two pieces of news, but did not attach much importance to them.
Guangzhou opened the South China Commodities Exchange in the 1990s, which was later closed as a result of a nationwide shakeup of commodities exchanges in 1998. Some people may wonder why the commodities exchange has been allowed to reopen after being shut down for 23 years. The reason is simple: The national economy has been growing by leaps and bounds in both scale and maturity since 1998, and the real economy needs a new commodities exchange to cater to the GBA development in particular.
The existing commodities exchanges in Shanghai, Dalian (Liaoning province) and Zhengzhou (Henan province) and the China Financial Futures Exchange (also located in Shanghai) have their own business focuses. The newly opened Guangzhou Commodities Exchange will be focused on carbon emission rights and quota trading. President Xi Jinping recently promised that China will do its best to make its carbon dioxide emission peak by 2030 and achieve carbon neutrality by the year 2060. That means the Guangzhou Commodities Exchange will be very busy in the years to come.
The SME board of the SZSE came online in May 2004, as a temporary substitute for the startup board that failed to win CSRC approval at that time. In October 2009, the startup board came online at the SZSE, which now boasts three boards. Since the SME board was originally meant as a temporary substitute for the startup board to help mainly tech startups find investors, it is now time for the SME board to merge with the main board after 17 years of operation. The startup board has found its footing after 11 years of operation and no longer needs a sidekick.
In late November, before the CSRC approved the establishment of the GZCE in January and the merging of the SME board with the main board of the SZSE in February, the National Development and Reform Commission made a favorable response to the proposal of establishing a Macao Stock Exchange in the Hengqin New Area in Zhuhai, which is expected to build up a financial industry suited to Macao’s economic development and help diversify its economic landscape.
Now, what should Hong Kong do? Hong Kong Exchange and Clearing revealed on Feb 5 it had acquired a 7 percent stake in the GZCE, worth 210 million yuan ($32.5 million). It is the first time an “overseas entity” has been allowed to be a stakeholder in a mainland commodities exchange and it can be seen as the central government’s support for Hong Kong to play an important role in developing an international financial hub in the GBA. That said, the SAR government and Hong Kong’s financial industry should be even more proactive in becoming a leading party in the endeavor.
It should be noted that the Central Committee of the Communist Party of China’s suggestion on the 14th Five-Year National Economy and Social Development Plan (2021-25) is noticeably different from the previous edition (the 13th Five-Year Plan) as far as Hong Kong’s place in the national development plan is concerned. The 13th Five-Year Plan (2016-20) said the State supports Hong Kong in strengthening its status as an international finance, shipping and trade center; whereas the suggestion for the 14th edition says the State supports the HKSAR in strengthening and improving its competitiveness, developing an international technology innovation center, building up a functional platform for the Belt and Road Initiative and making the GBA a quality economic entity. As far as Hong Kong’s financial markets are concerned, it is necessary to correctly understand the rationale behind the sentences relating to Hong Kong in the 14th Five-Year Plan proposals, which is that Hong Kong must integrate its economy into the GBA development and join with Hong Kong and Macao in building up an international financial hub in the GBA with growing reach, power and functionality.
Hong Kong’s real economy suffers from two major shortcomings, one is its small scale and the other a structural handicap. These shortcomings do not offer Hong Kong’s financial markets a lot of room for expansion locally. That means Hong Kong must tap into the national economy for development opportunities, but to do so it must first overcome two barriers left over from the past — the physical boundary with Guangdong (crossing control) and the mental barrier (ideological difference). In recent years, Hong Kong’s financial industry has been focused only on offshore renminbi trade and attracting mainland companies to Hong Kong for listing. However, as the renminbi gains popularity and convertibility internationally, while the securities markets in Shanghai and Shenzhen become increasingly mature, the HKSAR government and Hong Kong’s financial markets cannot afford to be complacent and must be mindful of future growth. It’s high time Hong Kong discarded its top-dog mentality and the assumption that its counterparts in Shanghai and Shenzhen are still far behind. Otherwise, they may find themselves in a “rabbit-turtle race” situation. Shanghai and Shenzhen are “horses”, not “turtles”. Instead of wasting time and money on acquiring stock exchanges in Western countries, Hong Kong’s financial institutions should focus on integrating into the GBA development and enhancing financial cooperation with mainland counterparts as best they can.
President Xi Jinping recently promised that China will do its best to make its carbon dioxide emission peak by 2030 and achieve carbon neutrality by the year 2060. That means the Guangzhou Commodities Exchange will be very busy in the years to come.