Hong Kong has for the first time established a five-year plan, and its financial market is also accelerating the internationalization of the Renminbi. The use of Renminbi is expanding in various scenarios, from government expenditures to stock trading. Experts warn that by increasing the proportion of Renminbi funds in Hong Kong, risks related to mainland real estate, local debt, and credit policies could more directly impact Hong Kong, putting its existing financial firewalls to the test.
The Securities and Futures Commission of Hong Kong announced on September 23 a strategic action plan in line with the five-year plan and policy address, intending to include Renminbi trading counters in the Stock Connect by July 1, 2027. This move will allow mainland investors to directly trade Hong Kong stocks in Renminbi and will broaden the range of assets denominated, traded, and settled in Renminbi in the medium to long term.
This policy initiative stems from the first five-year plan announced by Hong Kong Chief Executive Lee Ka-chao on September 16. Lee stated that Hong Kong seeks to proactively align with China’s “15th Five-Year Plan,” integrating and serving the national development agenda. The five-year plan is positioned by the Hong Kong government as a blueprint for economic and social development over the next five years, with the policy address serving as the annual implementation document.
The concept of a “five-year plan” originated from the national economic planning model during the Soviet era, with the Communist Party of China deploying economic development through “five-year plans” since the 1950s, later transitioning to “five-year plans.”
Now, Hong Kong is adopting this long-term planning approach for the first time to formulate economic and social policies. Professor Chen Jingxiang, a seasoned media figure, wrote in Ming Pao that the implementation of the five-year plan in Hong Kong is not only for the city itself but also for the mainland. It marks a groundbreaking event and a “paradigm shift,” shifting from the Western-style capitalist market economy to align with the Chinese socialist market economy.
In the financial sector, the five-year plan underscores strengthening Hong Kong as a global hub for offshore Renminbi business, including expanding the scale of offshore Renminbi business, enhancing liquidity support, increasing Renminbi products, and promoting Renminbi as a currency for government payments. The plan also suggests continuing to utilize currency swap agreements with the People’s Bank of China, exploring enhanced liquidity support for Hong Kong banks, and integrating Renminbi trading counters into the Stock Connect.
Lee mentioned in a radio program that the Hong Kong government will explore the use of Renminbi in various contracts or transactions with the mainland, such as training civil servants in mainland institutions and considering using Renminbi for some payments.
Currently, the Hong Kong government incurs approximately 20 million Renminbi in monthly routine expenses, including contributions to mainland pension schemes. More government departments are encouraged to utilize Renminbi in practical scenarios.
With Renminbi trading counters included in the Stock Connect, where will the new funds come from? Sun Guoxiang, a professor in the Department of International Affairs and Business at the University of South China, believes that in the short term, mainland capital flows, such as mutual funds and insurance funds, will likely be the primary source, while offshore Renminbi may become a new source of funds in the medium to long term.
This implies that the connection between Hong Kong’s Renminbi financial market and mainland funds will deepen further. Sun noted that if Hong Kong increases the proportion of Renminbi funds, risks related to mainland real estate, local debt, credit policies, and asset quality could more directly transmit to the Hong Kong financial market.
Moreover, there are differences between the financial systems of Hong Kong and the mainland. While Hong Kong has long maintained a financial system with free flow of capital, the mainland still imposes capital account controls. Sun suggests that this creates liquidity gaps, price differentials, and tensions in policy control between offshore and onshore Renminbi markets; as Hong Kong further expands two-way Renminbi flows, pressures on financial regulation and policy coordination could also increase.
The five-year plan also proposes continuing to leverage currency swap agreements with the People’s Bank of China, exploring enhanced liquidity support for Hong Kong banks, facilitating two-way fund flows, and expanding Renminbi bond issuance.
Sun believes that Hong Kong’s ongoing enhancements in liquidity arrangements, bonds, and risk management tools reflect the structural weaknesses in the offshore Renminbi market, such as the relatively small total capital, insufficient asset deposition capacity, and vulnerability to unidirectional expectations impacting liquidity.
He points out that the offshore Renminbi market has long been imbalanced, with more emphasis on trade settlement than financial investment, lacking sufficient secondary markets and derivatives. The fundamental problem lies in “having money but lacking sufficient good investment targets”; overseas holders may swiftly convert back to US dollars after completing trade, making it difficult to establish a complete “deposit-investment-refinancing” cycle in Hong Kong.
Sun believes that the most significant institutional barrier to further expanding Renminbi usage in Hong Kong is the capital account controls and market “firewalls” between Hong Kong and mainland financial systems. Renminbi has not yet achieved full convertibility, the mainland maintains capital account controls, while Hong Kong’s financial market relies on free capital flows, leading to structural contradictions between the two systems.
He indicates that this institutional arrangement creates liquidity gaps, price differentials, and policy control tensions between offshore and onshore Renminbi markets; expanding two-way Renminbi flow in Hong Kong without weakening mainland financial controls poses an institutional bottleneck that Hong Kong cannot unilaterally resolve.