In a welcome move, Hong Kong’s leading banks will get a big liquidity boost in yuan to help corporate clients who need loans in the currency. The new trade financing facility will be worth 100 billion yuan (US$13.8 billion) and is expected to become a more stable and inexpensive yuan-denominated source of funding for businesses.
The measure, to be administered by the Hong Kong Monetary Authority (HKMA), will further cement the city’s leading role as an offshore yuan trading centre. The expanded liquidity means banks and their clients can extend trade settlements for up to six months rather than the hitherto seven days. As well, banks can take advantage of the new HKMA facility, which is priced at the onshore yuan interest rate, usually lower relative to the offshore rate.
It is, therefore, a win-win for both lenders and customers. The new facility comes at a fortuitous time as the strong US dollar makes its denominated loans less attractive to borrowers.
Twenty-four local lenders now qualify for the groundbreaking scheme. HSBC, Standard Chartered and Bank of China (Hong Kong) – the city’s three note-issuing banks – will be allotted half of the 100 billion yuan. The new yuan-based loan facility follows the introduction of Hong Kong-listed yuan-denominated shares under the Stock Connect scheme between the city and the mainland. A plan is afoot to allow stamp duties to be paid in yuan. Investors on the mainland will especially find that convenient.
All these incremental measures will attract more mainland capital and deepen trading liquidity in yuan-denominated assets, thus helping to reinforce Hong Kong’s position as the world’s leading offshore yuan hub.
Many Western politicians have claimed Hong Kong is losing its global financial status after the anti-government riots in 2019. Washington has been especially difficult in this respect.
