3 Reasons Hong Kong Is Important to China: Money, Money, Money

Victoria Harbour Hong Kong.

China is planning to replace four senior officials in the Hong Kong administration. (Image: Barth63 via Pixabay)

With Hong Kong protests turning increasingly violent, Chinese media have been calling for stricter actions against the demonstrations. However, Beijing has largely limited itself to issuing warnings rather than taking concrete military action against the city. This is because the city continues to be a very significant financial asset for China.

Hong Kong’s stock market

The biggest Chinese companies use the city’s stock market to raise capital, whether it be private firms like Tencent or state-owned corporations like the Industrial and Commercial Bank of China. In 2018: “Chinese companies raised US$64.2 billion globally — almost a third of the worldwide total — via initial public offerings (IPOs), but just US$19.7 billion of that came from listings in Shanghai or Shenzhen… compared with US$35 billion in Hong Kong,” according to Reuters.

Subscribe to our Newsletter!

Receive selected content straight into your inbox.

Almost 33 percent of the debt raised by Chinese companies last year was through Hong Kong. Foreign investors buy mainland stocks through the “Connect” schemes that the Hong Kong Stock Exchange (HKSE) runs with the Shanghai and Shenzhen stock exchanges. Any harm to the city will end up blocking the fundraising capacities of Chinese firms.  

Banking system

Chinese banks have huge exposure to Hong Kong. Between 2010 and 2018, the total assets owned by mainland financial institutions in the city grew by 3.2 times to about US$1.2 trillion. This comes to almost 9 percent of China’s GDP.

Chinese banks have a big exposure in Hong Kong.
Chinese banks have a big exposure in Hong Kong. (Image: Monikazhen via Wikimedia Commons)

“While Hong Kong’s bank assets have grown very fast in an aggregate term, China has outpaced all the other countries as their share of assets in Hong Kong’s banking sector increased from 22 percent in 2010 to 37 percent in 2018… The surge draws deep contrast to European banks, which have barely increased their exposure in Hong Kong, and the much slower pace of Japanese and American players,” according to Bruegel.

The huge stake of Chinese banks in Hong Kong means that mainland financial institutions stand to lose a lot more than lenders from other regions should the situation in the city get out of control. The hit to the banking sector will spill over into China and could trigger a credit crisis on the mainland, which is something that Beijing definitely does not want to happen.

The renminbi

Hong Kong is also an important tool for China’s renminbi internationalization ambitions. It was in 2004 that the city became the first offshore market in the world to offer complete renminbi banking solutions. Beijing’s BRI project is expected to boost the renminbi’s status as a cross-border settlement currency. However, if the city were to lose its international financial status, this would have adverse effects on the future growth of the renminbi.

Hong Kong is critical in China’s renminbi internationalization plans.
Hong Kong is critical in China’s renminbi internationalization plans. (Image: via Pixabay)

“Hong Kong’s renminbi liquidity pool (a combination of renminbi deposits and renminbi certificates of deposit), the largest outside mainland China, reached RMB634 billion (US$92 billion) at the end of June 2018… The People’s Bank of China has issued renminbi-denominated central bank bills in Hong Kong through HKMA’s Central Moneymarkets Unit (CMU) four times — totaling RMB90 billion (US$13 billion) — since November 2018 to adjust liquidity and stabilize exchange rates in the offshore renminbi market,” according to PIIE.

In addition to the above, the city is the mainland’s biggest trading partner in services, accounting for more than 20 percent of the market. This is higher than America’s service market share of 17 percent. Plus, the city also controls a significant portion of China’s exports and imports.

Follow us on TwitterFacebook, or Pinterest

Recommended Stories

Mongolia's Tolbor Valley.

Humans Migrated to Mongolia Much Earlier Than Previously Believed

Stone tools uncovered in Mongolia by an international team of archaeologists indicate that modern humans ...

Evgeny Afineevsky.

Film Director’s Letter to the People of Hong Kong

Evgeny Afineevsky, the director of The Winter on Fire: Ukraine’s Fight for Freedom, wrote an ...

A Huawei booth.

China’s Ambitious Growth Just Like Nazi Germany: Australian MP

Andrew Hastie, an Australian MP, has warned that China’s ambitious growth is similar to that ...

11-year-olds from around the world.

‘I Am Eleven’: A Documentary About Childhood Innocence

In 2012, director Genevieve Bailey released a documentary called I Am Eleven in which she ...

Hong Kong youth knelling at the MTR.

Hong Kong Youth Kneel for 3 Hours Until Fainting

It’s been three months since Hong Kong’s anti-extradition bill protests began. The country’s Chief Executive, ...

Massive number of Hongkongers protesting the Extradition Bill.

Largest Protest in Hong Kong’s History as People Rally Against Extradition Law

On June 16, Hong Kong’s Civil Human Rights Front (CHRF) announced that nearly 2 million ...

Pine forest with fog.

How Do We Process Wood for Lumber?

We often take the wood we use to build with for granted. We don’t have ...

Artist’s concept of the SN 2016iet pair-instability supernova.

Total Annihilation of Supermassive Stars

A renegade star exploding in a distant galaxy has forced astronomers to set aside decades ...

Young child leading chant.

Young Boy Leading Chant From Overpass at Hong Kong Rally Goes Viral

The boy on the overpass On August 18, torrential rain didn’t stop 1.7 million Hong ...

Send this to a friend