As a major international financial centre, Hong Kong has a prudent and robust financial regulatory regime. Hong Kong's economy has always been closely connected to the Mainland's development. As the Mainland becomes the world's second-largest economy, Hong Kong has given full play to its considerable advantages by contributing to national development. Hong Kong has served as a bidirectional gateway connecting the Mainland and international markets. As of June 2023, more than 1400 Mainland enterprises are listed in Hong Kong with a combined market value of over US$3 trillion, or over 70 per cent of the total market capitalisation in Hong Kong.

The Central District of Hong Kong

Offshore RMB business

• Since Hong Kong launched offshore Renminbi (RMB) business in 2004, it has become the global hub for offshore RMB business. It has the world's largest RMB liquidity pool and provides the widest variety of offshore RMB investment products.
• According to the statistics of Society for Worldwide Interbank Financial Telecommunication (SWIFT), Hong Kong handled about 75 per cent of the world's offshore RMB transactions in 2022.
• The average daily turnover of Hong Kong's RMB Real-Time Gross Settlement System was over RMB1.6 trillion in 2022, increased by about 9% over 2021, reflecting a continuous increase in RMB financial activities supported by Hong Kong's RMB financial infrastructure.
• The “HKD-RMB Dual Counter Model” was officially launched in the securities market on 19 June 2023. Investors can trade securities of the same issuer in both HKD and RMB, and transact across HKD and RMB counters, further promoting the issuance and trading of RMB-denominated securities.

Connectivity with the Mainland's capital markets

• The Shenzhen-Hong Kong Stock Connect was launched in 2016. From May 2018, the Northbound daily quota has been increased to RMB52 billion; and the Southbound daily quota has been increased to RMB42 billion. The fourfold daily quota increase further enhances the access of the capital markets in the GBA.
• Northbound Trading under Bond Connect commenced in July 2017, allowing eligible overseas investors to invest in the Mainland's interbank bond market. Southbound Trading under Bond Connect also commenced in September 2021, allowing Mainland investors to invest in Hong Kong's bond market through connection between the financial infrastructure services institutions of the two places.
• The implementation of the Mainland-Hong Kong Mutual Recognition of Funds arrangement in 2015 helps widen the channel of cross-border investments between Mainland and Hong Kong, deepen the mutual access between the two financial markets, thereby making the asset and wealth management business of both places more competitive in the international arena.
• In July 2017, Hong Kong's Renminbi Qualified Foreign Institutional Investor (RQFII) quota was expanded to RMB500 billion. Hong Kong's RQFII quota remains the largest in the world, reinforcing our role as an intermediary to facilitate overseas investors' participation in the Mainland financial markets.
• On 10 September 2021, Cross-boundary Wealth Management Connect in the Greater Bay Area was officially launched to enable residents in Hong Kong, Macao and nine cities in Guangdong Province to carry out cross-boundary investment in wealth management products distributed by banks in the area.
• Inclusion of Exchange-traded Funds (“ETFs”) under Stock Connect officially commenced in July 2022. It further broadens the asset types covered under the mutual market access programme, offering more diverse asset allocation choices to Mainland and overseas investors as well as promoting the vibrancy and diversity of the two markets.
• The exchanges in Shanghai, Shenzhen and Hong Kong further expanded the scope of eligible stocks under Stock Connect in March 2023, including the addition of eligible stocks of foreign companies primary listed in Hong Kong under Southbound trading and more companies listed on the Shanghai and Shenzhen stock exchanges under Northbound trading. The expansion will not only facilitate Mainland and international investors to enrich their global asset allocation, but will also attract more quality international enterprises to list in Hong Kong.
• The Northbound trading of Swap Connect was launched in May 2023, extending the mutual access arrangements to the realm of financial derivatives products. The initiative provides a convenient and secure channel for offshore investors to trade interest rate swap products in the Mainland via a connection between infrastructure institutions in the two places, further strengthening Hong Kong's functions as a global offshore RMB business hub and a risk management centre.
• The Mainland and Hong Kong Regulators announced in August 2023 their consensus to introduce block trading under the mutual market access programme. This signifies another breakthrough of Stock Connect, enriching the existing trading channels and enhancing trading efficiency. The measure is conducive to further enhancing cross-boundary liquidity, and facilitating the mutual access and concerted development of the two capital markets.

Green Finance

• The Government is actively promoting the development of green finance. Since the establishment of the Government Green Bond Programme in 2018, the Government has successfully issued green bonds covering RMB, US dollar, Euro and Hong Kong dollar tranches in multiple tenors under the programme, setting important benchmarks for the market.
• The Government launched the Green and Sustainable Finance Grant Scheme in 2021 to provide subsidy for eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services. The Scheme can encourage more green financing activities to be conducted in Hong Kong and attract more financial and professional service providers including external reviewers to set up or expand their business in Hong Kong, with a view to establishing a well-rounded green finance ecosystem.
• Hong Kong Exchanges and Clearing Limited (HKEX) launched the Core Climate in October 2022, which is currently the only carbon marketplace that offers HKD and RMB settlement for the trading of international voluntary carbon credits.

Corporate Treasury Centre (CTC)

• Hong Kong is an ideal location for multinational and Mainland corporations to set up their CTCs. To provide for a more tax-friendly environment for CTC operations, the Inland Revenue Ordinance was amended in 2016 to allow interest deductions under profits tax for CTCs and to reduce the profits tax rate for specified treasury activities of qualifying CTCs by 50 per cent (from 16.5 per cent to 8.25 per cent). Since July 2018, the half-rate concession has been further extended to specified treasury activities provided by qualifying CTCs to their onshore associated corporations to enhance its attractiveness to corporates.

Insurance

• Hong Kong is one of the most open insurance markets in the world with the highest concentration of insurers and the highest insurance density in Asia.
• To enhance mutual access of insurance markets in the Greater Bay Area, the Government is striving for establishment of after-sales service centres by the Hong Kong insurance industry in places such as Nansha and Qianhai to provide Greater Bay Area residents who are holders of Hong Kong policies with support such as enquiries, claims and renewal of policies.
• Moreover, the “unilateral recognition” policy for cross-boundary motor insurance was implemented to tie in with Northbound Travel for Hong Kong Vehicles which commenced operation on 1 July 2023, providing a more convenient way to obtain the necessary insurance coverage for relevant vehicles to drive in the Mainland
• The Government continues to strengthen Hong Kong as an international risk management centre, leveraging on the Central Government's support which includes –
  • promoting Hong Kong as an ideal location for Mainland companies to establish captive insurers for handling the risks arising from companies' foreign assets and operations, reducing the related cost and enjoying regulatory as well as tax concessions;
  • preferential treatment on insurance regulation by consensus between the Insurance Authority and the former China Banking and Insurance Regulatory Commission that under the “China Risk Oriented Solvency System”, when a Mainland insurer cedes business to a qualified Hong Kong reinsurer, the capital requirement of the Mainland insurer would be reduced. The preferential treatment has been regularised with effect from 1 January 2022, maintaining Hong Kong's competitiveness as an insurance hub assisting in the Belt and Road Initiative;
  • removal of the eligibility requirement under CEPA on Hong Kong service suppliers to establish insurance loss adjusting companies in the Mainland has taken effect since June 2020, encouraging more enterprises with distinctive expertise to expand their business in the Greater Bay Area; and
  • with the Central Government supporting Mainland insurers to issue catastrophe bonds in Hong Kong by relaxing the requirements for establishing special purpose insurers, the Government rolled out in 2021 a dedicated regulatory regime and a pilot grant scheme for insurance-linked securities (“ILS”), which, by August 2023, had facilitated four issuances of ILS in Hong Kong in the form of catastrophe bond, with a total issue amount of USD 560 million, securing protection against losses inflicted by typhoons and earthquakes in the Mainland and overseas places. One of them was sponsored by the World Bank and was listed on the Hong Kong Exchanges and Clearing Limited.

Bond market

• As an international financial centre and a leading bond market in Asia, Hong Kong is the premier choice for bond issuers and investors from around the world. In terms of bonds issued internationally by Asia-based entities, the volume arranged by Hong Kong has ranked first globally for consecutive years. All are invited to capitalise on the vast opportunities arising from a fast-growing bond market in Hong Kong.
• Hong Kong possesses sound legal and regulatory systems, a deep and liquid capital market, robust financial infrastructure and first-class professional services. Market participants also benefit from various incentive schemes designed to facilitate their participation in the debt market, including the Green and Sustainable Finance Grant Scheme which provides subsidy for eligible issuers to cover their expenses on bond issuance, and the Qualifying Debt Instrument Scheme which provides profits tax exemption for trading debt instruments with a Hong Kong nexus.