Chan Mo-po: The listing of government bond futures is conducive to improving offshore hedging tools and advancing the internationalization of the Renminbi.

On August 3rd, Paul Chan Mo-po, the Financial Secretary of Hong Kong, attended the HKEX launch ceremony for Chinas government bond futures and stated that foreign capital establishing long-term positions in China must be matched with efficient risk management tools. The government bond futures launched today provide standardized, on-exchange, tradeable, and priceable offshore hedging tools for Chinese government bonds. The combination of government bond futures and interest rate swaps enhances the completeness of the risk management system for offshore RMB fixed income products. Paul Chan Mo-po pointed out that in the first half of this year, the total import and export value of Chinas goods trade exceeded 25 trillion yuan, a year-on-year increase of approximately 17%, setting a new historical high. The fields of new energy, artificial intelligence, and semiconductors are accelerating the formation of industry clusters with global influence. The development of trade and industries has driven substantial cross-border transactions and usage scenarios for the RMB, as well as the management demand for the RMB in the offshore market. Moreover, the geopolitical situation and uncertain external market environment have also increased the demand from domestic and foreign investors for long-term holdings of RMB assets. The Bond Connect is the main channel for foreign investors to enter the mainland bond market, accounting for about two-thirds of the overall trading share. As of the end of June this year, the scale of Chinese bonds held through this channel has exceeded 3 trillion yuan, nearly three times the scale when the Bond Connect initially started nine years ago. He stated, "The 14th Five-Year Plan clearly indicates the need to accelerate the construction of a strong financial nation, which includes having a robust currency that is widely used in international trade, investment, and foreign exchange markets, as well as holding the status of a global reserve currency." The combination of interest rate swaps and government bond futures makes the risk management system for offshore RMB fixed income products more complete. The accelerated development of RMB internationalization requires a strong offshore payment and settlement system, as well as a thriving ecosystem of investment products and risk management tools, to form a relatively complete yield curve and market depth. After years of continuous development, Hong Kong has built a solid foundation in four aspects: First, a stable offshore RMB funding pool, currently exceeding 1.1 trillion yuan; second, an efficient settlement system, processing nearly 48 trillion yuan per month; third, a continuously expanding dim sum bond market, with issuance exceeding 1 trillion yuan annually over the past two years, and a total stock surpassing 1.6 trillion yuan; fourth, the demonstration effect created by the issuance of RMB government bonds by national entities in Hong Kong: the accumulated amount of RMB government bonds issued by the state in Hong Kong has now exceeded 440 billion yuan. The launch of government bond futures also holds another important strategic significance for Hong Kong. To consolidate and enhance its status as an international financial center, Hong Kong needs to move towards more diversified development, not only becoming a hub for fund raising but also serving as a pricing center, risk management center, and asset allocation center. Government bond futures precisely enhance Hong Kong's functions and advantages in these aspects; with the deepening of connectivity, Hong Kongs role will further upgrade from "connecting the mainland and international markets" to becoming a hub for "bidirectional allocation and bidirectional risk management." Throughout the process of RMB internationalization, Hong Kong has always served as an efficient offshore platform and hub, seeking to stabilize, deepen, and strengthen this offshore market, so that products and services are closely aligned with the needs of national development, and allowing international investors to participate more efficiently in the nations steady development. The formal launch of government bond futures is a summary of efforts over the past period and marks another stage of starting point for meeting the needs of national development. Promoting RMB internationalization and building an offshore RMB market has never been an overnight task; it requires steadfastness and sustained effort. Hong Kong has the responsibility, and more importantly, the confidence to work together with all market participants to ensure a steady, far-reaching, and deeper path ahead, contributing Hong Kong's strength to the building of a strong financial nation.