Adviser urges backing for HK derivatives

There is a need to support Hong Kong in piloting more derivative products to reinforce its position as an offshore renminbi risk management center, said a national political adviser.

Zhang Yichen, a member of the 14th National Committee of the Chinese People's Political Consultative Conference, the country's top political advisory body, said that Hong Kong has a competitive edge in leveraging risk management tools to diversify and absorb financial market risk.

Zhang, who is also chairman and CEO of CITIC Capital Holdings Ltd, told China Daily that this advantage stems from its adoption of the common law system and the fact that its financial markets are predominantly driven by institutional investors.

Zhang said: "It is advisable that the central government continues to support the Hong Kong market in pioneering and piloting derivatives products — and introduce piloted products to the mainland market when the timing is mature — to continuously consolidate and enhance Hong Kong's position as a global offshore renminbi risk management center."

Generally speaking, an offshore renminbi risk management center is seen as important for the internationalization of the Chinese currency. It facilitates the renminbi's use outside the Chinese mainland by offering a liquid renminbi market and providing financial instruments like futures, options and swaps that allow investors and businesses to hedge against risks associated with the renminbi and renminbi-denominated assets.

Hong Kong's derivatives market performed strongly last year, with daily average trading volume of key derivative products such as Hang Seng Index futures and options, Hang Seng Tech Index futures and USD/CNH futures, all reaching new highs, Zhang added.

The upcoming launch of offshore futures contracts for the mainland's treasury bonds and options on the FTSE China A50 Index — a key vehicle for international investors to gain exposure to China's A shares — would further enhance Hong Kong's role as a global offshore renminbi hub, Zhang said.

Authorities have been working to launch such derivative products.

Rico Leung, a senior official of Hong Kong's Securities and Futures Commission, said in September, "We hope to bring you the good news soon for both A50 options contracts and T-bond futures."

By providing all these risk management tools, Zhang said the Hong Kong market can assist investors in protecting themselves against risks caused by the volatility of stocks, interest rates and exchange rates. This, in turn, can effectively mitigate substantial capital inflows and outflows and is favorable for attracting long-term capital to renminbi-denominated assets.

Pan Gongsheng, governor of the People's Bank of China, said last week that the central bank will continuously deepen financial collaboration between the Chinese mainland and Hong Kong and strengthen Hong Kong's functions as an international financial asset management center and risk management center. Pan said China will further strengthen financial market connectivity to attract more foreign investors into the country's financial markets.