China’s release of a blueprint for the planned Greater Bay Area (GBA) project has profound implications for the futures of Hong Kong, Shenzhen and Guangzhou and also for global currency markets, suggest analysts.
The GBA region of southern China, which combines nine cities of Guangdong province with Hong Kong and Macau, already surpasses the top three global ‘bay area’ economies of Silicon Valley, New York and Tokyo in land area and population, and has already overtaken the San Francisco Bay Area as measured by gross domestic product (GDP).
By 2030, the GBA region is already predicted to be generating as much as $5 trillion in economic output, to surpass the other three bay economies by a sizeable margin The State Council – China's cabinet – has now release its plan to accelerate the region’s transformation into a world-class city cluster.
The Outline Development Plan for the Guangdong-Hong Kong-Macao GBA, issued by the State Council, also mentions the renminbi (RMB) 13 times, suggesting a major boost to the internationalisation of the China’s by the government.
“Explore and establish a suitable account management framework for the GBA in terms of cross-border treasury management, cross-border renminbi usage and liberalization of capital account, in order to simplify cross-border trade settlement and cross-border investment and finance settlement,” notes the plan.
The RMB is currently the world’s fifth most active currency for domestic and international payments by value, with a share of 2.07% in December 2018 according to Swift.
Hong Kong and Macau
Hong Kong plays a pivotal role in RMB internationalisation as one of Asia’s most dominant financial centres and is now the largest offshore RMB clearing centre, with an offshore RMB pool of around 600 billion yuan (CNY), equivalent to around US$89 billion.
“Institutional investors in Hong Kong are encouraged to raise RMB funds to invest in the Hong Kong capital market, onshore private equity and venture capital market,” states the plan.
“Financial institutions in Hong Kong are encouraged to introduce more new offshore RMB commodity and other risk management products and vehicles. Reinsurance business in renminbi between insurance companies in mainland, Hong Kong and Macau is encouraged.
Macau is also highlighted in the plan as the RMB hub for Portuguese speaking countries. “Macau is supported as the RMBi clearing centre for Portuguese speaking countries and a financial service platform with an export credit insurance system to be established.” In addition, the plan advocates setting up a renminbi denominated securities market in Macau.
Addressing RMB products in the GBA, the plan supports a broader usage of cross-border RMB. “Banks in the GBA are allowed to do a variety of RMB business, including cross-border RMB lending, RMB spot and forward trading, RMB derivative, RMB wealth management product distribution and cross selling. Corporates in GBA are able to issue RMB bond cross border.”
Financial institutions are reported to proactively looking into new renminbi business opportunities under the new GBA plan. “We will probably see new RMB initiatives and plans from our different departments in coming days,” a senior transaction banking manager at a state-owned Chinese bank was quoted as saying.
Closer ties between the economies of Hong Kong, Macau and Guangdong have been discussed for more than a decade but the idea gained traction in 2017 when Chinese premier Li Keqiang made an official pitch for it at the National People’s Congress.