Hong Kong to continue capitalising on ‘dim sum’ bond and loan opportunities after offshore yuan debt grew exponentially in 2023, regulators say

Borrowers and issuers have increasingly opted for local currency financing to mitigate foreign-exchange risks and to diversify rather than to rely on foreign currency, he said.

“In this context, we see that the use of yuan in cross-border trade and investment has been gaining traction in recent years,” Hui said.

The gradual opening up of the mainland Chinese capital market, which can provide more yuan-denominated assets for international investors, and cheaper funding costs in the yuan compared with the US dollar, due to several interest rate hikes by the Federal Reserve since March 2022, were behind this growth, he added.

Hong Kong is uniquely positioned to support offshore yuan needs, Secretary for Financial Services and the Treasury Christopher Hui Ching-yu told the conference.

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“Being the world’s largest offshore yuan hub, we strive to make good use of our distinctive strengths to support and facilitate more issuers with yuan funding needs to issue bonds in Hong Kong,” Christopher Hui said.

The city has extended the coverage of profit tax exemptions to debt instruments issued in Hong Kong by all mainland local governments at any level, he added. Issuances by the People’s Government of Hainan Province and the Shenzhen Municipal People’s Government have enjoyed these exemptions.

The Qualifying Debt Instrument (QDI) scheme, introduced in 1996 to provide concessionary tax treatment on interest income and trading profits derived from qualifying transactions, has also helped boost bond issuances in Hong Kong.

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“Since the implementation of the latest enhancement measures, with effect from April 2018, the number of QDIs in Hong Kong has grown significantly,” Christopher Hui said. “As of the end of 2022, there were close to 1,600 QDIs and around 90 per cent of them were issued after April 2018.”

These measures include expanding the list of eligible collateral for the HKMA’s yuan liquidity facility to include onshore sovereign bonds, further opening up the onshore repurchase agreement market to all foreign institutional investors, and promoting cross-border credit referencing to facilitate companies’ cross-border financing activity.

“To help us better capture the growth potential of yuan financing, we are taking a number of steps,” said the HKMA’s Hui.