Hong Kong’s Strategic Role in China’s Financial Development
Experts have highlighted that Hong Kong possesses unique advantages that can support the country’s financial development, especially in light of ongoing geopolitical uncertainties. With the city preparing to unveil its annual budget, economists emphasize the need for Hong Kong to strengthen its role in advancing the internationalization of the Chinese yuan. As Beijing continues its financial opening while maintaining stability, Hong Kong is positioned as a key player in this endeavor.
The potential for Hong Kong to enhance the yuan’s global presence is significant. From expanding offshore yuan products to leveraging its stablecoin regulations as a sandbox for cross-border payment channels, the city has the tools to help realize China’s vision of becoming a “financial powerhouse.” This is particularly relevant at a time when de-dollarization is gaining momentum and investors are seeking new alternatives.
Rui Meng, a finance professor at the China Europe International Business School in Shanghai, noted that Hong Kong serves as a bridge between China and the world, as well as an international financial center. He emphasized the city’s critical role in advancing the yuan’s internationalization, its common law system, deep talent pool, and function as a fintech testing ground for innovation.
The mission has gained urgency as Qiushi, the Communist Party of China’s leading theoretical journal, reiterated President Xi Jinping’s 2024 speech calling for the nation to become a “financial powerhouse.” The speech highlighted the importance of a “strong currency” with global reserve status and widespread use in international trade, investment, and foreign exchange markets.
This call has been amplified amid renewed market turbulence under US President Donald Trump’s administration, with some drawing parallels to the “Nixon shock” of 1971, which disrupted the post-war Bretton Woods system by severing the US dollar’s link to gold.
Raymond Yeung, Greater China chief economist at ANZ, said this year presents a good opportunity to accelerate yuan internationalization, citing intensifying de-dollarization and concerns over the US Federal Reserve’s independence.
Rui pointed out that due to mainland China’s capital controls, the internationalization of the yuan has largely proceeded through offshore markets, making Hong Kong particularly valuable at this stage. As the largest offshore yuan business hub, Hong Kong manages about 80% of global offshore yuan payments and hosts the largest offshore yuan liquidity pool, with deposits of around 1 trillion yuan (US$145 billion).
Rui suggested deepening yuan-denominated products in Hong Kong’s offshore market, such as increasing the scale of government bond issuance, to boost foreign investors’ interest in holding the currency. Beijing’s emphasis on Hong Kong’s role has also become clearer with recent announcements, including Zou Lan, deputy governor of the People’s Bank of China, stating that more funding will be allocated to enable the Hong Kong Monetary Authority to double the size of its yuan liquidity facility to 200 billion yuan.
Gary Ng, a senior economist at Natixis Corporate and Investment Bank, noted that Hong Kong has the market depth to allow China to open its capital account at a controlled pace. However, he also highlighted that the yuan’s internationalization involves a trade-off between attracting more investors and managing greater financial risks.
Ng called on Hong Kong to “plant the seed” by providing more products, financing, and payment options to build a robust ecosystem. He emphasized the importance of expanding the mBridge project, a multi-country platform enabling direct settlement between central bank digital currencies, which includes the central banks of the mainland, Hong Kong, Thailand, the United Arab Emirates, and Saudi Arabia.
Financial Secretary Paul Chan Mo-po is set to deliver the next annual budget speech, outlining spending plans for the new financial year. While the budget primarily focuses on the city’s own financial arrangements, it could also offer insights into the government’s plans for its financial system and how it intends to coordinate more closely with the mainland.
Experts suggest that beyond deepening the offshore yuan market, Hong Kong could help Beijing explore alternative cross-border payment systems. This area is seen as critical for reducing reliance on US dollar-dominated channels, with options ranging from infrastructure expansion to fintech experiments.
Beijing is already advancing two major infrastructure initiatives: the Cross-Border Interbank Payment System (CIPS), a yuan-based clearing network for international transactions, and a cross-border pilot of Project mBridge. These efforts aim to facilitate direct settlements between central bank digital currencies.
Ng said Hong Kong could encourage more banks, especially in Europe, Southeast Asia, and the Middle East, to participate in CIPS and use it more for yuan transactions. He also suggested that the expansion of the mBridge project could serve as a pilot program, including more countries for central bank digital currencies.
Ding Shuang, Standard Chartered’s chief economist for Greater China and North Asia, said Hong Kong could help accelerate the adoption of the digital yuan in cross-border payments. The city could also serve as a sandbox for emerging innovations like stablecoins, helping the mainland avoid missing out on these trends despite onshore restrictions.
ANZ’s Yeung expressed a similar view, saying Hong Kong’s regulations could act as a testing ground, enabling policymakers and the market to evaluate opportunities and risks, and offering Beijing potential options further down the line.
Beijing has remained cautious about crypto assets, recently extending its ban on onshore real-world asset activities and barring the issuance of yuan-pegged offshore stablecoins without authorization. However, central authorities have not hindered Hong Kong from pushing ahead with stablecoins and developing the city into a digital asset center.
Hong Kong’s Stablecoins Ordinance, its first such legislation, took effect in August 2025. The first stablecoin licenses are set to be issued in March this year. Washington has also shown increased awareness of China’s strategy, with US Treasury Secretary Scott Bessent expressing concern about China’s efforts to challenge America’s pre-eminence in digital assets.
Xiao Geng, professor and associate dean of the School of Public Policy at the Chinese University of Hong Kong’s Shenzhen campus, previously suggested that regulators should consider issuing yuan-backed stablecoins in the city as soon as the framework matures. He proposed a dual-track approach for the city: keeping existing assets denominated in Hong Kong or US dollars, while channeling future flows through an offshore yuan-pegged stablecoin system.
Such an approach could support payments and financing for projects under the Belt and Road Initiative and offshore bond issuance by mainland institutions. Xiao added that this could significantly contribute to the yuan’s internationalization at a time when US dollar-backed stablecoins risk entrenching “dollarisation” in the international monetary system.
“It won’t touch domestic monetary policy, but it could give the yuan’s international push a real boost,” he said.
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