By ZHANG Xiaoqi

The People’s Bank of China, together with banking, securities, and FX regulators, announced a financial reform plan last week to boost the Guangdong-Hong Kong-Macau Greater Bay Area.

Included is permission for investors from Hong Kong and Macau to participate in the mainland capital market with fewer restrictions. The measures will reduce controls on foreign investment, open up the capital market, and speed up the push to internationalize the yuan.

Residents in the Greater Bay Area will be able to purchase wealth management products sold by banks on either side of the border. This, along with the removal of investment quotas for qualified foreign institutional investors, will help the marketization of the yuan, currently under the control of the central bank.

Lifting investment restrictions will “permit relatively free foreign currency exchange in the Greater Bay Area,” according to the plan, which includes measures on trade, clearance, and settlement and allows insurance companies in Hong Kong and Macau to make yuan investments. There are also plans to for a yuan clearing center in Macau for Portuguese-speaking countries.

Other measures include loans by mainland banks to Hong Kong and Macau businesses, cross-border fundraising and asset transactions.

The policymakers are using the Greater Bay Area as a pilot for wider capital market liberalization to remove obsolete capital controls, a reprisal against the recent anti-globalization trend in international trade.

Commercial banks can now issue both yuan and foreign currency loans to mainland companies. In China (Guangdong) Pilot Free Trade Zone, Qianhai and Shekou Area of Shenzhen, foreign companies can obtain yuan loans. Auditing and exchange procedures for foreign investment have been made simpler. Almost US$3 billion (20 billion yuan) worth of transactions have been processed at more than two hundred Shenzhen banks under the new procedures.

In Shenzhen, the implementation of the plan is already underway. Forty-five measures on currency exchange, overseas investment, and insurance service apply to the area’s banking system, and more than two-thirds of them are either already in place, or in the process of being implemented.

The reform will have significant implications for financial services in Hong Kong, Macau, and mainland China. The new measures not only expand the geographic coverage of these institutions but enlarge the scope of their businesses. Shenzhen residents now purchase insurance from Hong Kong and Macau and local banks are able to process claims, renewals, and contract terminations.

Foreign financial institutions are optimistic. Wang Dongsheng of HSBC told Jiemian News that Hong Kong was already the largest offshore yuan trading hub and ready to play an even bigger role in the development of the Greater Bay Area.