Hong Kong expands gold market and invites China to participate

Hong Kong expanded plans to boost the city’s gold storage facilities, with a view to deepening integration between the Asian hub and the mainland as China extends efforts to broaden its reach across international commodity markets.

In his annual policy address on Wednesday, chief executive John Lee unveiled a raft of policies aimed at reviving Hong Kong’s status as a global hub for gold trading, including pledges to increase the city’s capacity for holding bullion to more than 2,000 tons over the next three years and establish a central clearing system for gold.

The move is a significant step up from recent proposals to gradually increase gold storage in the city, as the government doubles down on its ambitions to attract traders to Hong Kong and increase refining operations. Those goals underpin a longer-term strategy of strengthening the link between the mainland and Hong Kong, and Lee used his address to invite the Shanghai Gold Exchange to prepare for mutual market access in the future.

Hong Kong has historically acted as a gateway for China — the world biggest bullion consumer. Beijing, meanwhile, has made strides in recent months to open its markets to foreign players in a bid to gain influence over global pricing.

In June, the SGE — China’s primary platform for physical gold trading — opened its first offshore vault in Hong Kong and launched two contracts for international investors, a step toward reducing reliance on the US dollar and promoting wider use of the yuan in international trade.

Against that backdrop, Hong Kong is positioning itself as the preeminent trading hub in Asia while also accelerating efforts to align itself more closely with Beijing. There are fewer restrictions on imports and exports of bullion in Hong Kong — making it a natural bridge between the global market and mainland China, where controls on shipments remain strict.

Hong Kong has in recent months managed to attract some offshore talent in the gold industry, though state-owned banks are among those facing persistent challenges in hiring amid a shortage of talent. Also on Wednesday, the Hong Kong government announced plans to provide tax concessions for commodity traders and introduce technological innovations in trading to strengthen its long-term commodity strategy.

Earlier this year, the London Metal Exchange — which trades base metals like copper and aluminum — approved Hong Kong as a warehouse location for the first time as the bourse seeks a stronger link to mainland China.

(By Yihui Xie and Sybilla Gross)