Hong Kong is set to leverage its strong position in gold imports and exports to establish itself as a global gold trading center, according to John Lee, Chief Executive of the Hong Kong Special Administrative Region (HKSAR). In his third policy address on Wednesday, Lee emphasized the city's ranking among the world's largest markets for gold by volume, highlighting the geopolitical advantages that reinforce Hong Kong's appeal for gold storage and related financial activities.

Lee underscored the potential for further growth, stating, “This will spur development across the related industry chain, from investment transactions, derivatives, insurance, storage, to trading and logistics services.” The HKSAR government will actively promote world-class gold storage facilities to support spot gold storage and delivery by both users and investors, potentially opening new growth avenues for collateral and loan services within the financial sector.

To bring this vision to life, a dedicated working group under the Financial Services and the Treasury Bureau will be established by year-end. This team will enhance trading mechanisms, strengthen regulatory frameworks, and explore advanced financial technologies. Additionally, the group will work closely with mainland authorities to include gold-related products in the mutual market access program, thus expanding Hong Kong's global reach in the gold market.

The international gold trading initiative is just one of many measures outlined by Lee to strengthen Hong Kong's global financial standing. Other initiatives include enhancing market access and enriching offshore renminbi (RMB) business to bolster Hong Kong's position as the largest offshore RMB hub. Lee also announced plans to increase RMB-denominated investment products, such as expanding the issuance of RMB sovereign bonds and launching offshore RMB sovereign bond futures. Efforts are underway to collaborate with mainland authorities to expand the bond connect scheme, further diversifying Hong Kong's financial ecosystem.

Hong Kong's Ambition to Double Gold Storage Capacity and Reclaim Leadership

The long-standing history and experience in gold trading put Hong Kong in an excellent position to regain its prominence as a global gold trading giant, said Zhang Dexi, chairman of the Chinese Gold & Silver Exchange Society (CGSE). He expressed confidence in the city's ability to recapture this status, pointing to the policy measures outlined by John Lee.

Among these initiatives is the ambitious plan to expand Hong Kong's gold storage infrastructure. Currently, the gold vault at the Hong Kong International Airport, with a capacity of 150 tons, is nearly at full capacity. To address this, plans are in place to double the storage capacity, either by expanding airport facilities or constructing new vaults elsewhere in the city.

Hong Kong's position as a global gold player is further evidenced by international trade data. According to the OEC, in 2022, Hong Kong ranked sixth globally in gold import value at $27.4 billion, and tenth in export value at $12.4 billion. Local gold trading has also seen significant growth. The CGSE reported that its 99 Gold trading volume saw a 29% year-on-year increase in the second quarter of 2023, while overall gold transactions rose 20% in the first quarter of the year.

Zhang noted that while the international gold trade has shifted away from Hong Kong in recent decades, the city still boasts robust infrastructure, diverse currencies for trading, and tax-free advantages. Zhang believes that mutual market access with mainland China for gold trading will be a "game-changer," ensuring Hong Kong reclaims its global status.

The CGSE, which has been undergoing reforms, will rebrand as the "Hong Kong Gold Exchange." This transition will transform the organization into a corporate entity with over 170 shareholders, aiming to reduce trading costs and promote digital transformation, further aligning Hong Kong with international trading standards. The rebranding and new structure are expected to be announced in the coming months.

In addition to the gold trading center, the policy address outlined plans for a broader commodity trading ecosystem. This includes initiatives such as the Hong Kong Stock Exchange's (HKEX) efforts to set up a recognized warehouse for commodity storage and delivery, further integrating Hong Kong into the global commodities market.

With a rich history in gold trading, robust infrastructure, and strong ties to mainland China, Hong Kong is well-positioned to reclaim its role as a leading global gold trading hub, attracting investors and fostering growth in the financial sector.