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Prof. Shen Yan: Guangdong-Hong Kong-Macao Greater Bay Area Ready for Digital Finance

May 04-2023   



The Guangdong-Hong Kong-Macao Greater Bay Area possesses a plethora of positive elements for developing digital finance to facilitate resource integration of the three regions at the service of national development, wrote Prof. Shen Yan in a commentary. She is NSD Professor of Economics and Deputy Director of PKU Institute of Digital Finance.

 

Besides its unique position at the coupling juncture of domestic and international circulations, the area has been enjoying policy support and regulatory innovation and hosting outstanding fintech practices. Backed up by the 1.4-billion-consumer market, the area has an enormous potential to become a world-class digital finance center provided that it fully taps local technologies, resources, and institutional advantages, said Prof. Shen.

 

Yet some major roadblocks still need to be overcome. The first one concerns the modes of innovation: the area’s financial innovation is insufficiently docked with real economy development, and its capital markets need to do a better job at supporting real economy innovation, said Prof. Shen. The second challenge is about how to deepen the integration of the regions. Connected by superb infrastructure like bridges and tunnels, the three regions, under the ‘One Country, Two Systems’, pertain to different social and legal systems and tariff areas and have hurdles to cross to improve the inter-connectivity of their respective markets. Another crucial issue lies in the challenges that might confront Chinese mainland’s capital control if its financial system is fully integrated with those of Hong Kong and Macao, both of which have their own currencies, exchange schemes, and capital control mechanisms.

 

To address these challenges, Prof. Shen proposed three undertakings. The first one is to resort to inclusive finance to support technological innovation. Digital finance will enable more SMES to access financial services, improve the accuracy of corporate valuations, and help traditional private equity investment institutions to improve service efficiency and lower costs. The second solution is to promote industrial finance on top of consumer finance. By harnessing cutting-edge digital technology, an industrial internet can be constructed, which will empower traditional banks to change their risk control methods and serve more enterprises, facilitate the integration of industry and finance by hosting corporate data throughout value chains and building an open and panoramic eco-system, and eventually lead to the creation of an all-encompassing digital finance service solution. Prof. Shen said that to improve inter-connectivity, the Greater Bay Area can deploy blockchain and privacy computing technologies to share data and facilitate cross-border talent and trade flows. In terms of currency integration, she placed particular focus on the role of Hong Kong as an active RMB offshore center which can play an even bigger role in promoting the digital currency of the People’s Bank of China and other stablecoin projects. As for institutional integration, she believed that the institutional discrepancies among the regions entail both dividends and challenges, and strengthening their integration is the major trend ahead.

Prof. Shen Yan: Guangdong-Hong Kong-Macao Greater Bay Area Ready for Digital Finance

May 04-2023   



The Guangdong-Hong Kong-Macao Greater Bay Area possesses a plethora of positive elements for developing digital finance to facilitate resource integration of the three regions at the service of national development, wrote Prof. Shen Yan in a commentary. She is NSD Professor of Economics and Deputy Director of PKU Institute of Digital Finance.

 

Besides its unique position at the coupling juncture of domestic and international circulations, the area has been enjoying policy support and regulatory innovation and hosting outstanding fintech practices. Backed up by the 1.4-billion-consumer market, the area has an enormous potential to become a world-class digital finance center provided that it fully taps local technologies, resources, and institutional advantages, said Prof. Shen.

 

Yet some major roadblocks still need to be overcome. The first one concerns the modes of innovation: the area’s financial innovation is insufficiently docked with real economy development, and its capital markets need to do a better job at supporting real economy innovation, said Prof. Shen. The second challenge is about how to deepen the integration of the regions. Connected by superb infrastructure like bridges and tunnels, the three regions, under the ‘One Country, Two Systems’, pertain to different social and legal systems and tariff areas and have hurdles to cross to improve the inter-connectivity of their respective markets. Another crucial issue lies in the challenges that might confront Chinese mainland’s capital control if its financial system is fully integrated with those of Hong Kong and Macao, both of which have their own currencies, exchange schemes, and capital control mechanisms.

 

To address these challenges, Prof. Shen proposed three undertakings. The first one is to resort to inclusive finance to support technological innovation. Digital finance will enable more SMES to access financial services, improve the accuracy of corporate valuations, and help traditional private equity investment institutions to improve service efficiency and lower costs. The second solution is to promote industrial finance on top of consumer finance. By harnessing cutting-edge digital technology, an industrial internet can be constructed, which will empower traditional banks to change their risk control methods and serve more enterprises, facilitate the integration of industry and finance by hosting corporate data throughout value chains and building an open and panoramic eco-system, and eventually lead to the creation of an all-encompassing digital finance service solution. Prof. Shen said that to improve inter-connectivity, the Greater Bay Area can deploy blockchain and privacy computing technologies to share data and facilitate cross-border talent and trade flows. In terms of currency integration, she placed particular focus on the role of Hong Kong as an active RMB offshore center which can play an even bigger role in promoting the digital currency of the People’s Bank of China and other stablecoin projects. As for institutional integration, she believed that the institutional discrepancies among the regions entail both dividends and challenges, and strengthening their integration is the major trend ahead.