Bloomberg's Zhao Zhixuan: Hong Kong's Offshore RMB Hub Hinges on Commodity Pricing Power, Not Just Settlement

Southern Finance, 21st Century Business Herald (Reporters Yuan Sijie, Zhang Weize, Hong Kong) — Under the national strategy of "orderly advancing RMB internationalization," Hong Kong's first five-year plan for the financial industry, released on September 16, wrote "strengthening Hong Kong's function as the world's largest offshore RMB business hub" into its financial chapter. The plan calls for expanding the scale of offshore RMB, increasing liquidity support, advancing product innovation, pushing for RMB counters to be included in Stock Connect, and building a commodity trading ecosystem starting with gold.

In a recent interview with the 21st Century Business Herald, Zhao Zhixuan, Chief Emerging Markets FX Strategist at Bloomberg Intelligence, said Hong Kong's offshore RMB center is at a turning point — from "whether there is RMB" to "why use RMB" — and that the next breakthrough must come from use cases, shifting from product-driven to scenario-driven growth.

In his view, the highest stage of a currency's status is not settlement but pricing, and commodity pricing is the "hardest step" in RMB internationalization.

The data support this direction. A 2025 Bank for International Settlements survey shows Hong Kong leads the world in offshore RMB foreign exchange and over-the-counter interest rate derivatives trading, with about 70% of global offshore RMB payments processed through the city. During the year, the annual net investment quota of Bond Connect's southbound leg was raised to RMB 800 billion, five-year offshore RMB government bond futures were relaunched, and direct trading between the RMB and the Indonesian rupiah will for the first time be routed through Hong Kong.

From a capital pool to use cases to pricing power, Hong Kong's offshore RMB hub is entering the second half of its development: the scenario-driven phase.

Zhao noted that Hong Kong has unique market infrastructure in commodities: the London Metal Exchange (LME), wholly owned by HKEX, and the Qianhai Mercantile Exchange (QME), in which HKEX holds a stake, together connect spot, financial products and futures across the global commodity chain. In the future, what markets will compete on is the RMB's pricing capability in commodities. "When natural gas is priced in RMB, RMB-denominated natural gas will be today's petrodollar."

From product-driven to scenario-driven

21st Century Business Herald: Hong Kong's first five-year plan proposes strengthening the city's function as the world's largest offshore RMB business hub by expanding the scale of offshore RMB, enhancing liquidity support and advancing product innovation. What is the most important link to break through next?

Zhao: I think the most critical element is use cases. Hong Kong is the world's largest offshore RMB liquidity pool; the next step is to build the world's most complete offshore RMB ecosystem, including a range of products. In the past, the focus was on bonds and interest rate products; in the future it will extend to commodities and other applications.

Over the past decade or more, Hong Kong has built a mature financial system, with well-developed deposits, bonds, FX products and derivatives. What needs to be pushed next is trade settlement and cross-border financing, and ultimately, most importantly, commodity pricing, along with more offshore RMB use cases. In short, the past question was "is there RMB"; the future question is "why use RMB" — that is, moving from product-driven to scenario-driven.

Q: The plan calls for continuously expanding the scale of RMB bond issuance in Hong Kong and regularly issuing RMB bonds of different maturities. What does establishing an offshore RMB yield curve mean for building the offshore RMB center?

A: Interest rates are the benchmark of financial markets. The bond market determines interest rates, which then transmit to the exchange rate, and the exchange rate in turn interacts with commodities. That is why a mature offshore RMB yield curve and pricing mechanism matter so much. Pricing of interest rate products, bonds and FX derivatives all depends on rates.

Central bank bills, offshore government bonds and dim sum bonds are now developing, the yield curve is becoming more complete, and investors and traders are more familiar with it — all of which is very important for the future pricing of RMB assets. The share of Hong Kong assets in China's foreign exchange reserves will increase. It may first show up in HKD-denominated assets such as Exchange Fund bills and Hong Kong government bonds; offshore RMB assets will also become important targets.

One can imagine that central bank bills, offshore government bonds, dim sum bonds — which served as important groundwork this year — and, in the future, Mingzhu bonds and other offshore RMB-denominated products could all become assets purchased by central banks.

Advancing offshore RMB product innovation

Q: The plan also proposes including RMB counters in Stock Connect. What role can product innovation play in expanding the offshore RMB user base?

A: Product innovation is not just about the product itself. Its most important purpose is to create more users, and ultimately more offshore RMB users. Equities are an excellent channel because participation is relatively simple, unlike bonds and complex derivatives. Companies, institutional investors and retail investors can all participate, and the equity market is highly liquid. Hong Kong built its economy on equities and real estate, so equity is the most suitable channel. In my view, both RMB counters and Stock Connect are key channels.

Q: Beyond RMB counters, there are many other RMB-denominated product innovations, including commodities and other bills you mentioned. Which category do you think will reach meaningful scale first, and what impact will it have?

A: For many years, when the People's Bank of China wanted to expand RMB trading against non-US currencies, it usually did so through onshore channels. Currencies such as the Thai baht and Korean won could not previously be traded directly against the RMB.

This year has brought a new development: the latest example is Hong Kong's participation in promoting direct trading between the offshore RMB and the Indonesian rupiah. The rupiah is a small emerging market currency that previously could not be delivered directly and had to be exchanged through the US dollar. At present, the mainland is not pushing RMB-rupiah trading directly onshore but is routing it through Hong Kong, starting with offshore RMB-rupiah direct trading. We hope the arrangement can be implemented before the end of this year. Hong Kong SAR government officials have also mentioned that the Indian rupee could be the next currency to trade directly against the offshore RMB.

Commodity pricing power is crucial

Q: The plan proposes building a commodity trading ecosystem with gold as the entry point, developing RMB-denominated commodities such as gold, and HKEX is preparing RMB-denominated gold futures. Why can commodities become a new use case for the offshore RMB?

A: This is the most important part of RMB internationalization and an important goal of Hong Kong's five-year plan. If we look at how major international currencies developed, the first stage was trade settlement — as with the RMB's internationalization and that of many export-oriented economies; the next stage is financial investment, meaning equities and bonds are reliable, attractive and worth investing in; and the final and hardest stage is commodity pricing power. The highest stage of a currency's status is not settlement but pricing.

This is why the US dollar remains the strongest and most widely used currency even when its fundamentals are weak and its policies unstable — because it has pricing power. This is especially visible in FX and commodity trading, above all in oil prices. Gold is currently priced mainly in US dollars, which makes command of commodity pricing particularly important, and within commodities gold holds the most critical position. As in the past year, central bank demand for gold continues to rise. If gold were priced in RMB, then whether the People's Bank of China buys gold or sells gold for liquidity, the currency used would be the RMB rather than the US dollar.

As HKEX's website shows, in addition to gold and silver futures, more RMB-denominated futures products will be launched, including metals futures of strategic importance and closely tied to current global supply chains.

More noteworthy is that HKEX owns the London Metal Exchange (LME) and holds a stake in the Qianhai Mercantile Exchange (QME); these two platforms connect spot, financial products and futures across the global commodity chain. In the future, what markets will compete on is the RMB's pricing capability in commodities. At present, soybeans and natural gas are the most important businesses at QME. If natural gas can be priced in RMB in the future, RMB-denominated natural gas will be equivalent to today's petrodollar — that is my view.

Q: From a foreign exchange market perspective, to what extent can these commodity futures applications drive offshore RMB usage?

A: The pull will be very direct. As long as commodity futures or spot transactions are priced in RMB, enterprises, banks and other financial institutions will use offshore RMB when they trade. Margins, delivery currency and trading currency will all be offshore RMB rather than US dollars or Hong Kong dollars. So once commodity trading develops, offshore RMB usage will accelerate.

If trade settlement was the driver of the previous phase of RMB usage, commodities are the next step that will help accelerate RMB internationalization.

Q: Against the backdrop of orderly advancing RMB internationalization and a more diversified international monetary system, what are Hong Kong's comparative advantages in building an offshore RMB center?

A: Hong Kong is part of China, and that is something Singapore or any other offshore financial center cannot replace. Many national policy measures — whether supporting offshore RMB business or policies linking the RMB and the Hong Kong dollar — benefit the development of related businesses in Hong Kong, from equities and real estate earlier to bonds and commodities today.

There are many offshore RMB centers — the United Kingdom, Singapore and South Korea all have them — but the most important center is Hong Kong, because Hong Kong is part of the country and pilot policies are implemented there first.

(Source: 21st Century Business Herald)