The Financial Silk Road

Gold & Reserves

Hong Kong is stepping up efforts to become an international gold trading hub by developing renminbi-denominated products and expanding gold storage and clearing systems to strengthen its financial infrastructure. The Shanghai Gold Exchange (SGE) marked a milestone in this integration by making its first physical gold transfer to Hong Kong through its new offshore delivery vault. These initiatives aim to attract global investors, boost renminbi internationalization, and capitalize on rising global demand for gold amid economic uncertainty.

In early October, the State Administration of Foreign Exchange (SAFE) reported that China’s foreign exchange reserves rose to $3.34 trillion in September, up $16.5 billion, aided by a weaker dollar and higher global asset prices. Gold reserves also increased, though at a slower pace. The rise highlights China’s strategy of balancing large foreign reserves with gradual gold accumulation.

Investments and financial markets

The State Administration of Foreign Exchange (SAFE) reports that China’s external financial assets surpassed $11 trillion by mid-2025, an 8% rise from December 2024, as strong current account surpluses and renewed foreign investment inflows boosted its global creditor position. Net external assets grew 16% to $3.8 trillion, with reserves and outbound direct investment making up the largest shares. Inbound investments, especially in equities, also rebounded notably from 2024 lows.

Hong Kong authorities unveiled the new GoGlobal Task Force, a unit led by the Secretary of Commerce to support mainland Chinese companies expanding overseas amid geoeconomic challenges. The initiative aims to strengthen Hong Kong’s role as a global business hub through financial incentives, partnerships such as a planned $1 billion Saudi fund, and tax concessions for mainland firms. This aligns with growing interest among Chinese enterprises to expand into Europe, the Middle East, and South Asia.

China is expanding its pilot program to ease foreign exchange controls for cross-border trade, simplifying currency settlements for multinationals and e-commerce firms. The reforms broaden geographic coverage, allow netting of payments for goods and services, and promote automated verification of transactions. Importantly, banks are granted more autonomy in forex risk management.

Chinese mainland and Hong Kong stocks saw $4.6 billion in net inflows from US and EU funds in September, the highest in nearly a year. This brought total inflows for the first nine months of 2025 to $6 billion, reversing the 2024 outflow trend.

China’s panda bonds (renminbi-denominated debt issued by foreign entities in China) are booming with record issuance of 194.8 billion yuan in 2024 and persistent increase in 2025. The surge is driven by regulatory reforms allowing issuers to use proceeds globally and by low interest rates, attracting sovereigns, multinationals, and financial institutions alike.

China will exempt foreign-managed mutual funds from its short-swing trading rule, allowing them to calculate ownership on a per-product basis like domestic funds, removing a key barrier to investing in mainland markets. The move addresses long-standing concerns that the previous aggregation of holdings limited foreign capital inflows. While the exemption currently applies only to mutual funds, China’s regulators introduced other measures to attract foreign investors, including simplified procedures and a simplified channel for sovereign, pension, and charitable funds.

Banks

Hang Seng Bank’s shares surged nearly 26% after HSBC Asia Pacific announced plans to take the lender private in a HK$106 billion ($13.6 billion) deal, offering HK$155 per share  (about 30% above the previous closing price). The move will make Hang Seng a wholly owned subsidiary of HSBC Asia Pacific, which already holds 63%. The deal is a strategic and value-enhancing step amid Hang Seng’s rising ratio of non-performing loans in Hong Kong’s commercial real estate sector.

China’s policy banks have injected nearly 300 billion yuan ($42 billion) into strategic projects in just two weeks, rapidly advancing a 500-billion-yuan government program to revive growth. The funds target sectors such as AI, green industries, and infrastructure, aiming to spur trillions in follow-on investment from banks and private capital.

China’s central bank has appointed First Abu Dhabi Bank as the second renminbi clearing bank in the UAE. Cross-border renminbi settlements between China and the UAE reached 864 billion yuan ($121.2 billion) in the first nine months of 2025, supported by CIPS participation, digital currency pilot projects, and bilateral investment flows.

Digital currencies

China’s central bank (PBC) reaffirmed its ban on cryptocurrency trading while accelerating efforts to expand the digital yuan (e-CNY), its state-backed central bank digital currency (CBDC). PBC warned of the systemic risks of offshore stablecoins, citing global regulatory concerns, and stressed the security and oversight of China’s digital yuan. The PBC has established a Digital Yuan Operation and Management Centre in Beijing to oversee domestic e-CNY systems and infrastructure, complementing the International Operation Centre launched in September for cross-border applications. Together, these centres form a two-winged architecture supporting the digital yuan’s growth domestically and globally. By September 2025, the e-CNY had reached 14.2 trillion yuan in pilot transactions across 3.3 billion payments. It has expanded in Hong Kong, now accepted at over 380 Circle K stores and 1,200 FreshUp vending machines, with automatic conversion to Hong Kong dollars for settlement. e-CNY transactions in the city surged over 300% in 2025 Q3. This supports the internationalization of the yuan. In the meantime, Hong Kong’s central bank is pausing retail expansion of its digital currency (e-HKD) shifting focus to wholesale applications such as cross-border payments, tokenized government bonds, and interbank tokenized deposits, with nine banks already piloting wholesale use cases.

Key sources: Caixin Global, China Banking News, The Wall Street Journal, …