Xu Zhengyu: Fully build the commodity trading ecosystem, Hong Kong's three-year gold reserves target over 2000 metric tons.

On June 11, at a meeting of the Legislative Council, Hong Kong's Secretary for Financial Services and the Treasury, Christopher Hui, summarized the motion proposed by the legislators on "promoting the development of a commodities trading ecosystem and physical delivery futures market," and responded in detail to issues such as the development of the gold market, futures regulatory system, offshore RMB application, and inter-departmental coordination mechanisms. Targeting a gold reserve of over 2,000 metric tons within three years In terms of gold trading, the Hong Kong government aims to revitalize the spot market as a foundation for increasing overall trading volume and establishing derivatives liquidity. The government has set clear targets for expanding storage capacity and aims to increase reserves to over 2,000 metric tons within three years by constructing a regional gold reserve hub. The Airport Authority of Hong Kong has officially started expanding storage facilities at the airport, with a scale reaching the level of thousands of metric tons to meet local storage, delivery, and transit needs. At the same time, the government is actively promoting the establishment or expansion of refineries in Hong Kong by gold traders, to build a more robust and comprehensive supply chain. In terms of financial infrastructure development, the Hong Kong government is concurrently establishing a Hong Kong Gold Central Clearing System in line with international standards to enhance liquidity in the spot market. The Hong Kong Treasury has established the Hong Kong Precious Metals Central Clearing System Limited, which is wholly owned by the government, as the governing body of the clearing system. The board of directors of this company, chaired by Christopher Hui, includes members from the Shanghai Gold Exchange, regulatory bodies, and 11 major international and local banks, collectively formulating the governance structure and rules of the clearing system. The operational preparations for the clearing system have entered the final stage, with plans to commence trial operation within the year. After consolidating the relevant foundation, the Hong Kong Treasury will draw on the experience of developing the gold market to further explore the feasibility of expanding existing commodity categories to other precious metals in the medium to long term. In terms of taxation, as a complementary development, the Hong Kong government will study providing tax incentives to eligible institutions engaging in gold trading and settlement in Hong Kong, attracting them to establish or expand their business in Hong Kong. The Hong Kong Treasury is currently conducting research on this and formulating specific plans, taking into account the relevant policies of different economies to ensure Hong Kong's competitiveness in tax arrangements. Additionally, the government announced in last year's Policy Address and this year's Budget that it would develop a package of incentives to promote industry and investment, including tax incentives. The government is currently formulating the details, including the industries and companies covered, and the relevant requirements for different industries. The government will ensure that tax incentives align with the actual situation in Hong Kong while maintaining tax competitiveness. Moreover, the government will assist the industry in establishing associations to strengthen the promotion of the Hong Kong gold ecosystem externally and expand connections with industries both domestically and internationally. With several gold ETFs listed this year, HKEX introduces fee discounts Since January this year, the Hong Kong market has welcomed the listing of several gold Exchange-Traded Funds (ETFs), which directly hold physical gold stored in Hong Kong. In addition, financial institutions have participated in issuing tokenized gold products, signaling an innovative trend combining digital assets with physical commodities. To enhance the liquidity of gold futures contracts, the Hong Kong Exchanges and Clearing Limited (HKEX) announced in May this year a full-market trading fee discount, as well as a program offering discounts to liquidity providers and active traders to market participants. These arrangements will take effect from July this year. Efforts will continue to optimize contract design and improve product sequencing in the future. As the financial derivatives system develops, the Hong Kong Treasury is actively creating a regulatory environment that encourages market development and product innovation while maintaining financial system stability. The Hong Kong Treasury will continue to work closely with the Securities and Futures Commission of Hong Kong (SFC) to continuously review and, when necessary, optimize the over-the-counter derivatives regulatory regime to align with the Hong Kong government's overall strategy of developing Hong Kong into an international gold trading center while safeguarding financial stability and investor interests. LME Hong Kong warehousing stores over 24,000 tons, RMB-settled gold futures continue to progress In addition to the precious metals market, there have been significant developments in the non-ferrous metal sector. As a global leader in industrial production, China also plays a significant role in the consumption and production of non-ferrous metals, occupying an important position in the global metal industry chain. Christopher Hui pointed out that as of early 2025, Hong Kong successfully joined the global warehouse and delivery network of the London Metal Exchange (LME), with a total storage area of over 42,000 square meters in operation and inventory exceeding 24,000 tons, connecting the most active metal trading markets nationally and globally more closely. In terms of Renminbi internationalization, the Hong Kong Treasury signed a cooperation agreement with the Shanghai Gold Exchange in January this year to establish a high-level collaborative governance structure for the Hong Kong Gold Central Clearing System, aiming to jointly enhance the influence of the Renminbi in the gold market. The HKEX launched Renminbi-settled gold futures contracts in 2017 and plans to optimize contract design and improve the settlement mechanism based on this foundation. Promoting sustainable metal market development As global initiatives move towards sustainable development, the demand for bulk commodities produced sustainably is increasing accordingly. The London Metal Exchange is studying the creation of a sustainable metal premium based on a range of key factors such as data transparency through LMEpassport, carbon measurement verification, established standards, and collaboration with various participants in the ecosystem. The HKEX will also study operating pricing management services for bulk commodity markets through its subsidiary, Commodity Pricing and Analysis Limited (CPAL), established in Dubai, to support related data infrastructure development and create conditions for Hong Kong to participate in global and Chinese sustainable metal markets. Establishing inter-departmental coordination mechanisms Under the leadership of the Secretary for Financial Services and the Treasury, the Commodities Strategy Committee was established last year and held its first meeting, with members proposing recommendations for the development of suggestions for trading in physical and related financial and derivative products from four main directions - financial innovation, infrastructure development, industry promotion, and talent introduction. Relevant policy bureaus, government departments, financial regulatory agencies, and the HKEX will work together with the industry to continue advancing this work.