The Chinese Government is mulling efforts to support financial cooperation between Shenzhen, South China’s Guangdong Province and Hong Kong, a move that experts said would help bring stability to Hong Kong, whose financial sector has been hit by the riots that have swept across the city. 

According to a guideline released by the central government on Sunday that supported the construction of Shenzhen into a “model zone,” the government will push the connection of the Shenzhen financial market with the markets in Hong Kong and Macao, according to a report by China Central Television.

The government will support financial products and funds’ mutual recognition among Shenzhen and the two special administrative regions of Hong Kong and Macao, the guideline noted. 

The move to boost Shenzhen’s financial sector “comes at a critical time,” an expert said, as the riots in Hong Kong, which has played a crucial role in China’s economic development, have seriously damaged the financial hub’s international image. 

“Some financial institutions in Hong Kong have moved elsewhere such as Singapore and New York. Under such circumstances, if Shenzhen could offer a (better) environment, they might (consider) not leaving Hong Kong or moving to Shenzhen,” Liang Haiming, Dean of the Belt & Road Institute at Hainan University, said.

Li Daxiao, chief economist at Shenzhen-based Yingda Securities, told that positioning Shenzhen as a key financial hub will help bring stability to adjacent Hong Kong, as it will play a major role in the Guangdong-Hong Kong-Macao Greater Bay Area development plan that is set to spur economic growth for the whole region. 

Amid ongoing riots, Hong Kong’s capital market has tumbled. The Hang Seng Index plunged from 28,371 points on July 22 to 25,734 points on Friday. 

In recent years, the Chinese government has launched measures to open up the domestic financial markets to overseas investors by encouraging financial interaction between the Chinese mainland and Hong Kong. Such efforts include the setting up of bond and stock connect programs between Hong Kong and the mainland. 

The Government will also support Shenzhen to “walk ahead” with experiments on pushing the yuan’s liberalisation, as well as exploring innovative cross-border financial management. 

“In terms of the yuan’s internationalisation, Shenzhen could also play a much bigger role to complement Hong Kong’s role as the largest offshore market for the yuan. If there is collaboration between Shenzhen and Hong Kong, then one plus one will be greater than two,” Liang said. 

Apart from opening up the financial markets, the government is also considering financial innovation in Shenzhen. For example, the guideline noted that China will “create conditions” to push registration-based reforms in Shenzhen.

The government will also enhance the capabilities of the Shenzhen-based financial companies in serving the real economy, while it studies perfecting the ChiNext board’s IPO system, as well as its refinancing and merger and acquisition systems. 

Shenzhen will also be encouraged to study cryptocurrencies and carry out innovation in mobile payments, the guideline showed. 

According to Liang, the need to boost Shenzhen’s financial strength is also crucial for the national development as China, despite having become the world’s second largest economy, still lacks a sufficiently robust financial sector that is suitable for China’s economic power.

Li also noted that Shenzhen, which was the starting ground for China’s reform and opening-up policies four decades ago, is the ideal location for testing new financial system reforms.

“Shenzhen has the infrastructure, the experience and the capacity to carry out further reforms in the financial sector,” Li said.