Journalist Selina Cheng was elected chair of the Hong Kong Journalists Association in July 2024 – a decision that apparently cost her her job at the Wall Street Journal. The renowned medium allegedly told her that employees should not act as advocates of freedom of the press in a place like Hong Kong – and terminated her employment shortly afterward.
The case has been criticized worldwide and is seen as a sign of the deteriorating freedom of expression in Hong Kong. In an interview with Marcel Grzanna, Cheng talks about her dismissal and the grim future for the city’s journalists, who must walk an increasingly thin line in the shadow of the National Security Law.
Meanwhile, the Central Committee of the Communist Party of China published two documents detailing the outcomes of the Third Plenum on Sunday. The focus is clearly on strengthening the market economy. Right next to this, however, there is always a strong emphasis on control and security. Once again, the Communist Party is trying to square the circle, writes Finn Mayer-Kuckuk.
Nevertheless, as always, it is worth looking at the details and what resonates between the lines. This time, Xi Jinping appeals directly to the hearts of the Chinese people, who are visibly disillusioned by unemployment, restrictions, and poor economic prospects. Xi explains that the quality of the socialist system remains unrivaled and that the people’s everyday hardships are its foundation.
One of the documents goes on to say that China needs reforms. However, these are primarily of a scientific and technical nature. Yet the called-for industrial transformation does not necessarily create new opportunities for Western companies. Technological independence is still the prime directive of the CCP under Xi. Opening up to the outside world comes second.
Selina Cheng, regarding your dismissal, which was met with global outrage, the Wall Street Journal argues that its employees should not appear in public as advocates of press freedom in places like Hong Kong. Is that something you can understand?
No, I cannot. I was told that such a function would not be compatible with our work. Especially when we ourselves deal with press freedom issues in Hong Kong. But I don’t see any contradiction. All media – including the Journal – benefit from press freedom. Standing up for it is legitimate.
You have been a member of the Hong Kong Journalists’ Association (HKJA) board since 2021. Your former employer knew this when they hired you two years ago. Why did things escalate?
I can’t say for sure. Of course, the journal is under the influence of Evan Gershkovich’s imprisonment in Russia for alleged espionage. People simply fear that employees will get into trouble in other parts of the world. But above all, it also shows how the situation in Hong Kong has developed. Since the introduction of the National Security Law, the media have been trying to minimize risks. My case is probably a lesson in how Hong Kong manages to influence the internal editorial or personnel decisions of foreign companies.
In fact, many other journalists have been warned by their employers. What do the media fear?
We know of several cases where reporters in Hong Kong and China have been warned not to take on responsibilities in the labor union or even in the Foreign Correspondents’ Club in Beijing or Hong Kong. Perhaps it has to do with how fear works in general. It is often irrational.
China threatens to withdraw media accreditations, causing unrest in foreign boardrooms.
Hong Kong does not have such accreditation. Journalists need a work visa. I have heard that it has taken a little longer in the past for visas to be issued. But that could certainly have had something to do with the Covid measures. Last year, a Japanese photographer was refused entry and a journalism professor from the USA was also turned away.
Since the introduction of the Security Law, Hong Kong has fallen drastically in the global press freedom rankings. How did you perceive this period?
Shortly after the law was introduced four years ago, the atmosphere in the media industry was more anxious than it is now. Today, the situation has stabilized. Journalists have adapted to the new situation. Some new media outlets have emerged after the closure of politically critical voices such as Apple Daily, Stand News and others. However, many of them steer clear of politics or sensitive topics. They try to tell relevant stories from other areas of society.
Is anyone putting pressure on you?
Things have gotten worse for me since I became chair. I can’t talk about it in detail, but when names are mentioned and attacked in the state media, absurd insinuations are sometimes made against these people. Of course, this has an effect because even the most absurd allegations lead to immediate problems in both private and professional life, which creates a certain amount of fear.
Have you been warned that your work in the Association could violate the National Security Act?
Yes, all the time. But not from the authorities, but from people I don’t even know, but who obviously want to intimidate me. That says a lot about the prevailing climate in this city.
The Hong Kong authorities denounced the Association as unrepresentative and labeled it as a foreign organization. This brings it a step closer to potential criminal offenses punishable under the Security Act as conspiring with foreign forces.
Of course we are international. Hong Kong is a very international city. That’s why the authorities should see this as an honor. Apart from that, our board has become much more diverse with foreign and local reporters. But it is also a fact that we are at a point where we have had to change our statutes in order to find people who can run such an association.
Will you stay chair of the HKJA?
Yes, we will continue our work. We want to be a point of contact for colleagues who are in trouble, where they can gather energy for their struggle. And on a formal level, we hope for continued successes like last year. On our initiative, a court rejected the request to ban “Glory for Hong Kong” – the protest movement’s anthem. A judge ruled that it remains legal.
What future do you see for journalism in Hong Kong?
It is most likely that the Hong Kong media will increasingly align with the Chinese state media. There are already informal directives from the authorities on how to report on certain issues, and this could increase further. Mainstream media will remain very cautious and only very rarely test the boundaries. Smaller media outlets are more likely to take on this role and will occasionally publish stories that they consider to be of public interest.
Many journalists have left Hong Kong. Is that also an option for you?
I’m not at that point. If I find myself facing physical threats, that may change. To put things in perspective sometimes, I set up a Google Alert that gives me news about murdered or kidnapped journalists from all over the world. When I see that there are many countries where journalists are murdered for their work, it gives me the courage to continue.
Journalist Selina Cheng 鄭嘉如 has been chair of the Hong Kong Journalists Association (HKJA) since July 2024. On July 17, 2024, she was sacked by her employer, the Wall Street Journal. According to Cheng, her superiors had previously pressured her not to run for the position. Cheng’s dismissal drew sharp criticism worldwide. Advocates of press freedom see it as a sign of the increasing curtailment of freedom of expression in Hong Kong.
As announced, the Central Committee of the Communist Party of China published two documents detailing the outcomes of its Third Plenum on Sunday. These are:
The document clearly focuses on strengthening the market economy and emphasizing the forces that can be unleashed through freedom and individual initiative. However, this is always accompanied by a strong emphasis on control and security. The Central Committee is trying to please many social groups. Only the practical implementation will show, in retrospect, how the document should have been understood.
It is generally worth paying attention to the signals of the Chinese system. In the past, such CCP documents have revealed much about the Party’s prevailing political direction. However, today, more than ever, the problem is that the signals within the document are highly contradictory.
As Xi Jinping has united power in the state as sole ruler, it is worth looking at his comments first. Xi’s words are more emotional than the plenum’s final document. He begins with an appeal to reach the hearts of the people. He speaks of the quality of the socialist system and the hardships citizens face in everyday life.
He then combines this opening position with his interpretation of Sinomarxism and derives reform ideas from it. He believes that society’s contradictions must be resolved, and to achieve this, the reforms must reach all Chinese people.
He goes on to explain the process by which the outcome document came about. Xi and a small group of top executives have been working on it in working groups since December. Brainstorming has played a significant role in this. Since May, the Party has been discussing the first draft internally. This may also explain why the plenary session was delayed by several months.
In the closing declaration, i.e., the first document, the paragraph on reform and openness is at the top. It cites reforms as the Communist Party’s magic weapon for achieving its goals. The first paragraph praises the reform resolutions of the Third Plenum eleven years ago, proudly stating that they have all been achieved. That is a shameless exaggeration: The implementation of the resolutions of the 18th Central Committee is considered incomplete, especially by business circles.
The first section of the document explicitly mentions technological development. In the face of a complex situation both globally and at home, a new round of scientific and technological upheaval and industrial transformation is needed. In the Xi Jinping era, the program of technical upgrading of the economy has worked particularly well. Obviously, the Party continues to rely on the tried and tested.
It again highlights the targets of 2029 and 2035, by which milestones in the development of building a high-level socialist market economy are to be achieved.
The development of such a socialist market economy is also the first point in the section on how the new round of reform should be implemented. It is striking that the first point is the promise to allow market forces to take full effect. This is an admission that the control economy and investment-driven development model of the past decades have reached their limits. At the same time, the document makes it clear that the Communist Party does not really want to relinquish control. It tries to square the circle here.
Anyone hoping for new opportunities for Western companies will almost certainly be disappointed. The same sentence also stresses technological independence, followed by opening up to the outside world. This is one of the many contradictions that exist side by side in this document. The aim is to open up, not let the outside world in.
The second point in the list is about popular democracy and, in the same sentence, about the organic unity of the entire state under the Party’s leadership. The environment comes in fifth place. Security only comes in sixth. This includes both internal surveillance and external military strength. The last reform point mentioned in the document is the Party’s governing capability.
A whole second large passage defines the concept of a socialist market economy. The document says that the Party must both let go and strengthen its control.
A prominent section here is dedicated to the relationship between the state economy and the private sector. State-owned enterprises should be “consolidated and developed,” while private companies should be “supported and guided.” Yet both types of ownership structures are to be given equal access to production factors and compete fairly.
It also addresses the issue of ownership. The Central Committee pledges to protect ownership rights and treat all types of ownership equally. The rule of law principles are to play a greater role here, and more transparency is to be introduced. On the one hand, this involves using existing capital and, on the other, restructuring the property market, which is one of the CP’s most pressing concerns in light of the ongoing crisis.
A third lengthy section details what high-quality economic development means. The new productive forces are mentioned prominently here. In other words, the use of technology, new branches of industry and new production methods. All this is intended to increase efficiency. In particular, the state wants to invest in
Overall, the document does not present a reform program as ambitious as that of the Third Plenum in 2013. However, the use of market forces is still clearly in the foreground. If one follows the principle of reading CCP documents and taking them seriously, at least in general terms, it is evident that no fundamental reorganization of the economic system is imminent.
The first conclusion drawn from the document is that a business-as-usual approach is in store, in which Xi Jinping attempts to utilize the forces of innovation and initiative in his own interests. Ultimately, however, these can only unfold within a predetermined power-political framework and serve the goals of the state, in other words, Xi Jinping’s goals. Freedom and openness are not an end in themselves, but a means to make the start strong and powerful and to maintain the power of the Communist Party.
The Hong Kong Monetary Authority (HKMA) and Financial Services and the Treasury Bureau (FSTB) are working to establish a regulatory regime for stablecoin issuers in the territory as soon as possible. Asset managers and fintech firms are reportedly following the effort very closely. Other governments should do so as well.
Stablecoins are a type of cryptoasset that is supposed to maintain a value relative to a target currency. “Collateralized” stablecoins are backed by a pool of reserve assets, whether fiat currencies, other cryptoassets, or commodities. But not all stablecoins are backed by reserve assets: unbacked stablecoins seek to maintain a stable value by other means, such as through algorithms that limit their supply, creating a market value.
There is currently no universally agreed standard for stablecoins, let alone a regulatory framework governing them. But the market is large – and growing fast. Since the beginning of 2020, the estimated total market value of stablecoins skyrocketed from 5.9 billion to about 130 billion US dollars. Stablecoins pegged to the US dollar dominate the market, owing to the US dollar’s enduring global dominance as a means of payment, store of value, and unit of account, as well as the liquidity and convenience of the US dollar asset market.
Tether leads the way, with about 70 percent of the market, followed by USD coin, with 20 percent. Tether reports that, at the end of September 2023, it held 86.4 billion US dollars of assets – including some 56.6 billion US dollars in US Treasury bonds, 5.1 billion US dollars in secured loans, 3.1 billion US dollars in precious metals, 1.7 billion US dollars in Bitcoin, and 2.3 billion US dollars in other investments – against 83.2 US dollars billion in liabilities. In the first quarter of 2023, the firm reported a net profit of 1.4 billion US dollars.
The purpose of stablecoins is to offer a more reliable alternative to cryptocurrencies like Bitcoin, which are tethered to nothing and have proved highly volatile. According to the Bank for International Settlements, collateralized stablecoins have “generally been less volatile than traditional cryptoassets.” At the same time, “not one of them has been able to maintain parity with its peg at all times.”
Moreover, the BIS points out that “there is currently no guarantee that stablecoin issuers could redeem users’ stablecoins in full and on demand.” Ultimately, none of the more than 200 stablecoins in circulation today meets the “key criteria for being a safe store of value and a trustworthy means of payment in the real economy.”
But that could change. For the stablecoin market to succeed, four conditions need to be met. First, all stablecoins must be linked to a widely accepted legal tender or fiat currency. Second, they should operate within a globally accepted regulatory and licensing framework. Third, issuers should be able to innovate in areas such as distribution, market support, and infrastructure. And, lastly, stablecoins should be applied widely within the field of decentralized finance.
There is reason to think that Hong Kong could help drive progress. The territory’s own currency, the Hong Kong dollar, is pegged to the US dollar, making its “Digital HKD” essentially a stablecoin. (The HKMA’s September 2023 policy document essentially treated the Digital HKD as just that.) More important, Hong Kong’s monetary and regulatory authorities are well regarded, and its open, market-oriented, globally connected institutional environment is well-suited for pilot schemes.
One such project could involve the creation of a stablecoin pegged to the offshore renminbi for use in the Greater Bay Area – an economic zone comprising nine cities around the Pearl River Delta in Guangdong province, plus Hong Kong and Macau, with a combined GDP of 1.9 trillion US dollars. This “GBA stablecoin” could facilitate the issuance, trade, and settlement of new digital financial products in Hong Kong, and be exchanged readily with the offshore renminbi, the Hong Kong dollar, and the US dollar. Financial products issued outside mainland China could be priced in GBA stablecoin.
Under this scheme, the digital infrastructure, financial products, such as offshore bonds issued by local governments and enterprises in GBA, would be traded in Hong Kong, but their underlying physical assets would be largely in mainland China. This arrangement would be similar to H-shares, whereby stocks of essential mainland-based companies are traded in Hong Kong. The result would essentially be an operational offshore digital renminbi – a currency that benefits from the added market confidence brought about by HKMA oversight. This would bolster demand for offshore renminbi, thereby accelerating renminbi internationalization without risk to the stability of onshore renminbi.
The HKMA has already conducted a six-week central bank digital currency (CBDC) pilot with its counterparts in mainland China, Thailand, and the United Arab Emirates. Known as Project mBridge, it was among the first multi-CBDC projects to settle real-value, cross-border transactions on behalf of corporations.
Following the pilot’s success, the monetary authorities are now working to develop the mBridge platform to expedite cross-border retail or wholesale payments. This suggests that, with the right digital financial infrastructure – which takes advantage of distributed blockchain technology, including to enable “smart contracts” – GBA stablecoin could provide offshore financing for China’s ambitious multi-country Belt and Road Initiative (BRI) and facilitate international trade and investment more broadly.
Such a pilot’s success would depend not only on financial institutions’ willingness to issue the stablecoins, but also on the needs of banks, businesses, consumers, and investors. Within the current US dollar-based financial system, some might hesitate to use GBA stablecoin. But given America’s geopolitically-motivated weaponization of global finance, plenty of market participants – such as those engaging in BRI projects – are seeking a reliable alternative to the US dollar, including dollar-backed stablecoins.
Ultimately, the balance between the returns on equity and the risks associated with a given stablecoin will determine which coins gain a competitive edge. A long process of trial and error lies ahead.
Andrew Sheng is a Distinguished Fellow at the Asia Global Institute of the University of Hong Kong. Xiao Geng, Chairman of the Hong Kong Institution for International Finance, is a professor and Director of the Institute of Policy and Practice at the Shenzhen Finance Institute at The Chinese University of Hong Kong, Shenzhen.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
Steaming soon: the Taiwanese dumpling chain Din Tai Fung used this smart slogan to advertise the opening of its first branch in New York City in spring. The Taiwanese restaurant chain is famed for its filled steamed dumplings called xiaolongbao (small dragon dumplings). This month, the wait was finally over – and the tables are already fully booked for July. The restaurant is one of the largest in the global chain. The restaurant can accommodate around 450 guests, for whom the kitchen team produces over 10,000 dumplings every day. Numerous Chinese people have already visited the restaurant, as can be read on social media. Their reviews have been particularly critical of the price. Ten Xiao Long Bao cost over 18 dollars, which is considerably more expensive than in Taiwan, Hong Kong or China.
Journalist Selina Cheng was elected chair of the Hong Kong Journalists Association in July 2024 – a decision that apparently cost her her job at the Wall Street Journal. The renowned medium allegedly told her that employees should not act as advocates of freedom of the press in a place like Hong Kong – and terminated her employment shortly afterward.
The case has been criticized worldwide and is seen as a sign of the deteriorating freedom of expression in Hong Kong. In an interview with Marcel Grzanna, Cheng talks about her dismissal and the grim future for the city’s journalists, who must walk an increasingly thin line in the shadow of the National Security Law.
Meanwhile, the Central Committee of the Communist Party of China published two documents detailing the outcomes of the Third Plenum on Sunday. The focus is clearly on strengthening the market economy. Right next to this, however, there is always a strong emphasis on control and security. Once again, the Communist Party is trying to square the circle, writes Finn Mayer-Kuckuk.
Nevertheless, as always, it is worth looking at the details and what resonates between the lines. This time, Xi Jinping appeals directly to the hearts of the Chinese people, who are visibly disillusioned by unemployment, restrictions, and poor economic prospects. Xi explains that the quality of the socialist system remains unrivaled and that the people’s everyday hardships are its foundation.
One of the documents goes on to say that China needs reforms. However, these are primarily of a scientific and technical nature. Yet the called-for industrial transformation does not necessarily create new opportunities for Western companies. Technological independence is still the prime directive of the CCP under Xi. Opening up to the outside world comes second.
Selina Cheng, regarding your dismissal, which was met with global outrage, the Wall Street Journal argues that its employees should not appear in public as advocates of press freedom in places like Hong Kong. Is that something you can understand?
No, I cannot. I was told that such a function would not be compatible with our work. Especially when we ourselves deal with press freedom issues in Hong Kong. But I don’t see any contradiction. All media – including the Journal – benefit from press freedom. Standing up for it is legitimate.
You have been a member of the Hong Kong Journalists’ Association (HKJA) board since 2021. Your former employer knew this when they hired you two years ago. Why did things escalate?
I can’t say for sure. Of course, the journal is under the influence of Evan Gershkovich’s imprisonment in Russia for alleged espionage. People simply fear that employees will get into trouble in other parts of the world. But above all, it also shows how the situation in Hong Kong has developed. Since the introduction of the National Security Law, the media have been trying to minimize risks. My case is probably a lesson in how Hong Kong manages to influence the internal editorial or personnel decisions of foreign companies.
In fact, many other journalists have been warned by their employers. What do the media fear?
We know of several cases where reporters in Hong Kong and China have been warned not to take on responsibilities in the labor union or even in the Foreign Correspondents’ Club in Beijing or Hong Kong. Perhaps it has to do with how fear works in general. It is often irrational.
China threatens to withdraw media accreditations, causing unrest in foreign boardrooms.
Hong Kong does not have such accreditation. Journalists need a work visa. I have heard that it has taken a little longer in the past for visas to be issued. But that could certainly have had something to do with the Covid measures. Last year, a Japanese photographer was refused entry and a journalism professor from the USA was also turned away.
Since the introduction of the Security Law, Hong Kong has fallen drastically in the global press freedom rankings. How did you perceive this period?
Shortly after the law was introduced four years ago, the atmosphere in the media industry was more anxious than it is now. Today, the situation has stabilized. Journalists have adapted to the new situation. Some new media outlets have emerged after the closure of politically critical voices such as Apple Daily, Stand News and others. However, many of them steer clear of politics or sensitive topics. They try to tell relevant stories from other areas of society.
Is anyone putting pressure on you?
Things have gotten worse for me since I became chair. I can’t talk about it in detail, but when names are mentioned and attacked in the state media, absurd insinuations are sometimes made against these people. Of course, this has an effect because even the most absurd allegations lead to immediate problems in both private and professional life, which creates a certain amount of fear.
Have you been warned that your work in the Association could violate the National Security Act?
Yes, all the time. But not from the authorities, but from people I don’t even know, but who obviously want to intimidate me. That says a lot about the prevailing climate in this city.
The Hong Kong authorities denounced the Association as unrepresentative and labeled it as a foreign organization. This brings it a step closer to potential criminal offenses punishable under the Security Act as conspiring with foreign forces.
Of course we are international. Hong Kong is a very international city. That’s why the authorities should see this as an honor. Apart from that, our board has become much more diverse with foreign and local reporters. But it is also a fact that we are at a point where we have had to change our statutes in order to find people who can run such an association.
Will you stay chair of the HKJA?
Yes, we will continue our work. We want to be a point of contact for colleagues who are in trouble, where they can gather energy for their struggle. And on a formal level, we hope for continued successes like last year. On our initiative, a court rejected the request to ban “Glory for Hong Kong” – the protest movement’s anthem. A judge ruled that it remains legal.
What future do you see for journalism in Hong Kong?
It is most likely that the Hong Kong media will increasingly align with the Chinese state media. There are already informal directives from the authorities on how to report on certain issues, and this could increase further. Mainstream media will remain very cautious and only very rarely test the boundaries. Smaller media outlets are more likely to take on this role and will occasionally publish stories that they consider to be of public interest.
Many journalists have left Hong Kong. Is that also an option for you?
I’m not at that point. If I find myself facing physical threats, that may change. To put things in perspective sometimes, I set up a Google Alert that gives me news about murdered or kidnapped journalists from all over the world. When I see that there are many countries where journalists are murdered for their work, it gives me the courage to continue.
Journalist Selina Cheng 鄭嘉如 has been chair of the Hong Kong Journalists Association (HKJA) since July 2024. On July 17, 2024, she was sacked by her employer, the Wall Street Journal. According to Cheng, her superiors had previously pressured her not to run for the position. Cheng’s dismissal drew sharp criticism worldwide. Advocates of press freedom see it as a sign of the increasing curtailment of freedom of expression in Hong Kong.
As announced, the Central Committee of the Communist Party of China published two documents detailing the outcomes of its Third Plenum on Sunday. These are:
The document clearly focuses on strengthening the market economy and emphasizing the forces that can be unleashed through freedom and individual initiative. However, this is always accompanied by a strong emphasis on control and security. The Central Committee is trying to please many social groups. Only the practical implementation will show, in retrospect, how the document should have been understood.
It is generally worth paying attention to the signals of the Chinese system. In the past, such CCP documents have revealed much about the Party’s prevailing political direction. However, today, more than ever, the problem is that the signals within the document are highly contradictory.
As Xi Jinping has united power in the state as sole ruler, it is worth looking at his comments first. Xi’s words are more emotional than the plenum’s final document. He begins with an appeal to reach the hearts of the people. He speaks of the quality of the socialist system and the hardships citizens face in everyday life.
He then combines this opening position with his interpretation of Sinomarxism and derives reform ideas from it. He believes that society’s contradictions must be resolved, and to achieve this, the reforms must reach all Chinese people.
He goes on to explain the process by which the outcome document came about. Xi and a small group of top executives have been working on it in working groups since December. Brainstorming has played a significant role in this. Since May, the Party has been discussing the first draft internally. This may also explain why the plenary session was delayed by several months.
In the closing declaration, i.e., the first document, the paragraph on reform and openness is at the top. It cites reforms as the Communist Party’s magic weapon for achieving its goals. The first paragraph praises the reform resolutions of the Third Plenum eleven years ago, proudly stating that they have all been achieved. That is a shameless exaggeration: The implementation of the resolutions of the 18th Central Committee is considered incomplete, especially by business circles.
The first section of the document explicitly mentions technological development. In the face of a complex situation both globally and at home, a new round of scientific and technological upheaval and industrial transformation is needed. In the Xi Jinping era, the program of technical upgrading of the economy has worked particularly well. Obviously, the Party continues to rely on the tried and tested.
It again highlights the targets of 2029 and 2035, by which milestones in the development of building a high-level socialist market economy are to be achieved.
The development of such a socialist market economy is also the first point in the section on how the new round of reform should be implemented. It is striking that the first point is the promise to allow market forces to take full effect. This is an admission that the control economy and investment-driven development model of the past decades have reached their limits. At the same time, the document makes it clear that the Communist Party does not really want to relinquish control. It tries to square the circle here.
Anyone hoping for new opportunities for Western companies will almost certainly be disappointed. The same sentence also stresses technological independence, followed by opening up to the outside world. This is one of the many contradictions that exist side by side in this document. The aim is to open up, not let the outside world in.
The second point in the list is about popular democracy and, in the same sentence, about the organic unity of the entire state under the Party’s leadership. The environment comes in fifth place. Security only comes in sixth. This includes both internal surveillance and external military strength. The last reform point mentioned in the document is the Party’s governing capability.
A whole second large passage defines the concept of a socialist market economy. The document says that the Party must both let go and strengthen its control.
A prominent section here is dedicated to the relationship between the state economy and the private sector. State-owned enterprises should be “consolidated and developed,” while private companies should be “supported and guided.” Yet both types of ownership structures are to be given equal access to production factors and compete fairly.
It also addresses the issue of ownership. The Central Committee pledges to protect ownership rights and treat all types of ownership equally. The rule of law principles are to play a greater role here, and more transparency is to be introduced. On the one hand, this involves using existing capital and, on the other, restructuring the property market, which is one of the CP’s most pressing concerns in light of the ongoing crisis.
A third lengthy section details what high-quality economic development means. The new productive forces are mentioned prominently here. In other words, the use of technology, new branches of industry and new production methods. All this is intended to increase efficiency. In particular, the state wants to invest in
Overall, the document does not present a reform program as ambitious as that of the Third Plenum in 2013. However, the use of market forces is still clearly in the foreground. If one follows the principle of reading CCP documents and taking them seriously, at least in general terms, it is evident that no fundamental reorganization of the economic system is imminent.
The first conclusion drawn from the document is that a business-as-usual approach is in store, in which Xi Jinping attempts to utilize the forces of innovation and initiative in his own interests. Ultimately, however, these can only unfold within a predetermined power-political framework and serve the goals of the state, in other words, Xi Jinping’s goals. Freedom and openness are not an end in themselves, but a means to make the start strong and powerful and to maintain the power of the Communist Party.
The Hong Kong Monetary Authority (HKMA) and Financial Services and the Treasury Bureau (FSTB) are working to establish a regulatory regime for stablecoin issuers in the territory as soon as possible. Asset managers and fintech firms are reportedly following the effort very closely. Other governments should do so as well.
Stablecoins are a type of cryptoasset that is supposed to maintain a value relative to a target currency. “Collateralized” stablecoins are backed by a pool of reserve assets, whether fiat currencies, other cryptoassets, or commodities. But not all stablecoins are backed by reserve assets: unbacked stablecoins seek to maintain a stable value by other means, such as through algorithms that limit their supply, creating a market value.
There is currently no universally agreed standard for stablecoins, let alone a regulatory framework governing them. But the market is large – and growing fast. Since the beginning of 2020, the estimated total market value of stablecoins skyrocketed from 5.9 billion to about 130 billion US dollars. Stablecoins pegged to the US dollar dominate the market, owing to the US dollar’s enduring global dominance as a means of payment, store of value, and unit of account, as well as the liquidity and convenience of the US dollar asset market.
Tether leads the way, with about 70 percent of the market, followed by USD coin, with 20 percent. Tether reports that, at the end of September 2023, it held 86.4 billion US dollars of assets – including some 56.6 billion US dollars in US Treasury bonds, 5.1 billion US dollars in secured loans, 3.1 billion US dollars in precious metals, 1.7 billion US dollars in Bitcoin, and 2.3 billion US dollars in other investments – against 83.2 US dollars billion in liabilities. In the first quarter of 2023, the firm reported a net profit of 1.4 billion US dollars.
The purpose of stablecoins is to offer a more reliable alternative to cryptocurrencies like Bitcoin, which are tethered to nothing and have proved highly volatile. According to the Bank for International Settlements, collateralized stablecoins have “generally been less volatile than traditional cryptoassets.” At the same time, “not one of them has been able to maintain parity with its peg at all times.”
Moreover, the BIS points out that “there is currently no guarantee that stablecoin issuers could redeem users’ stablecoins in full and on demand.” Ultimately, none of the more than 200 stablecoins in circulation today meets the “key criteria for being a safe store of value and a trustworthy means of payment in the real economy.”
But that could change. For the stablecoin market to succeed, four conditions need to be met. First, all stablecoins must be linked to a widely accepted legal tender or fiat currency. Second, they should operate within a globally accepted regulatory and licensing framework. Third, issuers should be able to innovate in areas such as distribution, market support, and infrastructure. And, lastly, stablecoins should be applied widely within the field of decentralized finance.
There is reason to think that Hong Kong could help drive progress. The territory’s own currency, the Hong Kong dollar, is pegged to the US dollar, making its “Digital HKD” essentially a stablecoin. (The HKMA’s September 2023 policy document essentially treated the Digital HKD as just that.) More important, Hong Kong’s monetary and regulatory authorities are well regarded, and its open, market-oriented, globally connected institutional environment is well-suited for pilot schemes.
One such project could involve the creation of a stablecoin pegged to the offshore renminbi for use in the Greater Bay Area – an economic zone comprising nine cities around the Pearl River Delta in Guangdong province, plus Hong Kong and Macau, with a combined GDP of 1.9 trillion US dollars. This “GBA stablecoin” could facilitate the issuance, trade, and settlement of new digital financial products in Hong Kong, and be exchanged readily with the offshore renminbi, the Hong Kong dollar, and the US dollar. Financial products issued outside mainland China could be priced in GBA stablecoin.
Under this scheme, the digital infrastructure, financial products, such as offshore bonds issued by local governments and enterprises in GBA, would be traded in Hong Kong, but their underlying physical assets would be largely in mainland China. This arrangement would be similar to H-shares, whereby stocks of essential mainland-based companies are traded in Hong Kong. The result would essentially be an operational offshore digital renminbi – a currency that benefits from the added market confidence brought about by HKMA oversight. This would bolster demand for offshore renminbi, thereby accelerating renminbi internationalization without risk to the stability of onshore renminbi.
The HKMA has already conducted a six-week central bank digital currency (CBDC) pilot with its counterparts in mainland China, Thailand, and the United Arab Emirates. Known as Project mBridge, it was among the first multi-CBDC projects to settle real-value, cross-border transactions on behalf of corporations.
Following the pilot’s success, the monetary authorities are now working to develop the mBridge platform to expedite cross-border retail or wholesale payments. This suggests that, with the right digital financial infrastructure – which takes advantage of distributed blockchain technology, including to enable “smart contracts” – GBA stablecoin could provide offshore financing for China’s ambitious multi-country Belt and Road Initiative (BRI) and facilitate international trade and investment more broadly.
Such a pilot’s success would depend not only on financial institutions’ willingness to issue the stablecoins, but also on the needs of banks, businesses, consumers, and investors. Within the current US dollar-based financial system, some might hesitate to use GBA stablecoin. But given America’s geopolitically-motivated weaponization of global finance, plenty of market participants – such as those engaging in BRI projects – are seeking a reliable alternative to the US dollar, including dollar-backed stablecoins.
Ultimately, the balance between the returns on equity and the risks associated with a given stablecoin will determine which coins gain a competitive edge. A long process of trial and error lies ahead.
Andrew Sheng is a Distinguished Fellow at the Asia Global Institute of the University of Hong Kong. Xiao Geng, Chairman of the Hong Kong Institution for International Finance, is a professor and Director of the Institute of Policy and Practice at the Shenzhen Finance Institute at The Chinese University of Hong Kong, Shenzhen.
Copyright: Project Syndicate, 2024.
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