“Reviving Hong Kong as a Financial Hub,” Beijing Channels Mainland Companies, Liquidity and Gold-Trading Infrastructure into the City

China Expands Hong Kong’s Gold-Trading Infrastructure in Push for De-Dollarization Beijing Drives Global Capital Inflows by Supporting Mainland Listings and Renminbi Liquidity Net Inflows into Asset and Wealth Management Surge 193%, Restoring Hong Kong as World’s No. 3 Financial Hub

China’s bid for gold supremacy amid the global push toward de-dollarization is breathing new life into Hong Kong’s financial market. Beijing has established the Shanghai Gold Exchange’s (SGE) first offshore vault and a central clearing and settlement system in Hong Kong, while also planning to expand the city’s gold-storage capacity to more than 2,000 tonnes within the next three years. The strategy is widely seen as an effort to connect the mainland’s enormous demand for physical gold with global capital and increase China’s influence over international gold price formation.

Hong Kong’s Gold-Trading Infrastructure Takes Root

According to Hong Kong’s South China Morning Post (SCMP) on September 2, the precious-metals central clearing and settlement system promoted by the Hong Kong government, together with the cross-border physical delivery infrastructure linking the city with the SGE, has gained considerable market confidence. In July, the Hong Kong government began pilot operations of its central gold clearing and settlement system through the Hong Kong Precious Metals Central Clearing Limited (HKPMCC), a wholly owned entity. It also launched “Delivery Connect,” which facilitates the two-way transfer of physical gold with the SGE, while the “HAU price benchmark,” designed to strengthen price discovery during Asian trading hours, was listed on Bloomberg and London Stock Exchange Group (LSEG) terminals. Because the government is first establishing the clearing ledger and physical delivery framework before bringing in financial institutions and exchanges, the pace of growth in Hong Kong’s gold market will inevitably depend heavily on the policy commitment of both China’s central government and the Hong Kong government.

The decisive factors accelerating China’s ambition to build a gold hub have been mounting geopolitical tensions and cracks in the dollar’s supremacy. After Russia invaded Ukraine in 2022, the United States and its Western allies abruptly froze $300 billion in Russian foreign-exchange reserves held abroad, prompting central banks around the world to recognize that dollar-denominated assets deposited overseas are ultimately liabilities of another country and therefore exposed to political risk. Central banks subsequently began shifting their reserve-management strategies away from dollar assets and toward gold, which carries a comparatively lower risk of political intervention. According to global financial data, net gold purchases by central banks worldwide reached 289 tonnes in the second quarter of 2026, the highest second-quarter figure on record and up from 166.5 tonnes a year earlier.

China’s Gold-Supremacy Strategy Puts Hong Kong Front and Center

The People’s Bank of China (PBOC), in particular, increased its gold reserves to 76.08 million ounces, valued at $306.35 billion, as of the end of July, extending its purchasing streak to 21 consecutive months. Hong Kong is the location Beijing has selected as the forward base for this gold strategy. Mainland China is the world’s largest producer and consumer of gold, but strict capital controls and the closed nature of its financial markets limit its ability to attract foreign institutional investors directly. Hong Kong, by contrast, offers free capital mobility, settlement networks for the dollar, renminbi and Hong Kong dollar, and legal and trading systems familiar to international financial institutions, making it the ideal gateway for connecting mainland demand for physical gold with global capital.

Against this backdrop, Beijing has begun developing Hong Kong into a central hub for its gold strategy. In addition to locating the SGE’s first offshore vault in the city, China explicitly pledged support for developing Hong Kong’s commodities-trading ecosystem in its 15th Five-Year Plan. Building on this support, Hong Kong is moving to expand its gold-storage capacity to more than 2,000 tonnes within the next three years while accelerating improvements to its trading, clearing and storage networks. Beijing aims to attract gold reserves held by Asian central banks and institutional investors to Hong Kong and promote renminbi-denominated transactions, thereby expanding its influence over international gold price formation. If Hong Kong establishes itself as the “London of Asia,” China will effectively command both vast physical gold holdings and international trading and clearing infrastructure.

Table 1. China’s Strategy to Develop Hong Kong as a Gold Hub

Underground Trading Proliferates as Transaction Volumes Grow

As Beijing develops Hong Kong into a global gold-trading hub and demand for physical gold and transaction volumes surge, the city is also seeing a proliferation of illegal activities, including smuggling, tax evasion and unregistered precious-metals trading. According to Hong Kong’s Census and Statistics Department, China imported 99.327 tonnes of gold through Hong Kong in April, up 24.8% from the previous month, while net imports excluding exports surged 81.2% to 86.715 tonnes. With China’s net gold imports through Hong Kong rising for 13 consecutive months and gold prices remaining elevated, the incentive for arbitrage exploiting differences in national tax systems and gaps in cargo inspections has grown considerably.

Gold smuggling aimed at capturing price premiums has entered an entirely different league this year. In March, Hong Kong Customs discovered 168 kilograms of gold foil and 285 kilograms of silver foil in two air-cargo shipments bound for Japan. The haul was valued at $29.9 million, the largest amount ever recorded in the agency’s history. The precious-metal sheets had been attached to the bottoms of 4,680 multifunctional cleaners and ultraviolet cleaning machines to disguise them as ordinary components. Authorities believe those involved sought to evade approximately $2.9 million in Japanese taxes and that the company listed as the consignor was likely a shell company with no registration history or online footprint in Hong Kong.

Southeast Asian Smuggling Networks Flourish amid Surging Gold Demand

Alongside airport smuggling cases, authorities have repeatedly identified businesses evading registration requirements in the precious-metals market. On August 20, Hong Kong Customs uncovered a local company that had traded at least $15,400 worth of gold, silver and jewelry without completing the required registration. The existing anti-money laundering ordinance requires precious-metals dealers handling cash or noncash transactions worth at least $15,400 to register with Customs, but similar violations continue to recur. Because gold is compact and its origin can easily be obscured after refining, such over-the-counter transactions are particularly susceptible to abuse for money laundering and sanctions evasion. The World Gold Council estimates that the annual value of illicit gold trading has already exceeded $120 billion.

Illicit gold-distribution networks targeting Hong Kong now extend across Southeast Asia. Indonesian police last month dismantled an organization suspected of smuggling processed gold into Hong Kong through “body strapping,” in which couriers attach the metal to their bodies. The group had installed gold-refining and processing equipment in a house in Jakarta and used the property as a trading base, while a Chinese national was found to have directed the overall smuggling operation. Police seized cash, transaction records and contracts and are now tracing related accounts and assets in cooperation with financial authorities. Hong Kong’s enormous demand for gold appears to be creating an economic incentive powerful enough to draw in illicit distribution networks from neighboring countries.

From the ‘Hong Kong Exodus’ to the ‘Return to Hong Kong’

The Hong Kong of today, where gold and capital are flowing in so rapidly that illicit trading has followed, bears little resemblance to the city of just six years ago. When Beijing pushed through the Hong Kong National Security Law in 2020, major currency exchanges ran out of U.S. dollars, while inquiries to immigration agencies surged to roughly 20 times their usual level. As concerns mounted over the rule of law and the security of private assets, moves to relocate to London spread, particularly among financial-sector professionals. It was a period when Hong Kong’s financial industry was gripped by fears that capital and talent could leave the city together.

Six years later, Hong Kong’s financial indicators are pointing in precisely the opposite direction. In the Global Financial Centres Index released in March (GFCI 39), Hong Kong ranked third worldwide and first in Asia, narrowing its gap with second-ranked London to a single point. According to Hong Kong’s Securities and Futures Commission (SFC), assets under management in the asset and wealth management industry rose 20% year on year to a record $5.41 trillion last year, while net inflows surged 193% to $264.7 billion. The industry’s workforce grew by only 5% over the same period, meaning the return of capital far outpaced the recruitment of additional personnel.

The driving force behind the turnaround has been the Chinese government. The China Securities Regulatory Commission (CSRC) has successively moved to support Hong Kong listings by leading mainland companies, include equity exchange-traded funds (ETFs) and real estate investment trusts (REITs) in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs, expand renminbi trading counters and improve the mutual recognition of funds arrangement. As a result, assets under management at Chinese financial institutions in Hong Kong rose 28% last year to $506.3 billion, while net inflows increased 80% to $59.0 billion. In the first quarter of this year, a wave of listings by Chinese artificial intelligence (AI) and technology companies pushed equity issuance in Hong Kong above $13 billion, the highest level in five years. The figures reflect Beijing’s success in channeling mainland listing demand, liquidity and investment products into Hong Kong.

This policy drive is now extending into the bond, renminbi and commodities markets. In July, the PBOC, the Hong Kong Monetary Authority and other institutions increased offshore renminbi liquidity support from $27.9 billion to $69.8 billion, while also unveiling measures to strengthen Bond Connect and Swap Connect and support the introduction of five-year Chinese government bond futures. The central gold clearing and settlement system and the SGE’s physical delivery network are likewise part of the broader process of realigning Hong Kong’s financial functions with China’s national strategy. After undermining confidence in Hong Kong’s financial market through political control, Beijing is now mobilizing policy funds and financial infrastructure to revive it.