China unveiled a plan earlier this month to further develop the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone. 

The economic zone will reduce the barriers and transaction costs for individuals and financial institutions in Hong Kong and the Chinese mainland, said Bao Zhengyang, assistant professor from the school of finance at Xiamen University's department of economics.

The plan is set to promote the use of RMB for cross-border settlements and improve foreign exchange management and deepen cooperation in green finance among Guangdong, Hong Kong and Macao through unified green finance standards. New mechanisms will also be set up for cross-border financial trading and international payments, according to the plan.

As the economic zone is set to provide better financial infrastructures, such as better payment methods like digital RMB and faster telecommunication technologies to attract financial innovations in the area, Bao said these will attract banks and financial companies from Hong Kong to set up offices in the zone.

Bao said that the financial sector in Hong Kong will benefit from economy of scale and positive spillover effect due to the expansion of the economic zone, as the Qianhai zone is expected to attract more investments and talents globally thanks to the strong policy support.

Bao is also expecting Qianhai economic zone to drive the integration of the Greater Bay Area, as the diversity in the economic zone calls for unification. The economic zone will also provide a platform for communications and collaborations, which in return facilitates unification.

However, he points out there are challenges to formulating a unified system, since Hong Kong and Macao use different currencies, have distinct financial laws and apply different exchange rate regimes.

Some suspect that the plan will bring negative effects to Hong Kong's status as a leading international financial center, but Bao said that the policy will strengthen Hong Kong’s leading role as a global financial center, as the expansion of the Qianhai zone lowers the barrier for investment and capital flows between China and the globe through different connect programs.

The policy will attract more foreign capital due to the favorable conditions, enhancing Hong Kong’s role as a center for capital exchange, said Bao. He added the Qianhai economic zone is an ideal incubator for financial innovations and FinTech developments, strengthening Hong Kong’s position as one of the most innovative financial centers.