Hong Kong Bond Connect launches

World
Europe

Hong Kong Exchanges and Clearing Limited held a ceremony on Monday to launch the "northbound" mainland-Hong Kong bond connect.

With the long-awaited Bond Connect launched, qualified overseas investors are now able to invest in the Chinese mainland interbank bond market without having to set up onshore accounts.

As of 9:20 a.m. (01:20 GMT), 86 institutional investors traded more than 3 billion yuan worth of bonds via the cross-border trading scheme.

Logo of Bond Connect at Hong Kong Exchanges in Hong Kong, China, on July 3, 2017. /Reuters Photo

The program links China's 9-trillion-US-dollar bond market, the world's' third largest of its kind, with overseas investors, in a latest measure which reflects the further opening up of the country's capital market.

Trading will initially be "northbound", so Chinese mainland investors will not yet be able to buy and sell Hong Kong-listed debt.

Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor hosted the ceremony at the Hong Kong Exchange on Monday, three days after she was sworn in.

Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor speaks at the opening ceremony of Bond Connect at Hong Kong Exchanges in Hong Kong, China, on July 3, 2017. /Reuters Photo

“The Bond Connect marks another new chapter of mutual market access between the Chinese mainland and Hong Kong,” she said, “It is an important milestone for the internationalization of the RMB as it makes it easy for international investors to trade bonds in China."

The next step, she said, is to work on the launch of "southbound" trading to allow mainland investors to buy and sell bonds in Hong Kong.

Pan Gongsheng, deputy governor of China's central bank, the People’s Bank of China, said the bond connect “demonstrated the importance of Hong Kong as an international financial center.”

Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor, People's Bank of China Deputy Governor Pan Gongsheng and Hong Kong Monetary Authority Chief Executive Norman Chan attend the launch ceremony of the Bond Connect in Hong Kong, China, on July 3, 2017. /Reuters Photo

The link, which is a sister scheme to the stock connects already running among Hong Kong, Shanghai and Shenzhen, is likely to help China win inclusion in global bond indices.

At the moment, the size of overseas investment in China's domestic bond market is about 830 billion yuan, accounting for less than 2 percent of the market share. The low proportion indicates a high growth potential.

Goldman Sachs predicts more than one trillion US dollars of offshore bond funds could flow into Chinese debt in the next decade.

In addition, international investors can also trade mainland bonds through other channels such as the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII).

1969km

Mainland, Hong Kong move a step forward to bond connect

China to launch bond trading link between Hong Kong and the Chinese mainland