In this photo dated July 3, 2017, executives and guests attend the Hong Kong launch ceremony for Bond Connect, which gives international investors access to the China Interbank Bond Market directly from Hong Kong. (PHOTO / IMAGINECHINA)
The Southbound Bond Connect program opened for trading on Friday, offering a way for mainland investors to purchase overseas debt through the Hong Kong bond market.
All types of bonds issued offshore and tradable in the Hong Kong bond market will be allowed to trade through the channel, with primary dealers subject to an annual quota of 500 billion yuan ($77.45 billion) and a daily quota of 20 billion yuan.
In the program’s initial stage, a selected number of institutional investors, including 41 banks and 173 qualified domestic institutional investors, will be allowed to participate in the program, according to the People’s Bank of China.
“The launch of southbound trading of Bond Connect marks another milestone of mutual access between Hong Kong and the mainland,” Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor said at the program’s launch ceremony on Friday.
All types of bonds issued offshore and tradable in the Hong Kong bond market will be allowed to trade through the channel, with primary dealers subject to an annual quota of 500 billion yuan ($77.45 billion) and a daily quota of 20 billion yuan
Lam said that within a month, the central government had approved the launch of the A-shares futures trading in Hong Kong, the Wealth Management Connect and the Southbound Bond Connect, showcasing its support for Hong Kong as an international financial center.
ALSO READ: HKSAR govt welcomes launch of Bond Connect's southbound leg
Financial Secretary Paul Chan Mo-po said at the launch ceremony that now was an appropriate time to launch the Southbound Bond Connect, marking the two-way opening of the mainland bond market, which is a major step in promoting renminbi internationalization, developing Hong Kong’s debt market and enhancing the city’s competitiveness as an international financial center.
Hong Kong Monetary Authority Chief Executive Eddie Yue Wai-man said, “On top of the solid foundation of the Northbound Bond Connect, the official launch of the southbound link has realized the common wish of two-way bond access.” The new channel could further promote the development of the Hong Kong bond market, he added.
It also provides a diversified and convenient route for mainland financial institutions to invest in overseas bond assets through the Hong Kong market, Yue said, referring to the growing demand for offshore asset allocation from mainland institutions and individuals with accumulated wealth backed by the country’s robust economy.
The HKMA has designated 13 financial institutions as market makers for the program, including the Bank of China (Hong Kong), the Industrial and Commercial Bank of China (Asia), the Bank of Communications’ Hong Kong Branch, HSBC, and Standard Chartered Bank (Hong Kong).
BOCHK said on Friday that it has completed the first batch of 55 bond transactions, totaling 1.29 billion yuan with 27 domestic institutional investors under the connect program.
“BOCHK will continuously enhance its market making, custody and settlement functions, with a view to further contributing to the development of southbound Bond Connect,” said Sun Yu, BOCHK vice-chairman and chief executive.
China Citic Bank International said on Friday it has entered into transactions with over 10 mainland financial institutions, including China Citic Bank, China Minsheng Bank, and Shanghai Pudong Development Bank.
Jeffery Bai Lijun CNCBI’s executive director and deputy CEO, welcomed the launch, saying the bond market between Hong Kong and the mainland has become fully connected in both directions.
READ MORE: Officials: Bond link a win-win for mainland, HK
HSBC also announced today the completion of the first set of trades for several Chinese mainland institutional clients through the channel. “The market is reacting very positively to the new route,” said David Liao Yi-chien, the bank’s co-chief executive.
Liao added that the Bond Connect “underlines the two-way benefits of working together to create a whole that is greater than the sum of its parts” and showcases Hong Kong’s distinctive role connecting the economy of the mainland and the rest of the world.
Since its launch in July 2017 by the PBOC and HKMA, the accumulated turnover of the Northbound Channel under the Bond Connect program over the past four years has reached 12.3 trillion yuan. It recorded a daily average turnover of 26.3 billion yuan in August, up 35 percent year-on-year, according to the Bond Connect Company, a joint venture established by China Foreign Exchange Trade System and Hong Kong Exchanges and Clearing Ltd.
xinlanzeng@chinadailyhk.com