Bonds
Crossborder bond transaction gets green light, giving a legup to renminbi internationalization By Deng Yaqing
Following on the heels of the two stock connect schemes between Shanghai and Shenzhen and their Hong Kong counterparts in 2014 and 2016, the Chinese mainland’s Bond Connect with Hong Kong was launched on July 3. This marks a new chapter of mutual financial market access between the mainland and Hong Kong.
In the initial phase, the long-expected cross-border bond trading link will allow only international and Hong Kong investors to trade onshore bonds. In other words, it’s only northbound for the time being.
As stipulated in the joint statement by the People’s Bank of China (PBC) and Hong Kong Monetary Authority released on July 2, the “northbound” Bond Connect, which makes it possible for qualified overseas investors to buy bonds in the mainland interbank bond market, is operating on a trial basis. The trial includes treasury bonds, local government bonds, policy bank bonds, commercial bank bonds, corporate bonds and asset-backed securities.
A new channel
As of March 2017, the size of the mainland bond market had reached 66.3 trillion yuan ($9.77 trillion), according to statistics from the PBC, second only to the United States and Japan globally.
“As a whole, the share of Chinese domestic bonds held by foreign investors remains very low,” said Ba Shusong, chief economist of Hong Kong Exchanges and Clearing Ltd. (HKEX) in an article published on Yicai.com. Ba believes that the opening up of China’s bond market will not only press forward reforms on the influx end of the international balance of payments and increase its elasticity, but also improve the liquidity of the Chinese bond market in the mid and long term.
On the first trading day, a total of 4.9 billion