Bond con­nect boost for yuan

China Daily (Hong Kong) - - COMMENT - — BEI­JING YOUTH DAILY

Qual­i­fied over­seas in­vestors were able to in­vest in the Chi­nese main­land interbank bond mar­ket via the main­landHong Kong bond con­nect pro­gram as of Mon­day. Ac­cord­ing to the “north­bound” bond con­nect, which is now op­er­at­ing on a trial ba­sis, qual­i­fied over­seas in­vestors can in­vest in bonds that are trad­able on the main­land interbank bond mar­ket, in­clud­ing trea­sury bonds, lo­cal-govern­ment bonds, pol­icy bank bonds, com­mer­cial bank bonds, cor­po­rate bonds and as­set­backed se­cu­ri­ties. The “south­bound” bond con­nect, via which main­land in­vestors can in­vest in Hong Kong’s interbank bonds, is yet to be launched.

The “north­bound” bond con­nect marks an­other im­por­tant step in the open­ing up of China’s fi­nan­cial mar­ket and a mile­stone in the push for in­ter­na­tion­al­iza­tion of the yuan.

The main­land’s interbank bond mar­ket has been pro­mot­ing open­ing-up in re­cent years, but it re­mained a rel­a­tively closed en­vi­ron­ment. So far, a to­tal of 473 over­seas in­vestors have en­tered the mar­ket, with an in­vest­ment of more than 800 bil­lion yuan ($117.85 bil­lion). It is ex­pected that the to­tal over­seas cap­i­tal in­vested in the main­land’s bond mar­ket will in­crease to 6.8 tril­lion yuan in the next five years.

China’s bond mar­ket has of­fered in­vestors al­most the high­est re­turn ra­tio in the world. So the launch of the main­land-Hong Kong bond con­nect will pro­vide foreign in­vestors with a wel­come chan­nel to in­vest in this mar­ket. At the same time, the bond con­nect will also cre­ate a new fi­nanc­ing chan­nel for main­land en­ter­prises.

Since the yuan was in­cluded in the In­ter­na­tional Mon­e­tary Fund’s Spe­cial Draw­ing Rights, the de­mand for yuan-de­nom­i­nated bonds has been grow­ing. Given that buy­ing Chi­nese bonds and the longterm hold­ing of yuan-de­nom­i­nated as­sets by foreign in­vestors will ex­pand the yuan’s share as a world reserve cur­rency, the lat­est bond con­nect will help fur­ther boost the yuan’s sta­tus and in­flu­ence.

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