China-HK bond market connect?

BEIJING: China is considering setting up debt market links between Hong Kong and the mainland this year, as it bolsters support for the economy of the former British colony, said Premier Li Keqiang yesterday.

Mainland and Hong Kong equity markets have been linked through a “stock connect” scheme that allows foreigners to access Chinese “A” shares through the Hong Kong exchange, and mainlanders to access Hong Kong shares through the Shanghai and Shenzhen exchanges.

Exchanges on the two sides have been working on a similar arrangement for bonds, as China looks for ways to further open its capital markets and attract foreign investment.

“This year, we are considering for the first time establishing a bond market connect between the Hong Kong and the mainland, allowing foreign capital to buy mainland bonds from overseas and Hong Kong will be the first to benefit from such an arrangement,” said Li.

“This will help Hong Kong maintain its status as an international financial centre and provide Hong Kong residents more investment channels,” he told a news conference at the close of the annual session of the National People’s Congress, China’s Parliament.

China has gradually opened its bond market to foreign investment and redoubled efforts to woo foreign capital, but investors have said market accessibility and concerns about the stability of the yuan currency — and capital controls enacted to protect it — could impede inflows.

Standard Chartered estimated that the value of outstanding onshore bonds might rise to 82 trillion yuan (RM53 trillion) yearend, from 64.3 trillion as of end of last year.

By the end of last year, foreigners held a mere 870 billion yuan worth of bonds in the Chinese market, an increase of 83.4 billion yuan from the year before, said the State Administration of Foreign Exchange. Reuters