Chinese Premier Li Keqiang responded at the news conference after the annual session of the National People's Congress that “A bond trading link will be set up between the mainland and Hong Kong this year. Under the planned bond trading link, overseas funds will be allowed to buy mainland bonds at overseas”. In the eyes of the industry, it marks that the timetable for launching the long-discussed Bond Connect is finally announced.
Hong Kong Exchanges and Clearing Limited (HKEX) also indicated on March 15 afternoon that it will fully advance the preparatory work for Bond Connect. According to the HKEX, Bond Connect represents a major breakthrough in the development of the Mainland capital markets and further strengthens the role of Hong Kong as a gateway between the Mainland and international markets. HKEX is progressing with the preparatory work for Bond Connect under the guidance of the Mainland and Hong Kong authorities. A further announcement will be made by the relevant parties in due course.
China’s central bank also claimed on March 15 night that according to the overall arrangement for the opening up of China’s financial market, the central bank, together with authorities in Hong Kong, is studying on trial operation of “Bond Connect” to advance and improve the infrastructure interconnection and cross-border cooperation of bond markets in the mainland and Hong Kong, in a bid to make it more convenient for investors to participate in the bond markets. Detailed schemes and relevant progress of Bond Connect will be announced at proper timing.
Xu Hanfei, a fixed-income analyst of China Merchants Securities, remarked that the bond market will develop faster to attract more funds into the mainland bond market. For the next step, infrastructure required by Bond Connect must be built first.
As a matter of fact, Bond Connect is not new. As far back as in early 2016, the HKEX announced in its strategic plan that it will build a cross-market interconnection platform and a local market gathering products at home and abroad in next three years. Such moves aim to make it convenient for mainland and international investors to invest in other markets and for funds to enter and exit the mainland market.
It is also learnt from the strategic plan that for fixed-income and currency products, the HKEX is mulling on launching new exchange-traded derivatives in Hong Kong on RMB and onshore interest rates to provide investors with risk hedging tools. HKEX also tries to explore the creation of “Bond Connect” to provide cross-border cash bond trading and settlement connectivity with China’s major onshore bond market infrastructures, with a focus on the institutional bond market
The Chief China Economist’s Office of the HKEX released a research report named with “the liquidity provision mechanism for offshore RMB market ─ current status, impact and possible improvements” on Jan. 4, 2017, proposing suggestions for further improving liquidity of offshore RMB. It is advised in the report to set up a Bond Connect, a cross-border platform linking the onshore and offshore bond markets.
It is also suggested in the research report that to further improve the liquidity of offshore RMB, existing policies should be further utilized to link up onshore and offshore repo markets. Authorities are also advised to set up Bond Connect to further improve the convenience and efficiency. Overseas institutions holding offshore bonds should be allowed to conduct bond repo transactions in the mainland interbank market and remit RMB funds out of China.
China Securities Regulatory Commission (CSRC) is also actively advancing the launch of Bond Connect. Media in Hong Kong reported earlier that relevant officials of the CSRC told Christopher Cheung Wah-Fung, a senator in financial service circle of Hong Kong, that Exchange-Traded Fund (ETF) connect, Bond Connect and new stock connect are all taken into consideration, and priority will be given to Bond Connect.
Translated by Jennifer Lu