International investors gain access to the Mainland's bond market through Hong Kong
The "Bond Connect" scheme was launched at the Hong Kong Exchanges and Clearing Ltd on 3 July, allowing overseas investors to access, for the first time, Mainland China's interbank bond market through the infrastructural connection established with Hong Kong.
The bond market is an integral part of the Chinese capital markets. The Mainland currently hosts the third largest bond market in the world, with an outstanding amount of roughly RMB 65 trillion. Nevertheless, in March 2017 the overseas holding of Chinese onshore bonds was only less than 2% of the total holdings. As such, the northbound leg of Bond Connect will enable investors from Hong Kong and overseas to invest in the Chinese Interbank Bond Market through mutual access between the Hong Kong and Mainland financial infrastructures. The scheme underlines yet again Hong Kong's unique and significant role in the opening up of the Mainland's financial markets to the rest of the world.
Hong Kong's Chief Executive, Mrs Carrie Lam, said that the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect launched in 2014 and 2016 respectively, the Mainland-Hong Kong mutual recognition of funds arrangement launched in 2015 and Bond Connect are all important milestones in the development of mutual capital market access between the Mainland and Hong Kong. These developments exemplify the combined advantages of "one country" and "two systems" enjoyed by the Hong Kong Special Administrative Region.
Under the initial Bond Connect programme, only "northbound" trades (trading of Mainland onshore bonds by foreign and Hong Kong investors) will be allowed. The "southbound" trading will be launched at a later date.
More details of the scheme can be found on the website of Bond Connect Company Ltd (BCCL) a joint venture between China Foreign Exchange Trade System (CFETS) and Hong Kong Exchanges and Clearing Limited (HKEX) that handles Bond Connect-related trading services, support and assist admission preparation for Northbound investors and investor education.