Chinese Investors to Get Connected to Hong Kong Bond Market

By Tang Ziyi
China will launch the so-called “southbound leg” of the Bond Connect program on Sept. 24. Photo: VCG

Certain institutional investors on the Chinese mainland will soon be able to trade offshore bonds in Hong Kong through a bond connect program that links the two markets, a step sure to attract more capital to the Asian financial hub.

China will launch the so-called “southbound leg” of the Bond Connect program on Sept. 24, according to a statement jointly released Wednesday by the People’s Bank of China (PBOC) and the Hong Kong Monetary Authority.

“It is conducive to the diversification of investment channels for mainland institutional investors, to the steady and progressive two-way opening up of the mainland financial markets, to the enhancement of Hong Kong’s competitive advantages and consolidation of Hong Kong’s status as an international financial center, and to the upholding of long-term prosperity and stability of Hong Kong,” the statement said.

In the southbound channel, net capital flows from the mainland to Hong Kong will be subject to a daily cap of 20 billion yuan ($3 billion) equivalent and a yearly limit of 500 billion yuan equivalent, the PBOC said in a separate statement (link in Chinese).

In the early stage, only a few types of investors (link in Chinese) will be allowed to trade southbound — 41 banks and the investors in the Qualified Domestic Institutional Investor program and its yuan-denominated sibling, the Renminbi Qualified Domestic Institutional Investor program, better known as QDII and RQDII.

The southbound connect will finally complete the two-way opening of the Bond Connect program. Launched in July 2017, the program initially only opened the northbound channel, which allows overseas investors to trade bonds on the mainland through Hong Kong.

In recent years, China has accelerated the opening up of its financial market. Last week, Beijing kicked off a cross-border wealth management connect trial program in the Greater Bay Area, which allows mainland residents of nine Guangdong cities to invest in certain products sold by banks in Hong Kong and Macao, and vice versa.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Lin Jinbing (jnbinglin@caixin.com)

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