Premier Li Keqiang pledges Hong Kong-mainland bond market link as Beijing vows support for city

Premier says Beijing’s backing for city won’t wither, but he warns against ‘distorting’ one country, two systems

PUBLISHED : Wednesday, 15 March, 2017, 1:30pm
UPDATED : Wednesday, 15 March, 2017, 11:29pm

Premier Li Keqiang pledged to enhance support for Hong Kong by establishing a bond market connect scheme between the city and the mainland this year, as he stressed the importance of implementing the “one country, two systems” principle in its entirety.

The scheme, the country’s No 2 official said, would enable Hong Kong to maintain its status as an international financial centre and ensure long-term prosperity and stability.

“The principle of one country, two systems needs to be perceived and implemented in its entirety. As I have said in the government work report, this principle needs to be steadfastly applied in Hong Kong without being bent or distorted,” Li said at a press conference inside the Great Hall of the People on Wednesday.

He made the remarks after a reporter asked him about his work report, released earlier, which stated that the notion of Hong Kong independence would “lead nowhere”. He was asked if that meant the central government would change its policies towards Hong Kong or emphasise “one country” more and downplay “two systems”. The premier was also asked if Beijing would support Hong Kong as strongly.

“The central government will continue to enhance its support for Hong Kong’s development and will introduce more steps in the interest of Hong Kong’s development and cooperation between the mainland and Hong Kong,” Li said.

Following the establishment of the Shenzhen-Hong Kong Stock Connect last year, Li said Beijing was “actively considering” a bond market link. It would allow overseas capital to access the mainland’s bond market, he said.

Professor Lau Siu-kai, vice-chairman of the semi-official think tank the Chinese Association of Hong Kong and Macau Studies, said the premier’s answers showed “one country” and “two systems” were not of equal status in Beijing’s eyes.

The Chinese premier, the foreign press and the state of the nation

“In recent years, Beijing officials have repeatedly said one country, socialism and the central government were higher than two systems, capitalism and Hong Kong,” Lau said.

On the bond market connect scheme, Hong Kong’s Financial Services Development Council said last year such a programme could increase liquidity in the city’s bond market, worth US$400 billion. By comparison, the mainland’s bond market is the third largest in the world, with a depository balance of US$8.7 trillion as of July last year.

Hong Kong Exchanges and Clearing said the bond connect scheme would be a “major breakthrough”, and that it was progressing with preparatory work under the guidance of mainland and Hong Kong authorities.

The Hong Kong Monetary Authority said it was studying the issue with mainland authorities.

Gregory Suen, investment director of fixed income at HSBC Global Asset Management, said while the Chinese bond market was large, foreign ownership was at less than 2 per cent. He said the scheme would be “a step in the right direction regarding potential inclusion in some major global bond indices, as the opening up of the market and ease of access for foreign investors is an important criterion”.

Billy Mak Sui-choi, associate professor of finance at Baptist University, said: “It will attract companies to make Hong Kong their asset management centre … Hong Kong and mainland companies will also be encouraged to raise funds through issuing bonds.”

Chen Long, an interbank trader at a bank based in Guangdong province, said the scheme would attract inflows of foreign funds as the yields on Chinese sovereign bonds and financial bonds were not bad.

Meanwhile, on Taiwan, Li reiterated Beijing’s long-held stance that the “1992 consensus” was the political foundation for cross-strait relations and that Beijing strongly opposed Taiwanese independence. The consensus is a tacit understanding reached in 1992 that both sides of the strait acknowledged there was only one China but had their own interpretations of what that meant.

Li said there were about five million Taiwanese commuting between the mainland and the island every year. He vowed to introduce more policies to make it easier for Taiwanese people to find jobs, start a business and live on the mainland.

Additional reporting by Wendy Wu and Nectar Gan