Hong Kong has set it sights on being the preferred pipeline through which the massive international capital flows released by agreements negotiated under the World Trade Organisation will now reach China. The latest to make a bold pitch for mainland business - in particular bond issues, which are likely to reach at least 200 billion yuan (about HK$188.6 billion) as part of a government stimulus package - was Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong. In his Viewpoint column on the HKMA's Web site, Mr Yam urged China to make greater use of the SAR's financial infrastructure and institutions. In return, he said, Hong Kong could come to the aid of China's bank payment system, which was in need of 'major surgery'. In particular, the mainland could make better use of Hong Kong's US dollar clearing system and to issue bonds, Mr Yam said. It could be done in a way that did not undermine the effectiveness of China's capital controls, he said. Dong Tao, an economist at Credit Suisse First Boston, said Hong Kong had made no secret wanting to develop a regional bond market. 'This is just another leg in the effort. It comes as no surprise and I think the mainland will seriously consider the proposal - it should at least enhance Hong Kong's bond market infrastructure by using it as an intermediary,' he said. United States investment bank Salomon Smith Barney noted in its latest country review that China's Government now proposed raising 200 billion yuan in public debt - versus 150 billion yuan as earlier planned - for infrastructure projects. The mainland's formidable appetite for foreign direct investment (FDI) was spelled out by JP Morgan in a post-WTO review just published. 'Merely extending the 1990s trend of sharp growth in China's FDI surplus would imply a level of US$65 billion in 2005 - up from about US$45 billion in 2005,' noted JP Morgan. Hong Kong's stock market is already a major beneficiary of the equity investment flows into China. Of a total HK$450 billion raised on the Hong Kong main board last year, China-related raisings totalled HK$435 billion. But equity capital remains the overwhelming preference of Hong Kong corporations, which, in comparison, raised just HK$16.1 billion in Hong Kong dollar denominated debt last year. This skewed relationship lies behind a decade-old campaign by the HKMA to broaden the market in Hong Kong dollar denominated issues. Even though the government does not need the money, the HKMA is the biggest issuer of debt in the market - HK$15.6 billion last year - with maturities ranging from one month to 10 years in a bid to establish a yield curve off which companies can price their issues. Now the HKMA appears to be broadening its campaign to attract more foreign currency business for the SAR. 'For example, a well-structured US dollar bond programme by the mainland, organised in Hong Kong, making use of our market-making and custodian arrangement and the US dollar payment system, could reduce the overall cost of borrowing and hence the costs of servicing the mainland's foreign debt,' Mr Yam said in his column. This could consolidate Hong Kong's position as a regional bond centre and an international financial centre. In return, Mr Yam said Hong Kong stood ready to offer the use of its financial infrastructure in two ways. 'The first is to replicate it or make use of the technology that we have developed, including the market-making and custodian arrangements, and the payment, clearing and settlement systems for use in the mainland for the [yuan] bond market,' he said. This would crucially involve the creation of an inter-bank real-time payment system for the yuan, similar to the real-time gross settlement system in Hong Kong. 'There would need to be major surgery to the existing inter-bank payment system in the mainland, not just minor modifications,' Mr Yam said. In addition, the mainland could make better use of the financial infrastructure in Hong Kong, particularly that for the US dollar and to issue bonds.