Hong Kong to widen Bond Connect, add products to direct more global capital towards China’s fixed-income products
- Hong Kong, which operates Asia’s third-largest capital market, will expand the financial offerings to help China’s businesses raise funds
- The first China Offshore Treasury Bond Futures is in the works, as are other derivatives and financial products for investors of yuan-denominated and mainland bonds
Hong Kong, the largest offshore trading centre for the renminbi, plans to strengthen its role as mainland China’s gateway to the global capital markets, as it expands its transborder investment channel to augment the country’s bond market and attract overseas funds.
The plan by Asia’s third-largest capital market is an attempt to redefine and reassert Hong Kong’s role as a financial centre, as it finds itself squeezed in an escalating rivalry between the United States and China. Since its return to China’s rule in 1997, Hong Kong had been instrumental in attracting overseas funds into the Chinese capital market, with its Stock Connect plan in 2014 and 2016, followed by its Bond Connect in 2017.
The US-China geopolitical rivalry, culminating in a bruising two-year trade war and conflicts in everything from finance to technology, is “the defining moment of our future,” Li said. “Globalisation is slowing down while decoupling is accelerating.”
The HKEX’s expansion plan, first outlined last year in Li’s three-year transformation plan for the bourse, coincides with a September 21 statement by the Chinese central bank and currency regulator for overseas bond investors to transfer money into and out of the country more easily.
Global investors have been piling into Chinese fixed-income products via Hong Kong. Daily transactions on the Bond connect has risen 10-fold over three years, with 2,106 registered traders, a growth of 70 per cent from a year ago, according to HKEX data.