China’s opening of Hong Kong bond market for mainlanders signals Beijing hastening efforts to open capital account

China is expected to open up a southbound leg for its Bond Connect in the second half of the year, perhaps as early as July

Mainland investors would have easy access to foreign bonds in Hong Kong, allowing them to diversify their portfolios

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The so-called southbound leg of the current Bond Connect scheme could open as early as July. Photo: Dickson Lee

Published: 8:30pm, 5 May 2021Updated: 10:37pm, 5 May 2021

Beijing is expected to loosen capital controls further to give mainland investors a new outbound channel to buy bonds in Hong Kong, providing investment alternatives for Chinese households and companies while boosting liquidity in the city and cementing its status as a global financial hub, analysts said.

The so-called southbound link of China’s Bond Connect scheme is likely to be implemented in the second half of the year, Hong Kong’s financial secretary Paul Chan Mo-po was quoted as saying by the Hong Kong Economic Journal on Monday.

Details of the bond investment framework are expected this month, with trading beginning as early as July 2, a gift from Beijing to Hong Kong to celebrate the 24th anniversary of the city’s return to Chinese rule, the report said.

“Currently onshore investors can invest into the offshore bond market via qualified domestic institutional investor (QDII) quotas but the southbound link would offer them a more convenient channel,” said Angus To, a fixed income analyst at ICBC International.

“The opening of the southbound link will allow onshore capital to flow into the offshore bond market, and would also provide additional capital to Hong Kong and strengthen its role as a key platform in bond finance.”