Super-connector role strengthened

The long-awaited Bond Connect trading link, which lets foreign institutional investors trade in the mainland's $9 trillion bond market through a platform set up in Hong Kong, was finally launched on Monday. Launch of the scheme is significant for the nation and Hong Kong.

The decline in cross-border use and offshore deposits of yuan last year raised concerns about a slowdown in yuan internationalization. Yet the bond trading link's launch - another important milestone in China's capital-market liberalization - shows the country continues to promote yuan internationalization by making it easier for foreign investors to trade mainland bonds.

For Hong Kong, the scheme is significant as it will further cement the city's status as China's premier offshore yuan trading hub as well as an international financial center. Together with the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect launched previously, the Bond Connect would provide further impetus to Hong Kong's offshore yuan businesses. It is crucial for the city to maintain its dominance in offshore yuan businesses. This is amid rising competition from the city's global rivals, whose combined share of such businesses has surged from 17 percent in 2013 to about 30 percent this year.

Monday's launch came just two days after President Xi Jinping visited the Hong Kong Special Administrative Region to celebrate the 20th anniversary of its establishment. The president pledged the central government's unwavering support for Hong Kong. The Bond Connect has been seen as a "gift" from Beijing to the SAR for the occasion. It is further testament to the central government's support for the city.

The three connect schemes demonstrate the importance of Hong Kong as an international financial center to the country in that it continues to work well as a testing ground for financial reforms on the mainland. The latest trading link has also reconfirmed the SAR's role as a super-connector between the mainland and the rest of the world.

What is more significant to Hong Kong is Beijing's latest move to let the city play an important role in its new financial liberalization strategy. This shows Hong Kong will continue to play an active and significant role in the country's future economic reforms and integration into the global economy. This is undoubtedly because of the city's advantages under "one country, two systems" as well as this fact: What Hong Kong excels at is exactly what the country needs.

(HK Edition 07/04/2017 page9)