Hong Kong Bond Connect gets green light

Hong Kong Monetary Authority Chief Executive Norman Chan Tak-lam [Photo/Agencies]

Chinese mainland and Hong Kong regulators on Tuesday gave the green light to a long-anticipated cross-border trading link that makes the mainland's $9.5 trillion bond market more accessible to overseas investors.

The trading platform, called Bond Connect, would operate alongside the two existing cross-border Stock Connect programs between the Chinese mainland and Hong Kong, in a sign of the nation's determination to make its capital market more global.

According to the Hong Kong Monetary Authority and People's Bank of China, the program will start with "northbound trading", allowing international and Hong Kong investors to trade onshore bonds in the initial phase.

The date for the official launch of Bond Connect will be disclosed later and "southbound trading" will commence at the proper time, regulators said in a joint statement.

The trading plan is the latest push to ease access to the world's third-largest bond market, where international ownership is less than 2 percent, as policymakers look to encourage overseas investors to issue bonds and to invest in the domestic market.

It stands as another major move from Beijing to shore up Hong Kong's development and deepen growing cross-border economic and financial ties, looking to cement the city's position as a world-renowned financial center, and ensuring its long-term prosperity and stability, said the statement.

"Bond Connect marks another milestone in the liberalization of the mainland's capital account, constituting another major component of the country's capital market," HKMA Chief Executive Norman Chan Tak-lam said on Tuesday.

"Hailed as Asia's premier international financial hub, Hong Kong is strategically positioned as the natural gateway linking our mainland to the world. The program is another major move that uses the Hong Kong platform to strengthen the connectivity between mainland and global capital markets."

Given the sheer size of China's debt market and its short history of development, the bond trading link itself comes as a mammoth project, which calls for building a great deal of infrastructure from scratch to set up a framework for clearing, custody, execution and settlement, and a lengthy construction period.

The PBOC said this explains why the program will roll out in a progressive manner, going ahead first with "northbound trading".