Photographer: Qilai Shen/Bloomberg

China-Hong Kong Bond Link to Start Monday to Lure Inflows

  • Program will be third cross-border trading connection
  • Date coincides with 20th anniversary of handover to China

China’s bond-connect program with Hong Kong, giving offshore investors another way to access the mainland’s $10 trillion debt market, will start on Monday.

The official announcement was made on Sunday in a joint statement between the People’s Bank of China and the Hong Kong Monetary Authority. The two also signed a memorandum of understanding on the cross-border supervisory cooperation, according to the statement posted on the PBOC website. The first day of trading will coincide with the 20th anniversary of Hong Kong’s handover to China after President Xi Jinping visited the city.

The system will echo the two stock-connect programs between the former British colony and the mainland, but only allow overseas investors access to the world’s third-largest bond market initially. It’s the latest step in China’s efforts to open up and integrate into the global financial system. MSCI Inc. said last month it would include the nation’s shares in its benchmark indexes. 

“Over the past few weeks, many of our clients have already expressed their interest,” John Tan, regional head of financial markets for Greater China and North Asia at Standard Chartered Plc, said in emailed comments. The commencement “is essentially a good news to the global investors who want to diversify their portfolio while pursuing yields.”

A calendar posted on the Bond Connect’s website late Friday first showed July 3 as the opening of the link, which followed a PBOC program last year that allowed medium- and long-term overseas investors to access China’s interbank bond market. Hong Kong Exchanges & Clearing Ltd. said separately late Friday that a launch ceremony was scheduled for Monday.

Two Chinese policy banks -- the Agricultural Development Bank of China Ltd. and China Development Bank -- will issue bonds to offshore investors on Monday and Tuesday, respectively, according to earlier statements.

The PBOC issued rules for the bond connect on June 21. Among the provisions:

  • PBOC and related regulators have the right to access offshore investor data
  • Bonds bought by foreign investors are to be held under the name of nominal holder
  • Offshore investors can use either yuan or foreign currencies

Overseas investors hold less than 1.5 percent of onshore notes, according to Bloomberg calculations based on central bank and China Central Depository & Clearing Co. data. About 85 percent of their money was limited to sovereign and policy bank securities.

— With assistance by Helen Sun, and Robin Ganguly

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