Northbound trading will be launched first, allowing Hong Kong and other overseas investors to invest in the China Interbank Bond Market through mutual access between the financial infrastructure institutions in Hong Kong and the mainland with regard to trading, custody, and settlement.
It will begin by giving Hong Kong and overseas investors "northbound" access to the China interbank bond market.
The People's Bank of China (PBoC) and the Hong Kong Monetary Authority (HKMA) made a joint announcement today (May 16) on their approval for the relevant Mainland and Hong Kong financial infrastructure institutions to collaborate in establishing mutual bond market access between Hong Kong and the Mainland (Bond Connect).
The regulators said the launch date of the scheme will be unveiled later.
The trading plan is the latest push to ease access to the world's third-largest bond market, where global ownership is less than 2 percent, as policymakers look to encourage overseas investors to issue bonds and to invest in the domestic market.
Bond Connect will be implemented in phases.
Bond Connect is an important measure of the Central Government to support Hong Kong's development and deepen co-operation between Mainland and Hong Kong.
"It will provide a new channel for Hong Kong and worldwide investors to invest in mainland China's bond market, which is. much undersold to global investors at the moment", he said.
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The so-called Bond Connect programme has been in the works since Beijing launched a similar scheme connecting Hong Kong and Shanghai stock markets in 2014.
The HKMA and PBOC plan to sign a memorandum of understanding on information sharing and law enforcement among other things, the official Xinhua news agency reported, citing an unnamed PBOC official. Foreign investors' holdings of Chinese onshore notes rose to 830 billion yuan (RM517.8 billion) in March, from 815 billion yuan in February, according to central bank data.
Some foreign institutional investors are allowed to invest in the Chinese Interbank Bond Market.
A total of 473 overseas investors hold 800 billion yuan of outstanding investment in the interbank bond market.
Mainland Chinese firms have piled in to snatch up high-profile office towers in Hong Kong, with property giant China Evergrande Group splurging a record-breaking HK$12.5 billion for a building in Wan Chai and state-owned China Life Insurance Co buying an office tower in Kowloon's Hung Hom district for HK$5.85 billion two years ago.
"China's bond market is still in a period of "expanding inflows and restricting outflows" so I expect the southbound Connect is still a long way off", said one Chinese bond trader.
The regulators said China Foreign Exchange Trade System and HKEx will work with an global bond trading platform for electronic bond trading between overseas investors and mainland dealers.
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