Mainland China Launches Bond Trading Link with Hong Kong


Talking Points:

– Mainland China officially launched the bond trading link with Hong Kong right after the 20th anniversary of Hong Kong’s transfer.

– The Hong Kong Dollar was little changed following the launch but what matters is the outlook of the regional economy.

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July 1st marked the 20th anniversary of the Hong Kong’s return to China’s rule. At the launching ceremony for the bond connect between mainland China and Hong Kong on July 3rd, PBOC’s Deputy Governor Pan Gongsheng said that “the bond link scheme will serve as a bridge to connect mainland markets with international markets.” He told that the introduction of the bond connect also shows the central government’s support to increase Hong Kong’s role as a global financial hub.

The bond connect is one of the measures that China has introduced to open up its domestic capital markets, following Shainghai/Shenzhen stock links. Yet, unlike the stock links, the bond connect will only be one-way for now, allowing foreign investors to purchase Chinese bonds through the channel, but not vice versa. As of the end of June, the outstanding of Chinese bonds has reached approximate 67 trillion yuan ($10 trillion); among all, foreign investors’ holding Chinese bonds just took up less than 1.5%, according to Deputy Governor Pan.

During the first trading day for the bond connect, 70 foreign institutions completed 142 bond transactions, worth 7.05 billion yuan.

USD/HKD 1-Day

Mainland China Launches Bond Trading Link with Hong Kong

Prepared by Renee Mu.

The official launch did not bring much impact to the USD/HKD, mostly likely because the approval was already announced three months ago; the Hong Kong Dollar has remained in a downward trend against its U.S. counterpart since 2017.

However, what matter is the timing of this launch and the Chinese central government’s definition on Hong Kong’s role, as this could largely influence the outlook of the regional economy: Hong Kong has been losing its popularity to mainlanders as a major tourist city and a shopping center, which hurts the consumption’s contribution to the regional GDP growth. Within such context, maintaining its role as a global financial center is crucial for the economy to achieve its desired growth target.

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